CFPB Bulletin 2012-03 Date: April 13, 2012 l

Subject: Servi Providers ice The Consume Financial Protection Bur er P reau (“CFPB”) expects supe ) ervised banks and nonbanks to oversee their business relati b ionships with service provid in a mann that ders ner pliance with Federal consum financial la which is d mer aw, designed to pr rotect the ensures comp interests of co onsumers and avoid consum harm. Th CFPB’s exe d mer he ercise of its supervisory an enforceme authority will closely ref nd ent w flect this orien ntation and em mphasis. This Bulletin uses the follo owing terms: Supervised bank and nonbank refers to the following en ks ks e ntities supervis by the CFPB: sed   Large insured depo e ository institutions, large in nsured credit u unions, and their affilia (12 U.S.C § 5515); and ates C. d Certa non-depos ain sitory consum financial se mer ervices compa anies (12 U.S.C § C. 5514 4).

Supervised servi providers refe to the follo ice ers owing entities supervised by the CFPB: s y   Servi providers to supervised banks and no ice t onbanks (12 U U.S.C. §§ 5515, 5514); , and Servi providers to a substantia number of s ice t al small insured depository institutions or sm insured cr mall redit unions (1 U.S.C. § 55 12 516).

Service provider is generally defined in secti 1002(26) o the Dodd-F r d ion of Frank Act as “ “any terial service to a covered pe o erson in conn nection with th he person that provides a mat offering or pr rovision by su covered pe uch erson of a con nsumer financ product or cial r service.” (12 U.S.C. § 5481 1(26)). A servi provider m or may no be affiliated with the ice may ot d person to whi it provides services. ich s Federal consum financial law is defined in section 1002(1 of the Dodd-Frank Act mer s 14) t (12 U.S.C. § 5481(14)). 5 A. Service Provider Rela P ationships The CFPB re ecognizes that the use of ser rvice provider is often an a rs appropriate bu usiness decision for supervised ban and nonba s nks anks. Supervi sed banks and nonbanks m d may outsource cer rtain functions to service pr s roviders due to resource con o nstraints, use service providers to develop and market additional products o services, or rely on exper d m or r rtise from service providers that would not ot p t therwise be av vailable withou significant ut investment.

However, the mere fact tha a supervised bank or non e at d nbank enters in a business nto s relationship with a service provider does not absolve t supervised bank or non w p s the d nbank of responsibility for complyin with Federa consumer fiinancial law to avoid consum y ng al o mer harm. A serv provider that is unfamil with the le requireme applicable to the vice t liar egal ents e products or services being offered, or th does not m hat make efforts to implement th o hose r s al n requirements carefully and effectively, or that exhibits weak interna controls, can harm nd s der ntity consumers an create potential liabilities for both the service provid and the en with which it has a business rela ationship. Dep pending on the circumstanc legal respo e ces, onsibility may lie with the supervised bank or nonb t d bank as well a with the sup as pervised service provider. B. The CFPB’s Supervi isory Authori Over Serv ity vice Provider rs Title X autho orizes the CFP to examine and obtain re PB eports from su upervised ban and nks nonbanks for compliance with Federal consumer finan r w c ancial law and for other rela ated purposes and also to exerci its enforce d ise ement authorit when violat ty tions of the la are aw identified. Ti X also gran the CFPB supervisory a enforceme authority o itle nts and ent over supervised service provider which inclu rs, udes the autho ority to exami the operati ine ions of ders ill e f on service provid on site.1 The CFPB wi exercise the full extent of its supervisio authority over supervised service provide including its authority t examine for s ers, to w p n ptive, or abusi acts or pra ive actices. compliance with Title X’s prohibition on unfair, decep The CFPB wi also exercis its enforcem authority against super ill se ment y rvised service providers as appropriate.2 a C. The CFP PB’s Expecta ations The CFPB ex xpects supervi ised banks and nonbanks to have an effec d o ctive process for managing the risks of servi provider re e ice elationships. T CFPB wi apply these The ill expectations consistently, regardless of whether it is a supervised ba or nonban that c r w ank nk has the relatio onship with a service provid der. To limit the potential for st p tatutory or reg gulatory violat tions and relat consumer harm, ted r supervised ba anks and nonb banks should take steps to e t ensure that the business eir arrangements with service providers do not present un s p n nwarranted ris to consum sks mers. These steps should include but are not limited to: e, l  Cond ducting thorou due dilige ugh ence to verify t the servic provider that ce unde erstands and is capable of co s omplying with Federal cons h sumer financia law; al


See, e.g., subse ections 1024(e), 1025(d), and 1026(e), and sec , 1 ctions 1053 and 1054 of the D d DoddFrank Act, 12 U.S.C. §§ 5514( 5515(d), 5516(e), 5563, an 5564. U (e), nd 2 See 12 U.S.C. §§ 5531(a), 553 36.

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Requ uesting and rev viewing the se ervice provide policies, pr er’s rocedures, int ternal contr rols, and train materials to ensure tha the service p ning at provider cond ducts appro opriate trainin and oversig of employe or agents t have consumer ng ght ees that conta or complia act ance responsib bilities; pectations abo Inclu uding in the co ontract with th service pro he ovider clear exp out comp pliance, as wel as appropria and enforc ll ate ceable consequ uences for vio olating any compliance-rel c lated responsi ibilities, includ engaging in unfair, dec ding ceptive, or ab busive acts or practices; Estab blishing intern controls an on-going m nal nd monitoring to determine wh hether the servic provider is complying wi Federal co ce ith onsumer finan ncial law; and Takin prompt act to address fully any pro ng tion oblems identif through t fied the moni itoring proces including te ss, erminating the relationship where approp e priate.

For more info ormation pert taining to the responsibilitie of a supervi r es ised bank or n nonbank that has busin arrangem ness ments with serv providers , please review the CFPB’s vice w Supervision and Examination Manual: Compliance Managem Review and Unfair, Decep d M ment d ptive, and Abusive Acts or Practices.3 o


http://www.consumerfinan es/cfpb_theme/images/super rvision_examina ation_manual_ _11211.pdf at 32 (CMR 2 1), 37 (CMR 6) 44 (UDAAP 1), and 59 (UD ), DAAP 6).

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