The Rising Importance of Account Remediation Services for Lenders
Managing risk in an increasingly regulated environment creates new challenges for financial institutions, particularly in the regulatory landscape surrounding cancelled ancillary products. Financial institutions are navigating legal challenges and enhanced regulatory oversight. It’s important lenders understand and pay attention to changing rules for direct and indirect loan channels as lawsuits raise the stakes and federal oversight increases.
A Complex Compliance Landscape
State and federal regulations are put in place to safeguard consumers against unfair, deceptive, and abusive acts and practices (UDAAPs) and comply with Consumer Financial Protection Bureau (CFPB) guidance. It is a best practice to adhere to their standards.
One emerging concern centers on the refund of ancillary products in cases of a 'triggering event' such as when a loan is paid off or total loss. The process includes multiple stakeholders, which results in increased complexity. In short, there’s an assumption consumers are not receiving refunds they are owed and, historically, it’s been unclear where responsibility for that ultimately falls. Varying state by state regulations make it challenging to determine the responsibility each party holds throughout the process to enforce adherence to regulations or provide guidance for changing compliance standards. A handful of states put this responsibility on the lending institution.
Regulatory rumblings suggest 2021 will bring stricter enforcement and oversight of existing risk and recovery processes, as well as a more aggressive stance on consumer protections. Financial institutions should take steps to ensure processes are compliant looking both forward and backward, and that data being processed is up to date to reduce risk and the potential for fines and fees due to a lack of oversight and planning.
Read More on this Topic: 4 Reasons a Standardized Cancellation and Refund Process Is Necessary
3 Ways Remediation Reduces Risk
Financial institutions need to be proactive and anticipate not only how to process claims moving forward, but also look back and review previous transactions for potential past exposure and reconcile these transactions and claims to be compliant with current regulations.
1. Incorporate lookbacks to review past facilitation of workflows and service offerings.
By taking time to look back, financial institutions can identify and resolve issues that may carry multiple negative impacts. The lookback could include reviewing transactions to understand loan portfolios, identify potential risks, and follow up on previously cancelled products. Be sure to assess what regulatory restrictions are in place to determine how far back the review should go.
Reevaluating processes can provide clarity around options and establish proper steps moving forward. Third party services are available to help consult and recommend solutions to help financial institutions adapt and adjust to meet changing regulatory guidelines.
2. Address compliance concerns.
A thorough review of legal documentation and an examination of state guidelines for the processing of ancillary products can help financial institutions begin to reduce exceptions and minimize future exposure.
It’s important to understand, in detail, the regulatory environment and the varying rules between direct and indirect lending by state. Additionally, it’s important to understand the variance of requirements for compliant refund management by state and establish corrective action on legal, regulatory, compliance, and/or consent orders. It may be helpful to create formal legal documentation with stakeholders outlining roles and responsibilities to help address accountability and establish a compliant process.
3. Enact compliant processes and find uncollected refunds.
A process that can help confirm, remit, and collect will prompt action and mitigate future regulatory exposure by being able to track the loan portfolio accurately. Financial institutions can confirm the accuracy, delivery, and receipt of consumer refunds. A clean, clear report can help manage and track the refund process and facilitate communication with borrowers.
A compliant remediation process can:
- Notify impacted consumers on your behalf
- Research and reconcile funds handling and reporting
- Help your institution adhere to state and federal regulations impacting transactions
- Review lending claims and sales
- Validate auxiliary product refunds’ accuracy and timeliness
About Allied Solutions
Allied Solutions, LLC is one of the largest providers of insurance, lending, and marketing products to financial institutions in the US. Allied Solutions uses technology-based products and services customized to meet the needs of over 4,000 banks and credit unions, along with a portfolio of innovative products and services from a wide variety of providers. Allied Solutions maintains over 10 regional offices and service centers around the country and is a subsidiary of Securian Financial Group, Inc.Content in the blog posts are the opinion and views of the writer, and don't necessarily reflect the opinions or views of Allied Solutions.