"I felt a great disturbance in the Force, as if millions of voices suddenly cried out in terror and were suddenly silenced. 1 fear something terrible has happened."
--Obi-Wan Kenobi, Star Wars
As described in the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Consumer Financial Protection Bureau's (CFPB's) primary purpose is to protect people against unfair, deceptive and abusive acts and practices in the consumer financial services market. It's all well and good in theory, but Dodd-Frank didn't go into a lot of detail on how that theory was to be put into practice.
Instead, it gave the CFPB wide latitude on how to define the mechanics of the theory and, unlike other regulators that are controlled by a board, it vested in a single director much of the final administrative say in disputes concerning just how broad that latitude is.
Judging from conversations at events all across the country, CFPB compliance is the No. 1 industry concern for senior executives and managers in risk, operations, production, quality control and assurance, and compliance.
There is palpable fear that the new compliance burdens being imposed on mortgage lenders and servicers by the CFPB--especially since its announcement that lenders are responsible for ensuring that all their vendors comply with a long list of federal consumer financial laws--will make it difficult for all but the largest institutions and service providers to stay in business.
Consider a lender that operates nationally. How many real estate brokerages and settlement/escrow agencies does it work with? How many appraisers and appraisal management companies (AMCs)? Hundreds? Thousands? Tens of thousands?
How much will it cost the lender to ensure that all of these vendors' employees are being adequately trained and tested in, say, fair lending law and the "disparate impact" theory?
How much will it cost to periodically review the vendors' manuals, as well as their policies and procedures, to see if they demonstrate an understanding of, and ability to comply with, federal consumer financial law? How much will it cost to monitor these vendors in order to ensure that their employees actually practice what management is preaching?
And what about the vendors? What will be the cost of doing their own internal reviews and documenting everything--a task many will have to start from scratch because they're smaller shops that have never before been required to do anything like this?
What if a...