The Dodd-Frank Wall Street Reform and Consumer Protection Act, established in 2010 in response to the global recession of 2009, created the CFPB to educate consumers about unethical practices and enforce consumer financial laws for banks and other financial institution. The bureau was quick to act, distributing the bullet 2012-3 on April 13, 2012 in an effort to reduce third-party vendor risks that could affect thousands of consumers.
Engaging third-party suppliers is not always a risk-free situation. To tighten control, the CFPB has stated these service providers need to be held to a higher standard of risk management practices if hired by a supervised bank or nonbank.
- Banks, credit unions, and even lenders are accountable for third-party compliance with federal laws.
- If suppliers are not familiar with these laws, these financial institutions are responsible for training.
- The CFPB has the authority to obtain documentation from banks and nonbanks, and their supply chains, to ensure are in compliance with federal consumer laws.
- The CFPB is allowed to exercise their authority over banks, nonbanks, and suppliers if violations occur.
- Financial institutions are required to implement effective supplier management processes to reduce risk, including due diligence when sourcing suppliers, educating supply chains of federal laws, on-going monitoring of third parties, and clearly written contracts that layout expectations and consequences.
Bank or nonbank, entering into a business relationship with suppliers does not absolve your company of legal consequences if they partake in unethical or illegal practices. Banks and lending firms are required to educate, train, and manage supplier relations at all times. By not complying with the CFPB BULLETIN 2012-3, financial institutions face potential legal repercussions and fines.Learn More about CFPB 2012-3 Compliance