The overlap between federal and state laws and regulations becomes very apparent once there is an examination and/or an enforcement action.
With COVID dominating our work environment over the past two years, not many audits or exams were scheduled by state regulators. That is all about to change. They are way behind and will begin the process of catching up sooner than you may be ready for.
In many cases where mortgage companies get caught during an regulatory exam violating one regulation, that violation may pull in violations of other state laws. The CFPB is now making that crystal clear!
In March, 2022 the CFPB published Examination Objectives for UDAAP, which referenced the relationship to other laws. Suffice it to say, if someone is caught discriminating, not only does the violate ECOA, but it would also be potentially deemed to be Unfair under UDAAP.
Your company training must include these topics, (and I am not referring to Continuing Education only required for mortgage loan originators) for ALL employees, or you may be leaving yourself open for an enforcement action.
Here is just a sampling of the guidance the CFPB published for an examination:
1. Document Review –
To initially identify potential areas of UDAAP concerns, obtain and review copies of the following to the extent relevant to the examination:
a. Training materials.
b. Lists of products and services, including descriptions, fee structure, disclosures, notices, agreements, and periodic and account statements.
c. Procedure manuals and written policies, including those for servicing and collections.
d. Minutes of the meetings of the Board of Directors and of management committees, including those related to compliance.
e. Internal control monitoring and auditing materials.
f. Compensation arrangements, including incentive programs for employees and third parties.
g. Documentation related to new product development, including relevant meeting minutes of Board of Directors, and compliance and new product committees.
h. Marketing programs, advertisements, and other promotional material in all forms of media (including print, radio, television, telephone, Internet, or social media advertising).
i. Scripts and recorded calls for telemarketing and collections.
j. Organizational charts, including those related to affiliate relationships and work processes.
k. Agreements with affiliates and third parties that interact with consumers on behalf of the entity.
l. Consumer complaint files.
m. Documentation related to software development and testing, as applicable.
n. Documentation regarding the use of models, algorithms, and decision-making processes used in connection with consumer financial products and services.
o. Information collected, retained or used regarding customer demographics, including the demographics of customers using various products or services, and the breakdown of consumer demographics for various product uses, fees, revenue sources and costs, or the impacts of various products and services on specific demographics.
p. Any demographic research or analysis relating to marketing or advertising of consumer financial products or services.
The current administration is focused on Equal and Equitable treatment for all consumers. Many laws that have been on the books for years may end up getting updated and enforcement is scheduled to ramp up.
On February 9, 2021, the CFPB put out a call to “attorneys interested in joining.” In a May 12, 2022 article in American Banker, “Eric Halperin, the CFPB’s enforcement chief, told staff at an all-hands meeting last week that the enforcement team received the go-ahead to add 20 more full time employees, most of them attorneys.” The focus is on data collection related to fair-lending exams, artificial intelligence and machine learning processes.
And speaking of machine learning, on May 26, 2022 the CFPB announced their concern over “Black-Box Credit Models Using Complex Algorithms. “Companies are not absolved of their legal responsibilities when they let a black-box model make lending decisions,” said CFPB Director Rohit Chopra. I don’t know how this will all end up, but it sounds like defaulting to an adverse action over a credit score may not cut it.
So, what do these initiatives mean for mortgage originating companies? It is time to pull out the training modules (we hope you have them) and be able to prove your staff has been regularly trained, from origination to closing. Its not just about C.E. And with volume down by almost 50%, it is not like there is no time to address compliance now.
In 2017, the NY State Department of Financial Services passed a Cybersecurity Law that requires annual training, and many states have adopted their requirements. Could it be “unfair” or “abusive” if a mortgage originator compromises the private data of a consumer?
At a time when there is movement, companies closing, consolidations and layoff is when data is more likely to be compromised! Now is not the time to be lax.
I get it. There are too many laws requiring too many steps to be in 100% compliance. We are here to support you! Especially, smaller companies that find it impossibly expensive to have a compliance manager and a training department.
CLOES.online is committed to working with regulators, CSBS & NMLS, state associations, companies and other parties to provide the required frequency and content for all training needed for mortgage brokers, lenders, banks, credit unions and their mortgage loan originators to be and stay compliant.
We have packages of everything you need in a cost-effective online, on-demand system and bring the training to you at your convenience.
Compliance is not an option if you want to stay in business.
Contact email@example.com for more information or call us a 866-256-3766.