The Lessons Keep Coming
By Steve Levine, Chief Legal and Compliance Officer, Ignite Consulting Partners
I’m discouraged, and that’s not normal. I’m usually fired up when I write an article. The recent double whammy of news of the Wells Fargo CPI investigation, coupled with the CFPB’s findings in its payment fees bulletin of July 31st, has got me down, though.
Many trainers, consultants, publications and others in our industry have done a good job of getting the word out about the importance of treating customers “right”. To be fair, there are a lot of companies that have acted upon the message and taken steps to improve the transparency of their business practices and create a better customer experience. Unfortunately, though, there are still many folks that aren’t acting upon the message.
The Wells Fargo CPI Mess
The Wells Fargo CPI news includes findings that it wrongfully placed collateral protection insurance (CPI) on hundreds of thousands of accounts. This is very troubling, as it has been a “best practice” for years for institutions that size to have policies and procedures in place to make sure that CPI is only added to an account as a last resort and after notice has been provided to the customer. This news is damaging to our industry. Wells Fargo is a big name that has had several recently publicized instances of compliance lapses. Its conduct will be imputed to the entire industry, so expect a new round of regulator, news media and plaintiff lawyer scrutiny and attacks.
In anticipation, lenders need to get their house in order. Review and update policies and procedures so that customer notice and communication can be demonstrated. Be sure there is a process to provide customers with advance notice that records indicate insurance has lapsed and CPI will be added unless proof of insurance is provided. Think about providing an additional notice after a few months to provide another opportunity to the customer to take action. Also, be sure to tell the customers that CPI premiums will be refunded if the customer can provide proof that such insurance was in place during the time period in question. Remember that CPI fees can have a big impact on customer balances and many do not have the ability to repay the additional premium, so consider the overall impact this will have on how a regulator looks at the business, not to mention the overall portfolio and whether there is an unintended consequence of driving up defaults.
CFPB Payments Fees Bulletin
Turning to the CFPB’s Bulletin on Payment Fees, the big take away is the importance of having transparent communication of available payment methods and their associated fees. In my view, this Bulletin is really about the CFPB’s dislike of the charging of these fees, especially when the customer isn’t adequately told about the availability of free alternatives. That’s a good way to catch a regulator’s attention. Again, BE TRANSPARENT. Look at how this information is communicated with customers and make sure all of the options are being clearly communicated, the more often the better. From the welcome letter to the website to IVR and other recordings, the customer should be given a clear picture of how to pay and those methods with fees attached shouldn’t be given priority above the free options.
Both of these issues once again illustrates the need for transparency in customer dealings. It’s crucial to take a look at operations and practices through the eyes of the customer. Are they being provided with all of the pertinent information? Are their opportunities to increase both the clarity of the message and the frequency that it is provided, so that the customer has a thorough understanding of the financial consequences of their choices?
Looking at your business through the eyes of your consumers can be uncomfortable, but it’s only by doing so that improvements can be made. Technology is making the world more transparent and our business has the added pressure of ever increasing regulator, news media and consumer scrutiny. Lenders need to learn this lesson and make changes accordingly, or else the lessons will keep on coming.
Steve Levine is Chief Legal and Compliance Officer of Ignite Consulting Partners, which offers compliance, technology, and cyber security guidance to car dealers and finance companies. He has previously served in similar capacity with other industry participants. These experiences allow him to develop strategy, overcome internal obstacles and implement meaningful change. Please contact sales@IgniteCP.com to learn more. You can follow Steve on Twitter @LawyerLevine for compliance and industry related content