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Many banks and other financial services companies routinely outsource some of their operations to third-party vendors they believe can perform the necessary work in a more specialized or cost-effective manner.
But suppose an outside vendor uses unfair, deceptive or abusive practices to accomplish the work -- be it telemarketing, product development, customer service or whatever -- on behalf of the bank. Is the bank responsible for the vendor's bad behavior?
The answer might now be a more resounding "yes" -- if, that is, the bank or financial services business is supervised by the federal Consumer Financial Protection Bureau, or CFPB.
The bureau this week released a bulletin clarifying that financial institutions under its supervision may indeed be held responsible for the actions of companies acting through contracts with them. Specifically, the CFPB said it intends to "take a close look at service providers’ interactions with consumers" and "hold all appropriate companies accountable when legal violations occur."
As CFPB Director Richard Cordray noted in a statement, consumers are at "a real disadvantage" when they're forced to deal with these outside companies because they have no say in who is hired to do the job.
"Banks and nonbanks must manage these relationships carefully and can be held accountable if they break the law," Cordray said.
According to the CFPB guidelines, financial institutions should have "an effective process for managing the risks of service provider relationships."
This process could include:
- Conducting thorough due diligence to verify vendors understand and are capable of complying with consumer-protection laws.
- Requesting and reviewing vendors' policies, procedures, internal controls and training materials to ensure they conduct appropriate training and oversight of employees or agents who have consumer contact or compliance responsibilities.
- Including clear expectations about compliance and enforceable consequences for violations in their vendor contracts.
- Establishing internal controls and ongoing monitoring to determine whether vendors are complying with the laws and taking prompt action to fully address any problems.
Consumers can only hope such grand intentions will translate into more than mere words.
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