Lenders – are you utilizing Service Providers (or Third Party Vendors) to assist you in your Operations? If so – are you properly monitoring the associated risks in employing such Firms? Read on!
The Consumer Financial Protection Bureau (CFPB) fully expects supervised banks and non-banks to properly manage the associated risks with employing service providers (or third party vendors).
These supervised banks and non-banks should be proactive in identifying areas of potential risk as well as how to best resolve any issues that may be uncovered.
A sound due diligence program would include reviewing the service provider’s policies and procedures. Some specific items to review are as follows:
- The procedures in-place for hiring employees, training employees, monitoring employee performance, etc.
- Any internal controls – access to work space, confidential files, etc.
- Is there a consumer complaint process in-place
- Can an Organizational Chart be produced showing delegated lines of authority?
- Obtain copies of any insurance coverage, licensing information, etc.
- Review any advertising flyers, brochures, etc. to make sure they are not false or deceptive, etc.
- Are prompt actions taken by senior management in addressing any problems that are identified in this process?
The primary objective of a sound due diligence program is to add protection for the ultimate consumer so they will not be exposed to any unwarranted risks. As the CFPB has stated in their CFPB Bulletin 2012-03, “the mere fact that a supervised bank or non-bank enters into a business relationship with a service provider does not absolve the supervised bank or non-bank of responsibility for complying with Federal consumer financial law to avoid customer harm”.
Hopefully, it will become an industry standard for banks and non-banks to hold third party vendors to the same standards as they would their own full-time staff. The bottom line here is that outsourcing a particular function does not relieve the bank or non-bank from the associated responsibility for compliance with various laws.
Stay compliant my friend!