On October 19, 2016, the director of the Consumer Financial Protection Bureau (CFPB) issued a new bulletin entitled “Compliance Bulletin and Policy Guidance; 2016-02, Service Providers.” This bulletin is significant for the title industry because it reissues guidance from Bulletin 2012-03, which made it clear that financial institutions are obligated to ensure their business arrangements with service providers do not present unwarranted risks to consumers. The requirements identified in the 2012-03 Bulletin are restated, word for word, in this newest bulletin. The CFPB has reminded financial institutions that they are required to take specific steps that include, but are not limited to:
- Conducting thorough due diligence to verify that the service provider understands and is capable of complying with federal consumer financial law.
- Requesting and reviewing the service provider’s policies, procedures, internal controls, and training materials to ensure that the service provider conducts appropriate training and oversight of employees or agents that have consumer contact or compliance responsibilities.
- Including in the contract with the service provider clear expectations regarding compliance, as appropriate and enforceable consequences for violating any compliance-related responsibilities, including engaging in unfair, deceptive, or abusive acts or practices.
- Establishing internal controls and ongoing monitoring to determine whether the service provider is complying with federal consumer financial law.
- Taking prompt action to address any problems identified through the monitoring process, including terminating the relationship where appropriate.
Although this new bulletin includes a statement that the “depth and formality of the risk management program may vary depending upon the service being performed,” it lists the “potential for consumer harm” as one of the factors to be considered when evaluating the scope of the supervision. Since those that oversee closings often handle a completed “1003 Mortgage Loan Application” form, which contains detailed personal information about the borrower, it is likely that the CFPB would expect closing agents to be viewed as requiring a high degree of supervision and control.
I will provide further commentary regarding the significance of this new bulletin in an upcoming blog, but wanted to provide you with pertinent links to keep you informed of recent CFPB activity that affects title and settlement agents.