The appointment of Acting Director Mick Mulvaney has brought the Consumer Financial Protection Bureau back into the national spotlight. It almost feels like 2010 again, doesn’t it? In many ways, today’s political battles over the CFPB’s future echo the raging debates from 8 years ago—back in the early days of the Dodd–Frank Wall Street Reform and Consumer Protection Act.
For consumer finance companies, however, the conversations about the CFPB never went away or receded into the background. Since the end of the Great Recession and the passage of Dodd–Frank, lenders have endured a regulatory environment in a constant state of flux. The organizations that have survived are the ones that learned to adapt early on by taking a proactive approach to workforce compliance and implementing compliance management systems nimble and powerful enough to meet evolving federal and state regulatory demands.
In other words, smart lenders know that the more things change, the more they stay the same. And for countless organizations, that means continuing to invest as much or more in compliance, as we learned at our recent webinar with the American Financial Services Association, Regulatory Alphabet Soup: As the CFPB evolves, who’s watching lenders now? Near the end of the presentation, we asked attendees, “How would you characterize your company’s investment in compliance in the near term?” Just 6% of lenders said they were deprioritizing compliance and moving investment elsewhere, with the remaining 94% split between increasing their investment (48%) and keeping their level of investment static (46%).
Are you investing more or less in compliance going forward?
Here are a few reasons why the new CFPB has lenders investing as much or more in compliance, rather than less:
1. Enforcement Isn’t Going Away
The results of our informal poll came as no surprise to attorney Michael Benoit, who presented during the webinar. He told us (emphasis added):
“Enforcement isn’t going away. Your compliance obligations aren’t going away. I mean, nobody shut off the law. And while there has been efforts to roll back regulation, the bulk of the regulations that we in this business deal with on a daily basis haven’t changed and aren’t likely to change much. They’re there for reason, many of them have been there for decades, and they have worked well. Enforcement and supervision is here to stay, and your compliance management is going to be the subject of review from time to time, certainly in supervision.”
This isn’t to suggest that nothing’s changing with Mulvaney at the head of the CFPB. The new Acting Director is shifting the Bureau’s focus toward “quantifiable and unavoidable harm to the consumer.” That may mean fewer federal investigations, but it’s very unlikely that enforcement will disappear altogether. Moreover, there are other players, such as state attorneys general, stepping up and stepping in to regulatory roles.
2. Lookback Periods Still Apply
As we’ve touched on in prior webinars, so-called “lookback periods” apply regardless of who’s in charge. In simple terms, a lookback period is the length of time an organization can be held liable for a fair lending violation, with duration depending on the specific issue at hand. Many lookback periods last between two to three years, but some apply for longer.
With lookback periods in place, no organization can afford to “take a break” from compliance. Lenders that mistakenly assume Mulvaney’s CFPB will let them off the hook aren’t only courting risk now, but well into the future. Instead, lenders should use this moment to get their policies and procedures in order—especially considering that…
3. Where Power Lies in Washington, DC Is Always Changing
Many lenders regard the modern balance of power in Washington, DC, as a pendulum that swings between far-left and far-right ideologies. As such, it’s easy to see how President Trump’s election, and Trump’s appointment of Mulvaney, could herald a Democratic comeback. Will the pendulum swing to the left after the midterm elections this November? Some are thinking so, following recent events such as Democrat Conor Lamb’s surprise victory in Pennsylvania’s 18th congressional district—which Trump won by 20 points in 2016.
Lenders may not be stuck on a pendulum forever, though. Michael told us that a change in the CFPB’s leadership structure, which Mulvaney recently called for in his semiannual report to Congress, could create some sense of stability:
“I think it’s unfortunate the way the Bureau was initially comprised with a single director, because it was created as a political creature. It was intended to behave politically, and that’s just not good for business. That’s the reason why we have commissions in many of these other [agencies].
And frankly, if I’m a Democrat, I think a commission is probably the best thing since sliced bread. It makes sense to me that there was a very populist, sort of angry feeling in the country when the Bureau was created. That played out in the way the Bureau behaved under Director Cordray’s tenure. We have Acting Director Mulvaney looking to take things down more than a notch or two. I expect the president’s [permanent] nominee will want to do the same thing, depending upon who it is, maybe even more. Industry wants certainty. I think everybody here wants certainty, and the only way that you get relative certainty in an organization like the CFPB is if you have some political balance to it. So, I will not be surprised if we see legislation directed to turning the Bureau into a commission before too long.”
4. Compliance Is Just Good Business
The same CMS model that the CFPB developed under former Director Richard Cordray is similar to the outlines and frameworks used by others, including state AGs. But a robust CMS does more than keep regulators happy—it also provides you with a competitive edge in the form of business efficiencies. Says Michael:
“In talking to clients who have invested in their compliance management, almost all of them that I’ve discussed it with have said something along the lines of they view their compliance management as good customer service and good business, and some even characterize it as a competitive edge. The better their compliance is, the fewer complaints they have from consumers, and the better their reputation.”
5. Automating Your CMS Has Never Been Easier
One fact about fair lending compliance that hasn’t changed is that there’s no approach superior to an automated CMS. There’s a reason the CFPB and other regulators have recommended automation for years. An automated CMS is more reliable than manual compliance management, provides better visibility and proof of compliance, and makes life easier for your employees, financial partners, vendors, and customers.
An automated CMS covers all of your bases:
- Board of Directors/Executive Oversight: Automation simplifies the way you report compliance outcomes and organizational health to your board or executive oversight team. Because it takes your entire organization into account, an automated CMS gives you insight into what you know, what you don’t know, and what you think you know. It allows you to see gaps and shortcomings at a glance, so can assess your company’s risk profile and respond accordingly.
- Compliance Program: Automation eliminates the guesswork from your overall compliance program. First, it ensures your staff are trained and understand the policies and procedures that pertain to their roles, even as roles change. Second, it gives you the capability to assess the status of your organization and provide that defensible proof of compliance whenever necessary.
- Consumer Complaint Response: Complaints are where the first hints of trouble show up. Accordingly, complaints will continue to be a focus for the CFPB because they indicate quantifiable and unavoidable consumer harm. Automation allows your company to not only track individual consumer complaints, but also identify trends in high-risk areas before they impact your reputation and your bottom line. You can potentially identify areas that need corrective action—before a third party identifies them for you.
- Internal Audits: With compliance automation, you have your compliance data at your fingertips, so you can conduct effective audits and more easily correct your organization’s course following an audit. For instance, you may want to be able to identify proof of adoption rates or progress related to your compliance initiatives (e.g. policies, procedures, and trainings). This is extremely difficult without automation: by the time you’ve manually compiled spreadsheets, your data is already old. Furthermore, the audit function of an automated CMS helps close the circle on reporting, and provides a defensible proof of a sufficient compliance program—which is ultimately what every regulator is looking for.
Compligo is designed to support and automate all 4 CMS components we’ve outlined here. We’ve built our solution to meet the needs of lenders of all sizes. With Compligo, you can not only demonstrate fair lending and consumer finance compliance, but effectively manage HR needs such as your anti-harassment and anti-discrimination initiatives. For more about compliance automation, catch up on the webinar recording—or, better yet, see Compligo in action for yourself by scheduling a demo with us.