CFPB to Examine Service Providers—Are You Affected? June 13 Webinar Has Answers!

webinarA recent blog by law firm Ballard Spahr reports the Consumer Financial Protection Bureau (CFPB) has begun to examine service providers on a regular, systematic basis, particularly those supporting the mortgage industry.  The blog recounts information provided by the CFPB during an American Bar Association (ABA) Business Law Section meeting held May 7, 2017, stating: “The change represents a significant expansion of the CFPB’s use of its supervisory authority and will substantially increase the number and types of entities facing CFPB examinations.”  To be fair, the blog does not specifically mention law firms or title and settlement agencies, but both law firms and title agencies are groups that clearly fall into the category of service providers “supporting the mortgage industry.”

Fortunately, there will be an opportunity to hear more detail about whether title and settlement agents will be subject to increased supervision.  Ballard Spahr is conducting a free webinar June 13, 2017, from 12-1 p.m. (ET) which could provide an opportunity to specifically ask such questions.

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For further background on this topic prior to the webinar, carefully read the CFPB’s Bulletin 2012-04, “CFPB to Hold Financial Institutions and Their Service Providers Accountable.”  As is obvious from the title of this five-year-old bulletin, the 2017 announcement to directly examine third-party vendors is not an announcement of new policy, but clarification of how the CFPB intends to implement its longstanding policy to hold third parties accountable.

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On My Soapbox—Is it Fair to Make Title Agents and Law Firms Prove Compliance with Best Practices?

soapbox speakerFor those in the title and legal industries, it can be more than a little annoying to have one’s role in representing lenders characterized as merely that of “third-party service provider.”  Title agencies and law firms perform the same trusted services for the lending community today—handling confidential bank client information and millions of dollars of lenders’ funds, as they have day after day for the last half century!

That being the case, why are title agencies and law firms now being required to jump through hoops to prove they are in compliance with either newly imposed bank standards or ALTA Best Practices?  Can anyone point to an explosion of cases where title agencies and law firms providing services to bank clients have been repeatedly harmed?

The short answer is “no”—currently there is no extensive list of data breach cases that could give rise to the conclusion that any sort of crisis has arisen from dealing with title agencies and law firms.  For those two specific industries, there is almost nothing that lenders can point to and say, “That’s why we need to make every one of you prove that you are following existing law.”  To the contrary, many in the title and legal industry want to tell the lending community, “We are doing a good job, and there is no reason to make us prove compliance when there is no proof of non-compliance.”

Unfortunately, there are some highly visible examples of other bank service providers who have caused the banking industry huge losses.  The following is a list of fines that were levied on financial institutions, not because of what they did, but as a result of the compliance violations committed by third-party vendors hired by those financial institutions.  The blog “Regulators Go After Banks for Vendor Management,” by Reed White, an associate in Bryan Cave’s Atlanta financial institutions practice, outlines the following examples of some of the levied fines:

  • Consumer Financial Protection Bureau (CFPB): Discover Bank, $14 million civil penalty (September 2012)
  • Office of the Comptroller of the Currency (OCC): American Express Bank, estimated $6 million in restitution (September 2012)
  • CFPB: J.P. Morgan Chase, $309 million in restitution and $20 million civil penalty (September 2013)
  • CFPB: American Express, $59.5 million in restitution and $9.6 million civil penalty (December 2013)

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