On October 31, 2016, the Consumer Financial Protection Bureau (CFPB) updated a prior Compliance Bulletin on the supervision of service providers by financial institutions.
The new Compliance Bulletin 2016-02 states:
“The Bureau is reissuing its guidance on service providers, formerly titled CFPB Bulletin 2012–03, Service Providers to clarify that the depth and formality of the risk management program for service providers may vary depending upon the service being performed—its size, scope, complexity, importance and potential for consumer harm—and the performance of the service provider in carrying out its activities in compliance with Federal consumer financial laws and regulations. This amendment is needed to clarify that supervised entities have flexibility and to allow appropriate risk management.”
The new bulletin includes new language that recognizes not every service provider will necessarily require the same level of supervision as others:
“The Bureau expects that the depth and formality of the entity’s risk management program for service providers may vary depending upon the service being performed—its size, scope, complexity, importance and potential for consumer harm—and the performance of the service provider in carrying out its activities in compliance with Federal consumer financial laws and regulations. While due diligence does not provide a shield against liability for actions by the service provider, it could help reduce the risk that the service provider will commit violations for which the supervised bank or nonbank may be liable…”
The CFPB restated its expectation that supervised banks and nonbanks must “ensure that their business arrangements with service providers do not present unwarranted risks to consumers” by putting into place policies and procedures that ensure compliance with federal consumer financial law.
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