The CFPB’s New Normal, the Rise of Synthetic Fraud, and More from AFPCS and the AFSA Independents Conference

No matter who’s in charge, compliance is good business. That was the overarching theme of two events I recently attended: the American Financial Service Association’s 2018 Independents Conference and the 2018 Auto Finance Performance and Compliance Summit.

Regular readers of our blog are well aware that the same procedures that keep regulators happy also keep an organization’s customers and stakeholders happy, but it’s not surprising that “compliance” has taken a while to shed its status as a dirty word in the auto finance and consumer lending industries. On levels state and federal, lending laws—as well as the interpretation and enforcement of those laws—seem to be in constant flux. Without the right system in place, compliance starts to feel like an effort to roll a very expensive boulder up an increasingly slippery mountainside.

Which is why I look forward to events like the Independents Conference and AFPCS—not just because we have the chance to spread the gospel of compliance, but because these get-togethers serve as opportunities for lenders to check their assumptions, exchange ideas, and tackle the most pressing questions of the day. For instance: How has the Consumer Financial Protection Bureau changed under new Acting Director Mick Mulvaney, and where is it on track to go next? How can we use technology to not only mitigate risk, but improve customer experience?

Read on for industry experts’ takes on these topics and more:

New CFPB, Not So New Lending Compliance Obligations

Multiple speakers at both the Independents Conference and AFPCS made it clear: even though the CFPB has taken a bit of a pause, no lender should make the mistake of pulling back or ignoring its compliance program. No matter how excoriating his language, there’s only so much Mulvaney can do to limit regulatory reach. The CFPB’s underlying mission statement remains in place, the Bureau is continuing to exercise its supervisory authority, and reports indicate that exams and investigations will actually ramp up during the next quarter.

The “new normal” at the CFPB isn’t a de facto shutdown, but a tempered approach. Investigations are now focused on clear evidence of consumer harm rather than exploratory probes into lenders’ business operations. In other words, where the CFPB smells smoke, it will continue putting out fires. Numerous conference attendees and speakers also mentioned they’re seeing increased action in the loan servicing area, versus the previous Bureau’s more concentrated focus on fair lending violations.

Moreover, the upcoming 2018 midterm elections have many lenders wondering if the regulatory pendulum may swing back sooner rather than later. How might a “blue wave” drown Republican efforts to roll back the Dodd–Frank Wall Street Reform and Consumer Protection Act? Given this possibility, as well as the industry’s recognition of the fact that Dodd–Frank was passed for a reason, it’s easy to understand why regulatory shakeups haven’t fundamentally altered business as usual.

This isn’t to suggest that Mulvaney has done nothing as head of the CFPB. Many lenders see the Bureau’s recent requests for information on civil investigative demands, for example, as good-faith efforts to give the industry a greater voice. Lenders are also appreciating the sense of realism they’ve gained from the Acting Director’s disinclination to “push the envelope.”

Regardless, it’s important to understand how changes at the CFPB have prompted more aggressive actions on the part of state legislatures and attorneys general. During the “State & Local Regulators’ Roundtable” at AFPCS, panelists explained how “mini CFPBs” are cropping up in states such as New York, Maryland, and Massachusetts—and, in some cases, going further than federal lawmakers. (For more on this topic, make sure to catch up on the recording of our recent webinar with AFSA, Regulatory Alphabet Soup: As the CFPB evolves, who’s watching lenders now?)

The Future Is Here, for Better and Worse

Technology is transforming the ways lenders run their business. Loan origination is faster and easier than ever, largely due to the expectations of millennial customers (and employees). As companies take a Rocket Mortgage-style approach to consumer and auto finance, the time it takes for a consumer to buy a car, get a loan, and get approved has gone down from days to hours to minutes.

But technology has also driven cyberattacks and criminal activity to previously unthinkable degrees. Data breaches have reached historic levels, with organizations of all sizes scrambling to stay ahead of threats, mitigate third-party risk, and minimize the costs and reputational damage associated with an attack. At the same time, identity fraud has given way to what security professionals are calling “synthetic fraud”: the creation of wholly fabricated identities.

Presenters at AFPCS told us they expect rates of fraud to increase over the next decade. Why? Because the auto industry appears to have peaked, and as it gradually comes down, sales and F&I personnel will face greater pressure to keep their numbers up, which could lead to inflated applicant numbers. At the same time, new tech will make fraud easier on the consumer side as well. Long story short: don’t assume you can stop worrying about UDAAPs and security threats any time soon.

Here at Compli, we’re dedicated to leveraging technology to help lenders, dealers, and other organizations meet their compliance obligations. Learn how our customers use Compligo to respond to emerging threats and trends, stay agile in a constantly changing regulatory environment, and improve business performance.