The Consumer Financial Protection Bureau, in December, proposed a new rule that would require companies to register with them if they are alleged to have violated federal, state, or local consumer protection laws. The CFPB’s stated goal is to create a publicly available registry for so-called “repeat offenders”, so consumers can easily identify and avoid those companies. This proposal has major implications for companies engaging in consumer finance activities, including mortgage banking, and here’s what you need to know about it.

What Does the Proposed Rule Entail?

The proposed rule generally would require companies to register with the CFPB if found liable, through consent order, stipulated order, or otherwise, related to consumer financial products or services. Companies would be required to report certain information on an annual basis, including their names and addresses, details of any enforcement actions taken against them by other federal agencies or state regulators, and a list of financial products or services offered. The information would be made available on a publicly accessible registry.

Implications For Companies Affected By the Rule

The proposed rule would have far-reaching implications for companies engaged in mortgage activities. Companies subject to registration would be required to provide detailed information about their operations and any enforcement actions taken against them at federal, state, or local levels. The underlying concepts are well-intended:  (i) this information will make it easier for consumers to identify and avoid unscrupulous actors, and (ii) the requirements will help deter companies from engaging in unfair practices as they are aware that any violations will be made public.

What Can Your Company Do?

First, given how serious this proposal is, it is important for mortgage companies to respond to the proposal at this early stage.  For example, companies should emphasize the redundant nature of the information; the wild inaccuracy of the information as numerous companies frequently settle with regulators without admission of any liability to avoid prolonged disputes with their regulators; the incentive for companies to no longer quickly settle such issues because of the increased publicity; and the expense of companies (ultimately paid by customers) of submitting, monitoring, and updating the vast amount of information under the proposal even though there is no evidence that the information would be viewed by more than a miniscule number of people.

Second, mortgage companies must take steps now to help ensure compliance with applicable laws and regulations. This includes regularly reviewing relevant statutes and regulations, staying up-to-date on changes, implementing policies and procedures designed to ensure compliance, conducting regular audits of operations, training employees on relevant laws and best practices related to compliance matters, monitoring third parties involved in providing services related to consumer finance activities (e.g., debt collection agencies), and taking prompt action upon discovering potential violations, maintaining appropriate records.

Conclusion 

Staying engaged is as essential as ever, despite the challenging marketplace. 

As always, ensuring your company is compliant with all applicable laws is critical not only because noncompliance can result in significant fines but also because it can lead your company to being listed on whatever version of the CFPB’s registry of repeat offenders ultimately is implemented – a move that could damage your reputation among customers as well as potential partners, investors, warehouse lenders, and others.

The CFPB has requested comments on the proposal.  You need to comment right now.  Mortgage companies need to react to this overly broad, duplicative, counterproductive, and wholly unnecessary CFPB initiative. 

Click here for an introduction, and here for the actual proposed release.  You can also contact Troy Garris for more information at troy@garrishorn.com.