Jason P. Boova and Mark E. Kallal
Since taking office, the Trump administration has signaled a desire to reduce the regulatory requirements placed on financial services companies.
Furthering this goal, Mick Mulvaney, Acting Director of the Consumer Financial Protection Bureau (CFPB), outlined a new vision for the agency on January 23, 2018. He wrote: “When it comes to enforcement, we will be focusing on quantifiable and unavoidable harm to the consumer. If we find that it exists, you can count on us to vigorously pursue the appropriate remedies. If it doesn’t, we won’t go looking for excuses to bring lawsuits.”
While you could almost hear the collective sigh of relief coming from Wall Street, the reality remains that banks should not get too comfortable just yet. Why? Because state regulators and state attorneys general are ready to jump in and “fill the void” left by federal regulators.
In a January 25, 2018, statement released by the New York Department of Financial Services, Superintendent Maria Vullo stated, “DFS remains committed to its mission to safeguard the financial services industry and protect New York consumers, and will continue to lead and take action to fill the increasing number of regulatory voids created by the federal government.”
More to the point, however, you really do not need to look any further than Mulvaney’s February 28, 2018, comments to the National Association of Attorneys General: “We’re going to be looking to the state regulators and the states’ attorneys general for a lot more leadership when it comes to enforcement.”
What does it mean for your bank?
So, what does all this mean for financial services? It means that although we are beginning to see a shift in the CFPB’s enforcement attitude and practices, the reality remains that this is no time to relax or engage in risky behavior. Here are few things to keep in mind:
What should you do?
- The obligation to protect consumers is not changing. Consumer protection laws and regulations still exist, and your obligation to comply is not going away. Keep in mind, as well, that a reduction in federal enforcement does not, in any way, change your bank’s objective to treat customers in a fair and ethical manner.
- Litigation may start to replace exam findings. While no bank enjoys “matters requiring attention” and other findings that can come from an enforcement action, the prospect that expensive and time-consuming litigation may actually increase should be equally, if not more, frightening.
- It may become harder to predict what’s coming next. Reviewing CFPB enforcement actions has provided banks with valuable insight into what topics or practices should be of concern. More importantly, the CFPB has served as a centralized voice in this respect, providing a degree of transparency. As the states look to “fill the void,” the number of voices (and potential political agendas) increases from one to 50, potentially making it more difficult for banks to keep their fingers on the pulse of regulatory risk.
The natural question to ask at this point is, “How should I respond to protect my bank and my customers?” Two main pieces of advice come to mind:
Keep your finger on the pulse of the customer.
Regulators and state attorneys general take their cues from the voice of the people—and so should you.
Your customers provide you with a treasure trove of information that can help you understand how your customer base views products or features. If customers are not pleased with a product or the manner in which it is provided, they will tell you via complaints and other expressions of dissatisfaction. Having systems and processes to aggregate customer complaints and analyze them for trends is critical not only to addressing their concerns, but also to having the ability to stay ahead of potential problems—and hopefully, preventing calls to the regulators.
Beyond observing and handling customers’ complaints, front-line representatives interact with customers every minute of every day. Capturing data from those interactions allows for greater analysis and deeper understanding of the issues and pain points that may ultimately lead to a complaint or a call to a state attorney general. It may sound counterintuitive, but an organization that has strong front-line representatives who are empowered to solve customer issues can actually end up with less meaningful and useful complaint data. This is not an endorsement of poor customer service. Rather, it is a recommendation that banks bridge the gap by having enhanced data collection systems and processes that aggregate the outcomes of all customer inquiries and interactions with existing customer complaint information.
Do not turn your back on compliance.
As noted previously, the regulatory landscape is not necessarily getting softer, it is just changing—and in some ways increasing. This means that the demand on your existing compliance-focused resources may increase as well and that you should absolutely keep your eye on the ball.
Your front line of business will continue to be your critical first line of defense in complying with consumer protection laws and regulations. Commit sufficient first-line resources to ensure that monitoring efforts are designed and operating effectively, so that the business areas can regularly evaluate key controls in customer-facing processes. This is definitely no time to weaken the control environment or the level of resources assigned to it.
Compliance departments will also need to make sure that their compliance management programs are up to speed and designed to effectively oversee business area compliance, monitor the expanding regulatory environment, and proactively work with first-line and bank management to address the issues that may result in a call to, and ultimately from, a state attorney general.
All of this requires a continued commitment from your bank’s board and senior management team.
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