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June 11, 2020

Consumer Credit Regulation - where compliance training is key

Staff need training in the complexities of Fair Credit Reporting, Fair Lending, and Truth in Lending

Jurisdictions around the world have recognised the power imbalance between borrowers and lenders and have put in place comprehensive legislative regimes to address the problem.

A consequence of this is that lenders are put at considerable financial and reputational risk if they fail to comply with the applicable laws. And the problem for lenders is that it can be customer-facing, non-expert staff who pose the biggest risk of non-compliance.

In the USA, there are three major pillars in the regulation of consumer credit (along with a number of other relevant laws that bear on the offering and enforcement of credit in one way or another.) These are Fair Credit Reporting, Fair Lending, and Truth in Lending.

Fair Credit Reporting

The Fair Credit Reporting Act (FCRA) (which actually includes some smaller Acts) governs the collection, use and maintenance of consumer credit information. The major provisions of the Fair Credit Reporting Act largely regulate the activities of credit reporting agencies, but the Act also has implications for other businesses: lenders and prospective employers, for example.

What is a violation of the Fair Credit Reporting Act that might apply to a lender or an employer?

One example is: when an “adverse action” is taken against a consumer based on credit information (such as the refusal of a loan or a decision not to hire) the affected person must be notified. They then have a 60-day window of opportunity to seek to have any errors in the record amended.

Another example is the capacity of consumers to opt-out of receiving unsolicited marketing for credit products.

It is clear that expert staff should be very familiar with these provisions, but non-expert, generalist staff may be less familiar with them and pose a considerable risk of exposing the company to enforcement action for breaches.

Fair Lending

There are five laws that cover fair or non-discriminatory lending requirements.

The effect of these laws is that discriminatory lending can lead to legal and reputational risks for a financial institution.

Bank staff need to understand that discrimination is not always obvious, and in fact, illegal discrimination can take three different forms: Overt, Disparate treatment, and Disparate impact.

These concepts are not always obvious to untrained people. It is clear that without adequate compliance training, customer-facing staff will pose a considerable risk of exposing the business to regulatory action for breaches of Fair Lending.

Truth in Lending

The Truth in Lending Act (TILA) and Regulation Z also contain provisions that customer-facing staff need to be familiar with.

TILA covers more than the requirement for lenders to provide clear and consistent loan information that allows consumers to make informed decisions about credit contracts. It also covers repayment procedures, right of recission, limits on fees, dispute resolution, assessment of a borrower’s capacity to service a loan, record keeping, and more.

Contact staff need to be aware of all these issues in order to avoid jeopardising the business’ compliance with the law.

Compliance Training Courses

While on reflection the provisions of credit regulation regimes – such as those applying in the USA – are necessary and reasonable, they are nevertheless complex and not always obvious to an untrained person, no matter how well-intentioned they may be.

For this reason, it is essential that businesses have in place an adequate and up to date compliance training regime, including professionally written compliance training courses.

Your business needs appropriate compliance training courses to equip staff to carry out their duties according to the relevant law, and to treat your customers fairly and justly. In the absence of a compliance training course relevant to their duties, staff pose a significant risk of exposing the business to regulatory action and reputational damage.

And the compliance training needs to be repeated and reinforced. Those of us who have managed contact centre staff are well aware of how easy it is for busy staff to forget their obligations and make errors that could have significant consequences.

 

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