The Funnel Effect of The Dodd-Frank Act

Transcription

1 The Funnel Effect of The Dodd-Frank Act 2012 NCHER Knowledge Symposium

2 The Dodd-Frank Effect Model Increases in Regulation Lawsuits Financial Industry Reaction Complaints Customer Confusion 1

3 The Dodd-Frank Compliance Environment Dodd-Frank Act - Created the Consumer Financial Protection Bureau (CFPB) - CFPB enforces and issues rules - Sets regulatory agenda The agenda - Unfair Deceptive and Abusive Acts or Practices - Transparency regardless of regulatory requirements - Consumers first, nothing else is second 2

4 The Dodd-Frank Compliance Environment From CFPB s semiannual report: The Consumer Bureau is establishing evenhanded and reasonable oversight to the marketplace. We are working to root out unfair, deceptive, or abusive practices. Consumers deserve to be treated fairly, and to have someone stand on their side when they are not. Congress directed us to fix grave problems in the mortgage market, and we are well on our way to fulfilling that goal. 3

5 The Dodd-Frank Compliance Environment Proof of the agenda Capital One call center ($250 million CMP) Higher One, Inc. and The Bankcorp Bank NSF fees on students ($11 million in restitution) American Express Bank credit card ($27.5 million CMP) Discover credit card ad-on products ($14 million CMP) 4

6 The Dodd-Frank Compliance Environment Examples of the environment Overdraft issue Make versus Post: A nightmare in Texas 5

7 The Funnel Effect 6

8 The Funnel Effect Primary focus consumer protection Protection via consumer regulation The funnel effect of CFPB regulatory actions The CFPB s effect on the legacy regulatory agencies Consumer advocacy groups Unfair, Deceptive and Abusive Acts or Practice 7

9 The Funnel Effect Protecting the Consumer The reach of protection Debt collection companies Payday lenders Consumer reporting companies 8

10 Risk Assessment Compliance Program Management UDAP Program structure and oversight Risk assessment Policies and procedures Training/education Communication Monitoring/auditing Response/corrective action 9

11 Newly Issued Compliance Requirements Debt collectors Examination procedures that apply to larger participants in the consumer debt collection industry and other entities within the supervisory authority of the CFPB Prior to using the procedures however, examiners should complete a risk assessment Depending on the scope and in conjunction with the compliance management system review procedures, each examination will cover one or more of seven modules 10

12 Risk Assessment Scope of Examination UDAP Entity business model Communication in connection with debt collection Information sharing, privacy and interactions with consumer reporting agencies Consumer complaints, dispute resolution and debt validation Payment processing and account maintenance Equal Credit Opportunity Act Litigation practices, repossession and time-barred debt 11

13 Audit/Testing Examination Objectives UDAP Assess the quality of the compliance management system, including internal controls and procedures Identify acts of practices that materially increase the risk of violations of federal consumer financial laws Gather facts that help to determine whether a regulated entity engages in acts or practices that violate the requirements of Federal consumer financial laws Determine whether a violation of a federal consumer financial law has occurred and whether further supervisory or enforcement actions are appropriate 12

14 Completing a Risk Assessment Consumer risk assessment Risk to consumers the potential for consumers to suffer economic loss or other legally recognizable injury as a result of a violation or UDAAP issue Risk assessment is not a determination of whether a violation of law exists 13

15 Inherent Risk Factors Inherent risk factors increase the potential for unfair, deceptive or abusive acts or practices, for discrimination or for violations of other federal consumer financial laws Includes products, marketing, customer relationship management, complexity of organization and other factors 14

16 Risk Controls and Mitigation Managing and mitigating specific inherent risks, as well as the strength of an entity s overall system of compliance management, including: Strength of management Authority and accountability for compliance Compliance risk management program Product and system development Training Complaint management 15

17 Summary of Risk Assessment Process The risk assessment will be used during the CFPB s supervision planning process: To set priorities Focus examination and supervision activities Conducted for individual lines of business, supervised entities as a whole or groups of affiliated entities What is the supervisory history regulatory violations, matters requiring attention and consumer complaints 16

18 Areas of Focus for the CFPB Provide required disclosures - Are debt collectors properly identifying themselves? - Are debt collectors properly disclosing the amount of debt owed? The CFPB intends to ensure that debt collectors are upfront and clear with consumers. Provide accurate information Are debt collectors using accurate data in their pursuit of debt? Avoid attempting to collect debt that consumers do not owe or have already paid. 17

19 Areas of Focus for the CFPB (Continued) Consumer complaint and dispute resolution process: - Are complaints resolved adequately, in a timely manner? - Do complaints highlight any violations of federal consumer financial law? - Is there a process in place to address consumer disputes? Communicate civilly and honestly with consumers Examiners will assess if debt collectors have harassed or deceived consumers in the pursuit of debt. 18

20 Increase in Complaints The Dodd-Frank Act requires the collection of, monitoring of and response to, consumer complaints. CFPB has set up a consumer response center. Consumers can submit a complaint under the following categories: - Mortgage - Credit card - Bank account or service - Vehicle or consumer loan - Student loan - Credit reporting 19

21 Program Management Oversight Compliance management resource - Compliance officer - Information manager (manages the flow of information) New regulatory requirements Regulatory revisions Hot topics Communicates relation of new requirements to other areas of the organization - Manages compliance risk while respecting the need to maximize profits 20

22 Program Management Structure Compliance management structure - Compliance Committee - Integration of compliance in each business unit (depending on size and structure) - Compliance testing internal, outsourced, co-sourced (determine what s more effective and efficient) 21

23 Program Management Consumer Focused Compliance management focus - Complaint management process - Using consumer complaint information for risk determination 22

24 Program Management Examinations Managing regulatory compliance examinations - Entrance meetings - Periodic touch point meetings - Exit meetings 23