So far, it has been a busy year for the consumer finance industry. From the arbitration study to the proposal for short term, small dollar lending, the industry has been on the CFPB’s radar screen in the first half of 2015. And, it doesn’t look like the second half of 2015 will be any different. With all of the recent changes and activity coming out of Washington, it is easy to forget that there are fundamental, basic steps that all consumer finance companies should take to prepare for the CFPB.
In Alabama, we love a good football analogy. So, in the spirit of summer two-a-days, in today’s post, we go back to the basics to work on fundamentals and remind finance companies that a culture of compliance begins with three easy steps:
1. Adopt a compliance management system. We have discussed it before (for example, here, here and here), and we will discuss it again. Every finance company needs to have a compliance management system. It will be the first thing the CFPB expects to see if your company is subject to supervision or enforcement, and it is just good business.
A compliance management system should incorporate four components—board and management oversight, written policies and procedures, response to consumer complaints and a compliance audit. Going through the process of implementing a compliance management system is a valuable exercise on its own because it gives the company a framework to evaluate internal policies and procedures.
2. Prepare for and deal with potential problems. Even the best compliance companies have problems; but, what really separates the good from the bad is how companies prepare for and deal with problems.
As we have discussed, the Civil Investigative Demand (CID) is one of the CFPB’s favorite tools in its toolbox. Because of the incredibly short response period and the extremely broad scope of CIDs, companies need to have a CID preparation plan in place before a CID is received. There is simply no time to get your ducks in a row once the CID arrives.
But what happens when a problem does occur? To mitigate the damages and penalties, companies should take “responsible conduct” outlined in a 2013 CFPB Bulletin (which we have discussed here). In determining an enforcement approach and potential penalties, the CFPB wants to see that companies go above and beyond the minimum required by law.
Address consumer complaints. Consumer complaints are a big deal because complaints are usually the first sign of compliance problems. The CFPB has invested considerable resources in developing its Consumer Complaint Database.
To reiterate a previous post, finance companies need to have an effective complant response system that records and categorizes complaints, addresses and resolves complaints in a timely manner, escalates complaints to upper management or legal counsel as appropriate, and, in some circumstances, takes corrective action.
To use another football analogy, if a finance company takes these three basic steps, it will be awfully close to the end zone. For the most part, CFPB compliance isn’t magic or rocket science. It is mainly common sense and good business practices.