CFPB to hold supervised banks and non-banks responsible for service provider violations

Iowa Banking Law Dickinson Law Firm Des Moines, Iowa

Posted on 04/24/2012 at 12:30 PM by The Newsroom

On April 13, 2012, the Consumer Financial Protection Bureau issued a bulletin advising of its expectations for oversight of business relationships with service providers, as defined in Section 1002(26) of the Dodd-Frank Act.  Banks and non-banks often hire service providers to handle customer service issues, operate call centers, handle data, and process credit cards.  The CFPB advised that it expects banks and non-banks to have an effective process for managing the risks of service provider relationships.  The following steps were advised: 

  • Conducting thorough due diligence to verify that the service provider understands and is capable of complying with federal consumer financial protection laws;

  • Requesting and reviewing the service provider’s policies and procedures, training procedures, and internal controls to ensure there is proper internal oversight of its employees and agents;

  • Clearly setting forth expectations for the service provider regarding compliance and consequences and penalties for non-compliance;

  • Establishing internal controls by banks and non-banks to monitor the service provider to ensure compliance; and

  • Taking prompt action in the event of non-compliance by the service provider.

Any agreements with a service provider should be carefully reviewed to ensure that banks and non-banks can hold the service provider accountable for its non-compliance, as well as to indemnify the bank or non-bank for the service provider's misdeeds.

The material in this blog is not intended, nor should it be construed or relied upon, as legal advice. Please consult with an attorney if specific legal information is needed.

Categories: Banking Law

 

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