It’s been more than three years since the Consumer Financial Protection Bureau (CFPB) was created “to make markets for consumer financial products and services work for Americans,” according to its mission statement. While many improvements have been made, there are still numerous lenders and services trying to meet regulatory requirements. For many – especially small- to mid-size institutions – challenges such as the high costs of compliance, lack of bandwidth for compliance expertise, increasing technology complexities and increased urgency of operations training have stifled lenders’ and services’ ability to meet the already implemented requirements. These challenges will only worsen as new regulations role out next August.
The mortgage industry continues to work diligently to interpret and implement all the new current and future regulations to avoid the CFPB and its enforcement powers. In fact, lenders, servicers and vendors face severe fines and penalties if found in violation of a law. Even if a consumer federal law is violated with no intention and was clearly an error, the CFPB has the power to fine the organization $5,000 per day. If the organization knew about the violation, the fine can be as high as $1 million per day, which can ultimately shut down a lender or servicer.
These broad powers have gained the attention of legislators and industry experts, who are working to overturn some of the CFPB’s power on the grounds that it has no statute of limitations due to the way the Dodd Frank Act was written. In particular, many have concerns with the power given and utilized around Unfair, Deceptive and Abusive Acts or Practices (UDAAP).
Regardless, after three years, the CFPB is continuing to move forward to build strong compliance requirements, and lenders and servicers must continue to make investments in technology and services to comply with those new rules. The cost of maintaining regulatory compliance, however, will continue to have a significant impact on lenders and servicers, but the costs of non-compliance will also have consequences.
To make the most out of technology investments without breaking the bank while also remaining compliant and avoiding the even more costly fines, lenders and servicers should leverage either a cloud-based compliance tool or a CFPB mock audit to bring out regulatory issues before an actual regulatory review.
By leveraging an automated cloud-based compliance check solution or comprehensive audit, financial institutions eliminate the CFPB’s severe consequences by ensuring compliance with the changing regulatory environment, as well as better prepare for future regulatory changes. In a shared services model, lenders and servicers are also able to leverage compliance resources, which combat out-of-control costs, mitigates potential fines and ultimately results in cost-containment for consumers.
Ideally, an effective web-based compliance check or a more comprehensive mock audit will contain a series of questions. Lenders and servicers should then be guided through the review process to complete the answers, which are then analyzed using classifications in line with CFPB guidelines to calculate the risk. Financial institutions should then be provided a detailed report including compartment risk weightings, trends and high-risk items, which can be provided to regulators as well as used for action plans.
Looking ahead, the future certainly holds more regulations, investigations and penalties for those unprepared for the CFPB. Whether investing in a shared service model through a SaaS, cloud-based platform or a more comprehensive mock audit, lenders and servicers will benefit from peace of mind, reduced costs and improved quality – not to mention creating a safer experience for the consumer.
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