I work in the recovery industry – in the vernacular, car repossession. If you're reading this, you're probably either a banker or working in financial services. Our two industries need each other to be as successful as possible for our own well-beings.
At my trade group's annual North American Repossessors Summit in Dallas last month, Michael Dougherty of the law firm Weltman, Weinberg and Reis LLC discussed how the Consumer Financial Protection Bureau will indirectly affect the recovery industry and our relationships with the lending community.
One slide of his presentation was taken from the CFPB's October 2011 Supervision and Examination Manual, and this view best described the future.
"Supervised entities are also expected to manage relationships with third party service providers to ensure that these providers effectively manage compliance with Federal consumer financial laws applicable to the product or service being provided," the manual says. Later it goes on: "The CFPB expects every regulated entity under its supervision and enforcement authority to have an effective compliance management system adapted to its business strategy and operations."
This clearly puts the recovery agents in their crosshairs. We have continued to see a massive overreach by the government during the last three years and this new bureau has the money and manpower to exert its will over a vast portion of the American lending community and its servicers. Dougherty said it would no longer be good enough for us, the recovery agents, to say we do it right and for our clients, the banks and auto lenders, to accept that answer. Now, we will have to document and have proof that we do it right.
Although the CFPB has not yet set the formal guidelines addressing third party risk management, the agency has referred to the current Federal Deposit Insurance Corp. risk management process as a starting point. This includes: risk assessment; due diligence in selecting a third party; contract structuring and review; and oversight.
We are seeing the "negligent hiring" claim in many wrongful-repossession lawsuits filed recently by consumer attorneys against lenders that include the recovery agencies as an additional named party.
In today's litigious environment, it is of utmost importance that lenders know the qualifications of the recovery agents representing them in the field. It may not be as easy as letting a so-called forwarding company have carte blanche and counting on such a middleman to be the sole decider of who represents you in the recovery process. Lenders will need to know the qualifications of anyone handling an account for them.
Comprehensive due diligence involves the review of all available information about a potential third party, focusing on its financial condition; relevant experience; knowledge of applicable laws and regulations; reputation; effectiveness of its operations and controls; management of information systems; and knowledge of consumer protection laws.
Lenders need a place to go to find these highly qualified companies that have been vetted and trained properly. National trade associations can help in this area since the requirements for membership cover most of these items. It is important for repossession agency owners and all their employees to participate in a strong continuing education and best practices program. There are a couple of widely accepted training and certification programs available to association members. We know of several wrongful-repo cases that the recovery agents won because they had documentation that they and their staffs were certified by the Certified Asset Recovery Specialist program.
As the CFPB develops more of these guidelines, it will be important for the lending community and the recovery industry to be in constant contact so we can each help the other realize the best and most cost effective way for both sides to prosper in these challenging times. We're all in this together.
Les McCook is the lead consultant for the American Recovery Association, a trade group for repossession specialists based in Irving, Tex.