March 2nd, the CFPB issued Supervisory Highlights Consumer Reporting Special Edition (Issue 14), Winter 2017. For those who have had a less than perfect experience when interacting with a consumer reporting company (CRC), you may be wondering, "How is there so much 'bad' data appearing on consumer credit reports these days?"
How this data is ingested, analyzed and resold should be cause for concern not only for the consumer but also for the lenders who rely on this information to originate mortgage loans.
About the Consumer Reporting Summary Report
The CFPB are an industrious agency, that much is a given. In this Winter Issue of supervisory highlights, they outline a concise 22-page summary of several areas of concern which every lender and vendor management department should be considering in their selection and oversight of consumer reporting companies.
This summary report is based on examinations, reviews of complaints and oversight practices of consumer reporting companies (CRC’s) and furnishers over a 2-year period. Clearly, the CRC and credit reporting agency (CRA) is a vendor category which has landed on the radar.
During this 2-year period, it is noted that the agency identified concern in compliance management systems and violations of law. The Fair Credit Reporting Act provided the framework for the CFPB in their approach to reviewing the practices of the CRC’s.
As recent as January 2017, the CFPB also released details of enforcement actions against 2 of the top 3 CRA’s for other violations linked to FCRA.
What does this mean for vendor oversight?
It means 2 things:
- Demonstrates the necessity to understand regulatory compliance and the impact it has on vendors who play a crucial part of the mortgage lending process.
- Raises the bar in terms of the level of oversight a CRC or furnisher requires.
What should I be looking for exactly?
Look for these 6 items:
- Compliance Management Systems - How are these managed? Does the vendor maintain records of version control to clearly update and track each regulatory compliance change?
- Training and Escalation Policies - Is a clear training policy in place? Training and escalation are key issues to be aware of since a CRC may have live interaction with a consumer.
- Consumer Complaint Tracking - Verification of such a policy and procedure are key to maintaining that a lenders consumer is being handled in a timely fashion. Notification of such complaints should be submitted to a lender on a regular basis to ensure that the lender is kept informed of any complaint.
- Ongoing Monitoring - Vital for all vendors who are either critical to the actual operation or a high level of regulation surrounding the consumer. Monitoring for enforcement actions / litigation can prove vital to be ahead of the curve in managing the vendor relationship. A best practice is to ensure the vendor communicates such issues to the lender client in a proactive fashion.
- Quality and Data Integrity - Does the vendor have a robust quality assurance program to monitor and test consumer reports for accuracy?
- Supervision and Validation of Furnishers - For vendor management, this is all about knowing who the fourth party vendors are in a transaction.
The CFPB’s report is packed with lots of information and raises many key areas which the vendor management department can leverage and incorporate into their ongoing and annual vendor assessments. This level of detail and FCRA related enforcement actions can also help in making informed decisions during the pre-contract due diligence stage.
Overlooking these important issues can only harm the value add that vendor management can bring to an organization. While a robust program will review the other key areas such as BCP, Disaster Recovery, Cybersecurity etc., the addition of reviewing a vendor’s commitment to implementing a program around federal consumer lending laws and regulatory compliance cannot be overlooked.
Your consumers not only trust you with their largest financial transaction but also with their credit information, which is key to that very transaction. It's our responsibility as vendor management professionals to monitor this category type as if they were managing our very own NPPI.
For help on what to know related to vendor oversight of a contract mortgage underwriter, download our infographic.