The CFPB’s recent announcement that lenders are responsible for ensuring that servicers have sufficient compliance controls has more profound implications than the not-so-simple task of undertaking responsibility for the actions of distinct entities. Rather, the CFPB’s announcement signals the continuing evolution of increased responsibility of lenders for borrowers.
Earlier this year, the CFPB released its examination guide adopting a passive regulatory structure that placed the onus on lenders to implement compliance structures, strategy and management sufficient to self-police their practices. Instead of a regulatory body identifying and correcting improper practices, it will now be the lender’s responsibility to self-identify and self-correct. Moreover, if and when problems arise the inquiry may well be focused more in terms of how the problem arose and was not corrected, as regulators will increasingly focus on an institution’s commitment to compliance.
With this in mind, the entire approach to compliance must change. Once broadly viewed as an obstacle to contend with and/or an isolated part of operations whose goal was to ensure loan officers did not “cross the line”, compliance will now need to be engrained in the culture of an entity such that every person with lending responsibilities will have to be familiar with and consider compliance concerns on a daily basis. This will affect decision-making on a broad operational perspective and on a granular level. For example, a lender considering an aggressive branch structure to lure an employee from a competitor, will now need to think about both the risks of the particular structure for the particular branch, as well as how that structure will impact the overall perception of the company’s commitment to compliance. Issues ranging from the very structure of an entity to specific compensation plans for isolated employees now must be viewed in light of their overall impact as a reflection of management’s commitment to compliance.
Lenders must reevaluate their compliance departments to ensure they have adequate controls in place to effectively manage compliance on an ongoing basis. The requirement of evaluating servicers is simply yet another example of the CFPB’s belief that lenders are responsible for borrowers throughout the lending process.