The buck stops with you. Credit unions citing vendor-related hurdles to compliance have heard this from regulators for years. Yet, that sentiment may be changing.
Just last month, CFPB Director Richard Cordray told Mortgage Bankers Association conventioneers his agency may need to look more closely at vendors that are "creating obstacles" for mortgage lenders. He went on to say other financial regulators may need to join the CFPB in paying greater attention to these reports.
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This may sound like music to the ears of credit unions such as the $59 million, DuBois, Penn.-based Timberland Federal Credit Union, the staff of which was forced to use a typewriter to manually process TRID applications because its software vendor was not yet ready for TILA/RESPA. Yet, if Cordray and his counterparts follow through, the credit union industry could shoulder an even larger burden. That's because some of the vendor organizations credit unions rely on are actually owned by credit unions, either individually, in partnership or as part of a league or association. Poor findings for CUSOs are poor findings for credit unions.
However, regulator understanding of the pains associated with poor vendor performance may allow some leeway for credit unions if they can prove their failures were caused by a vendor's lack of readiness. Whereas these complaints have largely been met with suggestions such as having the credit union simply switch vendors, tomorrow they may be met with more legitimate consideration.
That said, credit unions should not sit back and relax. In the third quarter of this year alone, 170 enforcement actions were issued against community financial institutions. That brings the running total of enforcement actions this year to above 550, putting us on track for a record year. When vendor systems present hurdles to compliance, both credit union and vendor staff should absolutely continue to aggressively pursue an expedient fix.
It will be interesting to see if and how Cordray's recommendation comes to fruition. The CFPB does have supervisory authority over the service providers for bank and nonbank lenders. In 2012, the CFPB said quite clearly it will hold law-breaking vendors accountable for violations. Will the agency and others like it simply issue penalties when they uncover poor performance, or will they actually put vendor organizations into the exam rotation? Like banks regulated by the Office of the Comptroller of the Currency, will credit unions need to begin building clauses into their vendor contracts that cover the potential for examiner requests?
Leaders in the movement should be encouraged by this apparent change of tune, as it signals the CFPB's willingness to truly listen to the issues they are raising during comment periods, hearings and one-on-one meetings. The takeaway for now: Keep talking; regulators are listening.
Cindy Williams is vice president of regulatory compliance for PolicyWorks. She can be reached at 515-221-1850 or [email protected].
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