Vendor Management in 2015 and Beyond

Jon-Langlois caption ASValerie-Hletko caption 2With evolving regulatory expectations and increased enforcement exposure, financial institutions are under more scrutiny than ever. Nowhere is this more evident than in the management and oversight of service providers. When service providers are part of an institution’s business practice, understanding the expectations of regulators, investors, and counterparties for compliance with consumer financial laws is critical.

Jeff-Naimon caption AS Chris-Witeck caption ASCFPB Guidance

In 2012, the CFPB issued Bulletin 2012-03, which outlines the CFPB’s expectations regarding supervised institutions’ use of third party service providers. Banks and nonbanks alike are expected to maintain effective processes for managing the risks presented by service providers, including taking the following steps:

  • Conducting thorough due diligence of the service provider to ensure that the service provider understands and is capable of complying with federal consumer financial law
  • Reviewing the service provider’s policies, procedures, internal controls, and training materials
  • Including clear expectations in written contracts
  • Establishing internal controls and on-going monitoring procedures
  • Taking immediate action to address compliance issues

Implementing consistent risk-based procedures for monitoring third party service provider relationships is an extremely important aspect of meeting the CFPB’s expectations and mitigating risk to the institution. Read more…

LinkedInFacebookTwitterGoogle+Share

Spotlight on Student Lending (Part 2 of 2): Lessons Learned from CFPB Reports

In 2012 and 2013, the Consumer Financial Protection Bureau released several major reports and held field hearings focused on private student lending and servicing. In addition to recent CFPB activity, on June 25, 2013, the Senate Banking Committee held a hearing regarding private student loans at which, among other witnesses, the CFPB’s Student Loan Ombudsman Rohit Chopra testified.

The largest CFPB report, and the one most sweeping in scope, was the Bureau’s study of the private student loan market and characteristics of private student loans that was mandated by Dodd-Frank and issued in July 2012 (Private Student Loans Report). In addition, in October 2012, the Student Loan Ombudsman issued his Annual Report in which, among other things, he characterized the nature of the student loan complaints received through the CFPB’s student loan complaint portal up to that point (Annual Report of the Student Loan Ombudsman). Further, on May 8, 2013, the CFPB issued another report and held a field hearing focused on what it described as the “potential domino effect” of student loan debt on the broader economy and proposing several options to assist private student loan borrowers. Finally, testimony at the above-referenced Senate Banking Committee hearing focused largely on how to increase the low refinancing and modification activity in the private student loan (PSL) market.  Read more…

LinkedInFacebookTwitterGoogle+Share

Spotlight on Student Lending (Part 1 of 2): Facing Increased Regulatory Scrutiny, Student Loan Lenders Prepare for CFPB Examinations

Currently, total outstanding student debt (both federal loans and private loans) has risen to roughly $1.1 trillion dollars. That figure represents an over 50% increase since 2008 and makes student loans the largest source of unsecured consumer debt – surpassing credit cards. At the same time, at least with respect to federal student loans, delinquencies have risen sharply during the same time period and, with unemployment rates for recent graduates still high by historic standards, the risk of continued high delinquency rates remains significant. Complicating matters is that student loan servicers, and servicers of private student loans in particular, have limited ability vis-à-vis a mortgage lender to modify those loans for borrowers in default.

Not surprisingly, given this backdrop, borrowers have lodged complaints with the Consumer Financial Protection Bureau (CFPB or Bureau) focused on their inability to obtain loan modifications, concerns about improper payment processing, and concerns about servicers’ debt collection practices. All of these factors have prompted the Bureau to draw comparisons to the recent mortgage servicing crisis and to increase focus and attention on the student lending and servicing industry in an effort to stave off a problem of those proportions. Read more…

LinkedInFacebookTwitterGoogle+Share