On April 13, 2012, the newly minted Consumer Financial Protection Bureau (CFPB) issues CFPB Bulletin 2012-03 on the topic of Service Providers that, while using different words does not vary substantially from the supplier guidance issued on this topic from other financial service regulators, thankfully.

While relationships with service providers are viewed as potentially useful, the bank remains responsible for complying with Federal Consumer law to avoid consumer harm.

In addition to regular bank examinations, the CFPB will have supervisory and enforcement authority over the Service Providers.

An effective process for risk management and governance is expected.

To ensure that the contracts with Service Providers do not pose unwarranted risks to consumers, the following steps are recommended:

  • Conduct thorough due diligence to verify that the Service Provider understands and is capable of complying with Federal Consumer financial law;
  • Requesting and reviewing the service provider's policies, procedures, internal controls, and training materials to ensure that the service provider conducts appropriate training and oversight of employees or agents that have consumer contact or compliance responsibilities;
  • Including in the contract with the service provider clear expectations about compliance, as well as appropriate and enforceable consequences for violating any compliance-related responsibilities, including engaging in unfair, deceptive, or abusive acts or practices;
  • Establishing internal controls and on-going monitoring to determine whether the service provider is complying with Federal consumer financial law; and
  • Taking prompt action to address fully any problems identified through the monitoring process, including terminating the relationship where appropriate.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.