The relationship between the CFPB and service providers
On April 13, 2012, the CFPB issued a bulletin concerning the relationship between lenders and service providers as well as the CFPB’s authority over them. In brief, the bulletin stated that the CFPB has authority over bank and non-bank lenders. All lenders are expected to have an effective documented process for supervising its service providers and ensuring they are CFPB compliant. The CFPB expects lenders to have processes for the following:
- Conducting thorough due diligence to verify that the service provider understands and is capable of complying with federal consumer financial law
- Requesting and reviewing the service provider’s policies, procedures, internal controls, and training materials to ensure that the service provider conducts appropriate training and oversight of employees or agents who have consumer contact or compliance responsibilities
- Including in the contract with the service provider clear expectations about compliance, as well as appropriate and enforceable consequences for violating any compliance-related responsibilities, including engaging in unfair, deceptive, or abusive acts or practices
- Establishing internal controls and ongoing monitoring to determine whether the service provider is complying with federal consumer financial law
- Taking prompt action to fully address any problems identified through the monitoring process, including terminating the relationship where appropriate
It also documented the CFPB’s supervisory and enforcement authority over supervised service providers, which includes the authority to examine operation of service providers on site. Also made clear in the bulletin was the ability and willingness of the CFPB to exercise its enforcement authority against supervised service providers “as appropriate”.