Peggy Twohig, the CFPB’s Assistant Director for Nonbank Supervision, was a member of a panel today on service provider and vendor management compliance issues at this week’s meeting in New Orleans of the American Bar Association Consumer Financial Services Committee. Ms. Twohig reviewed the CFPB’s 2012 guidance on service provider relationships, its discussion of service provider management deficiencies in its Supervisory Highlights reports, and several enforcement actions against banks and nonbanks based on activities conducted by their service providers.
Several of the panelists noted the challenges faced by supervised entities in applying new CFPB expectations as reflected in supervisory and enforcement actions to existing service provider contracts. To the dismay of many in attendance, Ms. Twohig indicated that if a service provider was not meeting those expectations, a supervised entity would need to renegotiate the contract to address such expectations or terminate the relationship. Ms. Twohig rebuffed the suggestion that the CFPB would view the supervised entity as having taken sufficient corrective action if it documented its efforts to improve a service provider’s performance.
During her presentation, Ms. Twohig touted the CFPB’s authority to examine and take enforcement action against service providers to bank and nonbank supervised entities. Where a service provider is unwilling to renegotiate an existing contract and termination would expose the supervised entity to breach of contract claims, it would seem more appropriate for the CFPB to exercise that authority rather than hold responsible a supervised entity that has made reasonable efforts to improve a service provider’s performance.