RISK ASSESSMENTS: WHAT WE’VE LEARNED€¦ · place to mitigate that risk. CFPB’S RESIDUAL RISK...
Transcript of RISK ASSESSMENTS: WHAT WE’VE LEARNED€¦ · place to mitigate that risk. CFPB’S RESIDUAL RISK...
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RISKASSESSMENTS:WHATWE’VELEARNEDSteveLevine,ChiefLegal&ComplianceOfficer
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WHATISARISKASSESSMENT?
↗ AccordingtotheCFPB,theRiskAssessmentprocessisdesignedtoevaluateonaconsistentbasistheextentofrisktoconsumersarisingfromactivitiesofanentityandtoidentifysourcesofthatrisk.
↗ “Risktoconsumers”isthepotentialforconsumerstosuffereconomiclossorotherlegallycognizableinjuryasaresultoffailuretofollowfederalconsumerfinancelaws.
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WHATISARISKASSESSMENT?
AsdefinedbytheCFPB,“inherentrisk”includesfactsthatincreasethepotentialforunfair,deceptiveorabusiveactsorpractices,fordiscrimination,orforviolationsofotherFederalconsumerfinanciallaws.Italsoincludesfactorsthatincreasethecompliancemanagementchallengesofabusinessandtherebyincreasetheriskofsuchviolations.
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WHATISARISKASSESSMENT?
“RiskControls”includesfactorsrelatedtobothmanagingandmitigatingspecificinherentriskaswellasthestrengthofanentity’soverallsystemofcompliancemanagement.
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WHATISARISKASSESSMENT?
TheresultofcombiningthesetwoconceptsisananalysisthatinvestigatesBOTHthepracticesthatrepresentrisktoconsumersANDwhatcontrolsthebusinesshasputinplacetomitigatethatrisk.
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CFPB’SRESIDUALRISKMATRIX
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CFPB’SRESIDUALRISKMATRIX
↗ TheCFPBtemplateprovidesaseriesoffactorsthatbearoninherentriskandrelevantriskcontrols.Examinersconductingtheassessmentshouldrateeachrelevantfactor(low,moderateorhighinherentrisk;strong,adequateorweakcontrolsandmitigation.
↗ Thefactorratings,takenasawhole,resultinaRiskSummary,whichisaconclusionaboutwhethertheoverallrisktoconsumersislow,moderateorhigh.
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WHATARISKASSESSMENTISNOT
Ariskassessmentisnotadeterminationastowhetheraviolationofanyspecificlawexists.Itisaninvestigationintopracticesaswellasbusinesscontrolsinplace.
Conclusionsarebasedonriskpresentedtoconsumersaswellasadequacyofcontrolsinplace.
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RISKASSESSMENTTOPICSINCLUDE↗ Website;
↗ Advertisingand
Marketing; ↗ AcquisitionNetwork;
↗ AdverseAction;↗ UnderwritingandScoring;↗ AncillaryProducts; ↗ FeesChargedtothe
Customer; ↗ CollectionCallFrequency↗ Thirdpartycontact;
↗ MilitaryAccounts;↗ Repossessiondecisions;↗ AdherencetoCallScripts;↗ ComplaintManagement;↗ BankruptcyAccounts;↗ CreditReporting;↗ CreditDisputeHandling;↗ StarterInterrupt/GPS
accounts;↗ CPI↗ ANDMORE
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ADVANTAGESOFARISKASSESSMENT↗ Globalviewofoverallbusiness,notsilos;↗ Identifieswheretoinvestresourcesandbudget;↗ Measuresprogress;↗ Setspriorities;↗ Avoidfiredrills;↗ DemonstrateadequacyoftheCompliance
ManagementSystem;↗ Facilitatesworkingrelationshipbetweenbusiness
andcomplianceteams;
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KEYSTOASUCCESSFULRISKASSESSMENT
↗ Projectshouldbeaprocess,notadocument;↗ Itshouldbedynamic,notstatic;↗ Allowsassessmentofcurrentconditionswithgoalof
improving;↗ Don’tjustconsiderwhereyouarebutwhereyouare
going,i.e.newproducts,markets,profitcenters,yields;
↗ Maketheriskassessmentforwardlookingtoo.
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KEYSTOASUCCESSFULRISKASSESSMENT
ENGAGETHEBUSINESS!
↗ Collaboratewiththeallemployeesontheproject;↗ Earlybusinessbuy-iniskeytoacceptance;↗ Involveeveryoneinthedevelopmentofanalysis;↗ Don’twaitforthefinalreporttodeliverbadnews;↗ Recognizeandhighlightthe“goods”;↗ Fixtheproblem,nottheblame;↗ Supportmustcomefromtop;
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BIGGESTRISKASSESSMENTMISTAKES
↗ Thinkingthatthisismerelyacompliancedepartmentfunction;
↗ HidetheBallMentality;↗ Attemptingtodothisin-house;↗ NotinvolvingalllevelsoftheCompany;↗ ConfusinganAssessmentwithanAudit.
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OURGENERALOBSERVATIONS
↗ Thereisoftenadisconnectbetweenseniorleadershipandtheemployeesdoingthedaytodaywork.Thisistrueforbothareasofriskandcontrols.
↗ It’shardtogetaccesstotherightinformation.Thisisconcerningbecausethecompanymustdemonstrateitsefforts!;
↗ Thereismisunderstandingaboutrolesandresponsibility;
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OURGENERALOBSERVATIONS
↗ Companiesthinktheirtraininginitiativesarealotmoreeffectivethantheyare;
↗ Companiesstrugglewithanalyzingtheirbusinessthroughthelensof“consumerrisk”andtendtofocusontheirownrisk;
↗ Weoftenhear“it’snotillegaltomakemoney”asadefensetotheofferingofproductsandservices.Thequestioniswhetherthereistransparencyandfairnesstotheconsumer.
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OURGENERALOBSERVATIONS↗ “FOLLOWTHEMONEY”isagoodwaytoidentifyrisk.Someof
themostprofitableinitiativesalsocontainthemostrisk,forinstancefees,aftermarketproducts,CPI,etc.
↗ Businessestendtoembellishthecontrolsthatareinplace;whatappearsonacompanyorganizationchartmaybeverydifferentthanwhatactuallyhappens;
↗ Thereisn’tnecessarilyacorrelationbetweencustomercomplaintsandareasofrisk;however,nothavingstrongcomplaintmanagementisinitselfarisk;
D
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OURGENERALOBSERVATIONS
↗ Therearesomepracticesthatareinherentlyrisky(CPI,Advertising)andinthoseareasevenstrongcontrolsinplacemayresultina“moderate”riskassessment;
↗ Similarly,thereareareasofmoderateorevenlowriskthatcanbeassessedas“moderate”riskbecauseofweakcontrols;
↗ Beinganindependentthirdpartyallowsamorehonestassessmentbecausethereisnopre-existingprejudice;
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POLICIESANDPROCEDURES
↗ PoliciesandProcedures,standingalone,donotconstitutestrongcontrols.
↗ Digdeeperandintovariouslevelsofthecompanytolearnfamiliaritywiththepolicies,howoftentheyareexaminedandupdated,andhowstrongandthoroughisthetrainingreceivedbypersonnel.
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INDIRECTLENDING↗ Indirectlendersthatbuycontractsfrom
hundredsorthousandsofdealersneedtohavestrongcontrols,(underwriting,contractsaccepted,thirdpartyproducts);
↗ Unfortunately,budgetaryandvolumepressuresmakeithardtosticktothesecontrols.
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VENDORMANAGEMENT↗ Generally,companiesaren’tasstrongwith
thisfunctionastheythinktheyare;
↗ Policiesarenotalwaysfollowed,exceptionsaremade,mostprominentlyinrepossession;
↗ TherecentWellsFargofinehadsomegoodinsightintomanagingvendors,askingpenetratingquestionsandbeingproactive.
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COMPLAINTMANAGEMENT
↗ Mosthaveapolicyandprocessbutwidedivergencewithitcomestoremediation;
↗ Companiesdon’tdocumentwelland“losecredit”forcomplaintstheyresolvequickly;
↗ 3mostcommonarea)poorservice;b)employeerude;andc)reporelated.
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THIRDPARTYCONTACTS
↗ Thereisconfusionastowhenathirdpartycanbecontacted,anditoftencontactismadewhenlocationofcustomerisknown;
↗ Companieslackamechanismtotrack“donotcall”instructionsfromthirdparty;
↗ Managersdon’tliketheruleandtrytocircumvent.
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CREDITREPORTING↗ Disputehandlingfunctionisnotadequately
staffedinmanyinstances;confusiononwhat“adequateinvestigation”means;
↗ Furnisherobligationsaren’talwaysunderstoodandauditsdon’tmatchsizeandcomplexityofbusiness;
↗ Inherentlyhighrisktopic,sotrainingvital.Staffisoftennotadequatelytrainedandinheritjob.
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COLLECTIONSANDSERVICING
↗ Scriptsdon’talwaysexistandwhentheydotheyareoftennotfollowed;
↗ Collectionnotesarenotalwayspresentandoftennotclear;
↗ Datanotalwayseasytolocate;
↗ Integrationbetweenvarioussystemsneeded.
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MeetusattheAfterParty!
ContinuedDiscussiononourwebinar!
RiskAssessments:WhatWeLearnedFor2018
WednesdayJune6th
2PMCDT
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IgniteConsultingPartnersconsultsBHPHdealers,financecompanies,andotherlendersoncompliance,cyber-threatassessment,processimprovementandhowtoleveragetechnologyto
driveefficiencyandperformance.
SteveLevineChiefLegalandComplianceOfficer
(817)[email protected]
FollowSteveonTwitter@LawyerLevine