August 29, 2013 | By RGR Marketing Blog

You were enjoying that Starbuck’s while perusing your mail until you found that letter from the Consumer Financial Protection Bureau notifying you of an investigation and demanding an examination. What's next?

What is the CFPB?

If this is your first question, you are going have a very long month.

The Consumer Federal Protection Bureau or "CFPB" was created in July 2010 as part of the Dodd-Frank financial reform legislation.  It is authorized to enforce the nation’s federal consumer financial laws and that authorization includes the mortgage industry and their lead generation and advertising practices.

In a recent interview, David Stevens, Chief Exec of the Mortgage Bankers Association says -

“These rules offer protection for consumers and a clear, safe environment for banks to do business, now everybody knows if you stay inside these lines, you are safe.”

He added that he believed the consumer bureau “did a great job listening to stakeholders” in shaping the rule.

The agency has been ramping up its capabilities since opening its doors in July 2011 and is quickly becoming an extremely active regulator in mortgage marketing products and the consumer financial landscape in general. It began examinations last spring of Pay Day and Cash Advance Lenders. Recently, it began formal investigations and enforcement proceedings.

The CFPB is also currently conducting examinations of lenders. The purpose of such examinations is to evaluate the lender’s compliance with federal law and obtain additional information pertaining to current industry practices. So how do you make sure you comply?

How To Prepare For A CFPB Investigation

The CFPB has two comprehensive manuals for examiners. You can access both through the CFPB’s website. The first manual, “Supervision and Examination Manual”, focuses on the examination procedures. The second, “CFPB Examination Procedures: Short-Term, Small-Dollar Lending” focuses specifically on advance and payday lender examinations. The second manual highlights the five essential subjects:

  • marketing
  • loan origination
  • loan rollover practices and disclosures
  • loan debt collection practices
  • third party relationships.

The lender must respond within the time demanded and the response is under penalty of perjury. No interviews should take place without legal counsel present. At this stage, the Lender's counsel may petition to set aside the demand or limit the scope of the investigation. At its conclusion, the Bureau may close the investigation without further action, or it will bring an enforcement action in federal court, state court or an administrative adjudication. Fines are nearly always associated with an investigation.

The first notice a lender will receive that it is subject to an examination will be a letter from the CFPB alerting the lender that it has been identified for examination. This notice will not provide a great deal of time to prepare for the examination, so be prepared ahead of time.

The examination will begin with a request to produce various materials and will be followed with on-site examinations which will include interviews with employees, customers and management.

Lenders should expect that their policies and procedures for ensuring compliance with federal consumer protection laws and their compliance with those laws will be closely examined.

Compliance Actions You Should Take Now!

If you head a company that directly offers consumer financial products or services, ask yourself over that cup of coffee if you have the properly documented compliance management program and whether that documentation included:

1. Written contracts, policies and procedures governing the marketing of the products or services were properly designed to prohibit deceptive acts and practices and any applicable federal and state consumer financial protection laws and regulations;

2. A system of periodic Quality Assurance reviews, the scope of which included, but is not limited to, review of training materials and scripts, as well as real-time monitoring and recording of telemarketing and customer service calls in their entirety;

3. Did your team undertake the independent audits of your marketing programs? Did they address the items listed above? Did they consider whether the programs present elevated risk of harming consumers?

4. Did your team oversee any of affiliates or third party service providers that perform marketing or other functions related to your product and ensured that these third-parties were held to the same standard, including audits, quality assurance reviews, training, and compensation structure?;

5. Did your team create an effective channel for receiving, investigating, and properly resolving consumer complaints related to your products?; and

6. Did your comprehensive training program for employees involved in the marketing, sale, and operation of the product?"

Start today, over that cup of coffee, ensuring you have the right policies and practices in place for the day the CFPB letter shows up in your mail. If have the right policies and practices in place you won't have a thing to worry about! We would like to thank Linda Goodman of The Goodman Law Firm for her help with this article.

For more information and advice from The Goodman Law Firm, please visit their website

Also, We welcome all feedback, feel free to email us at info@rgrmarketing.com and let us know what you think of or if you have had a personal experience with the CFPB and we might use it in our next newsletter.

 

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