Tony Bennett said it best – I left my heart in San Francisco.
Last week I attended the American Bar Association (ABA) Business Law Section Spring Meeting in San Francisco. The meeting agenda covered several consumer finance topics, with presentations led by consumer advocates, financial services industry players and Federal agency representatives (including the CFPB). It was a fantastic conference with a true diversity of opinions.
My takeaway from the meeting is this— in the eyes of the CFPB, not all financial institutions are created equal.
Several key Federal consumer financial laws include the element that a company’s policies and procedures need to be appropriate to its “nature, size, complexity and scope.” That language, or similar wording, can be found in the Red Flags Rule, the S.A.F.E. Act, and the Furnisher Rule, just to name a few.
Under these laws and regulations, a company’s policies must be tailored to the particular business. An effective policy needs to accurately describe the practices of the company and ‘work’ with the business operations of the company. A small consumer finance company need not have the same policies as a large sophisticated bank. In other words, when it comes to Federal law, one size does not fit all.
Finance companies need to be careful in adopting ‘form’ or ‘off-the-shelf’ policies for two reasons. First, a policy form that is not appropriate to the nature, size, complexity and scope of the company is not in compliance with Federal law. In the DriveTime Automotive Group, Inc. action (which we previously discussed here), the CFPB noted that a sophisticated company maintained an unacceptable page-and-a-half furnisher policy. Second, to effectively protect consumers, companies must have policies that are consistent with the actual practices of the company. A policy that is not workable in practice does not protect consumers.
After spending last week with lawyers who represent different types of financial institutions, it is clear to me that each financial institution needs to have its own approach to compliance because that is what the CFPB expects. After all, not all financial institutions are created equal.