*This article provides a view of the lighter side of compliance in an effort to disseminate necessary information from the CFPB in a manner that is actually fun to read. We hope that you like it as well as find it informative.
One of the joys here at Landmark Network, Inc. is that we share part of our color scheme with the wonderful Consumer Finance Protection Bureau. While you may naturally associate the efficiency and expertise of Landmark Network, Inc. with our very prominent and vibrant blue, the secondary color that frequently appears as accent features is actually the very same electric-looking Teenage Mutant Ninja Turtle green that the good folks at the CFPB are obviously very fond of. (We’re more Leonardo than Michelangelo.) So when once again the peoples’ favorite fiscal watchdog sends out a 23 page compliance document, we’re here to break it down for you.
Quantum Physics and Your Money
The very first thing the CFPB does is assert that it has “developed, expanded and improved its supervision program as it gained valuable experience.” They tout this fact by stating that its public enforcement action resulted in approximately $6.5 million in remediation to over 50,000 customers. They also shared that their examination activities loomed so large that an undisclosed number of entities self-identified violations and made restitution to approximately 10,000 additional customers. So here we see that quantum physics theory also applies to consumer finance; the sheer act of observation also causes a change in the results. One thus naturally wonders where Shroedinger’s Cat might also be applicable to the mortgage industry..
The first major section addresses the requirement of the Bureau that each supervised entity has a robust compliance management system (CMS). This CMS must be in place during normal business, not just in preparation for an examination, contradicting the previously innate idea that one only need behave when mommy or daddy are actually looking. Nonbanks have been found to be more likely to lack a robust CMS because they were not subject to examinations before the CFPB’s creation. The most common weakness identified during CMS reviews in banks is a deficient system of periodic monitoring and independent compliance audits.
CFPB does not require and specific CMS structure, but they suggest four main control components, all of which are explored in detail in the actual document. They are:
1. Board of directors and management oversight;
2. A compliance program;
3. A consumer complaint management program; and
4. An independent compliance audit.
The CFPB has focused on reducing risk to consumers in three areas:
Each of these had examples of a lack of sufficient notice to consumers and generally sloppy mishandling of loss mitigation in particular, such as insufficient communication and underwriting, inconsistent waivers of fees, long application review periods, missing denial notices and disorganized or incomplete files. This previous state of affairs, in the wake of the mean green CFPB machine, will no longer fly.
Skipping to the Mortgage Servicing section for the sake of this author’s sanity, it is worthy of note that UDAAP is now a legitimate acronym bandied about in a number of instances, meaning “Unfair, Deceptive, or Abusive Acts or Practices.” CFPB states quite bluntly that even if financial entities do not violate any specific prohibitions in other statutes, some conduct may nonetheless constitute UDAAP under the Dodd-Frank Act. This vaguely threatening statement dovetails quite nicely with CFPB’s admonishment to behave even when they aren’t currently examining your institution.
This 23 page document reinforces the CFPB’s ability to inspire an unexpected amount of joy by writing the simple word “Conclusion.” Thankfully, this section, much like in our college papers, proves to be a simple reiteration of the introduction, conforming more to style than substance, to our joy and the joy of teachers across this great nation.