Credit Report Access Freezes, Advanced Pension Products – What Should Lenders Watch For? Listen to the Podcast

In the podcast below, Steven Stachowicz and Kat Sanchez of our Risk and Compliance practice discuss some of the recent topics in Protiviti’s Compliance Insights newsletter series. For access to our latest issue, visit

Compliance Insights In-Depth Interview [transcript]

November 30, 2018

Kevin Donahue: Hello. This is Kevin Donahue, Senior Director with the Protiviti Marketing Group welcoming you to a new installment of Powerful Insights. Today, I’m happy to be speaking with Kat Sanchez and Steven Stachowicz with our Risk and Compliance Group, and we’re gonna be talking a bit about the latest issue of our Compliance Insights newsletter.

First, let me introduce Steve. He’s a Managing Director and leader within our Risk and Compliance practice. Steve, it’s great to speak with you today.

Steven Stachowicz: It’s great to speak with you as well. Thank you.

Kevin Donahue: And Kat Sanchez is a Director with our Risk and Compliance group. Kat, it is great to speak with you.

Kat Sanchez: Greetings from sunny Los Angeles.

Kevin Donahue: Steve, let me ask you the first question. Again, as I mentioned, we’re talking about the latest issue of our Compliance Insights newsletter. One of the articles concerns a statement issued by the five regulatory agencies, clarifying the meaning and role of supervisory guidance. Why did the agency find it necessary to issue that specific clarification?

Steven Stachowicz: Thanks, Kevin. It’s a good question. There has been a lot of ongoing dialogue in the industry about the role of supervisory guidance that’s been issued by the prudential regulators, such as the OCC or the Fed, the NCUA, and also the Bureau of Consumer Financial Protection. Notably, the guidance that’s been issued by the Bureau. It’s generally been understood in the industry that regulations, obviously, have the force of law, since they implement the statutory requirements to which they’re associated, and go through formal comment processes, et cetera, but regulatory guidance is not meant to have the force of law. But the industry has been concerned historically that the agencies may and maybe in some cases, have, taken punitive actions against things or at least have cited banks or credit unions or other nonbank entities based on perceived noncompliance with regulatory guidance, or at least have referenced regulatory guidance in relation to regulatory actions. And so in an effort, I think, to address the matter, the agencies have clarified in this interagency statement that supervisory guidance is intended to outline the supervisory expectations or priorities of the agencies and provide examples of practices that the agencies would generally consider to be  consistent with the applicable laws and regulations. And then the statement also indicates that future guidances that are issued will try to adhere more towards being true guidances, refraining from things like establishing thresholds or other numerical guidelines that could be construed as   standards that have to be specifically followed. The agencies have also said that they are going to take steps to refrain from issuing multiple guidances on the same topics, which is yet another item of discussion in the industry, historically, about conflicting guidance or multiple guidances.

The interagency statement is not to say that regulatory guidance is of no consequence going forward for the industry though. I think that’s important. The agencies have committed to rooting that guidance in legal and regulatory requirements. And an institution can still be cited for noncompliance with an underlying bar or regulation. It’s just that the guidance itself is not meant to be what the agencies will be citing as noncompliance. Guidance is guidance. That’s what the basis of the statement is. And it should be helpful or clarifying to the industry in terms of what the requirements are of the industry that they need to comply with.

So, financial institutions should continue to understand the views and the expectations of their regulators that are communicated through supervisory guidance, which is what we have stated in the Compliance Insights, but I think that the interagency statement does go far in  stating or aligning the view of both the agencies and the industry in terms of guidance being guidance, and how to view that guidance in relation to establishing compliance programs and complying with the underlying laws and regulations.

Kevin Donahue: Thanks, Steve. I’m sure our article with answer some of the questions that many in the industry likely have about this. Kat, let me ask you about another article we have in the newsletter, which covers a new provision in the Fair Credit Reporting Act. This provision gives customers the option to freeze access to their consumer reports free of charge. What are the operational changes financial institutions need to make to comply with this new provision?

Kat Sanchez: Thanks, Kevin. A very timely article for our Compliance Insights monthly, and, I don’t even know how I’m supposed to follow Steve and that was incredible. Thank you, Steven, for your insights on regulatory focus as we approach the New Year.

There was a very riveting article, however, in our recent Compliance Insights that discussed the Fair Credit Reporting Act. It is very near and dear to my heart personally. And what it talks about is a new provision that requires consumer reporting agencies to freeze consumers’ accounts for free. As you mentioned, Kevin, it’s now a free service. And so, having access to free services might likely mean an uptick in usage of those services. So what can banks do to prepare?

What this means is that when a consumer comes into a bank and decides they want to open an account or they want to  apply for a loan or increase an existing credit amount, they may have instances where they run into processing errors or processing delays that make them frustrated, and the bank will have to address, because they have these freezes on these consumer reports.

So, what happens next? Banks need to be prepared operationally to be prepared for delays in processing, to prepare their frontline staff in terms of training and job aides to be responsive to these consumers and say, “Hey, I do see the freeze on your credit report. You may want to go back to this consumer reporting agency and look into it because there are limitations as to what we as the bank, can talk to the consumer about that.”

And ultimately, it’s a training concern and the complaints concern, because those two areas may also see an uptick in activity. And you’ll have to train your frontline staff, create new job aides, help the people to understand how to service our customers and provide appropriate levels of service despite this new freeze, or you may have to be responsive to new consumer complaints related to a specific, very small, new nuance to this Fair Credit Reporting Act.

I would be remiss not to mention compliance management systems, and how your compliance team is going to have to be responsive as well and support the first line. So, that relates to notifications that the bank will have to send consumers. It relates to the training and complaints I just mentioned, and it also relates to any regulation that intersects with the Fair Credit Reporting Act. As you know, different regulations are complimentary and intersect. So compliance management systems and compliance specialists in general will have to see, and look back at their monitoring and testing, to see whether or not this September 2018 requirement is working appropriately to support their business.

Kevin Donahue: Great rundown. Thanks, Kat. I’m guessing this is not the last we’ve heard about this. Steve, let me ask you our last question here. It touches on, I think, what might be our favorite topic. Every month, we do have a discussion about the Bureau of Consumer Financial Protection. In our latest issue, we note that the BCFP recently filed a lawsuit against a California-based company and several other entities alleging unfair practices related to advanced pension products. Steve, explain to me the reason for the suit and its implications for other companies that deal in similar products.

Steven Stachowicz: Sure. The reason for inclusion in Compliance Insights, I think, is really to highlight the fact that there are these types of products out there in the market. Many folks are not really familiar with some of the types of lending products, consumer credit products that may be out there. Pension advance products are unique products in the market, and they are often offered by nonbank financial institutions. There are products that are similar, and really, this is why this is relevant for these other types of products, whereby financial institutions may be providing money to a customer in advance of some sort of expected future income stream. So another example might be litigation funding, for instance. There are products that provide advances on litigation settlements or planned litigation settlements.

Pension advance products are, in particular, lump sum, cash payouts to retirees or near retirees, in exchange for some or all of the individuals’ monthly pension payments for a specified period of time. And there’s different variations on this in the market, but, given the nature of the products, which can be and often are higher-rate, higher-fee loans, And the types of customers – in this case, these are borrowers who are effectively borrowing against their retirement  pensions, their retirement plans. There certainly is a higher degree of risk, and care that may be expected or required to make sure that these products, are being offered clearly, clearly disclosed, and clearly represented, so that borrowers understand what it is that they’re getting into.

In the case of the action that was taken by the Bureau, those are at the heart, the nature of the concerns – that there were inadequate disclosures provided to customers and misrepresentations about what these products were. It’s not entirely clear that the products were disclosed as loans, as loans having interest rates. Customers may not have realized that there were prepayment penalties and so on. So the Bureau cited potential noncompliance with the statutory provisions against unfair and deceptive or abusive acts and practices and also other existing credit statutes, like the Truth in Lending Act. The implications, I think, in this case are clear. Mainly, institutions do need to take care to assess their products and services that are being offered in the market for compliance with applicable laws and regulations, and then importantly, ward against potentially unfair, deceptive or abusive acts or practices, UDAAP, in the form of misrepresentations and other practices that could take advantage of borrowers and their understanding of the products. I mean, that’s disclosures. That’s advertisements. That’s direct consumer interactions.  I don’t think that any of that should sound very foreign to most financial institutions, and I think the industry actively works to manage that today. But certainly, the “of note” interest here is that it’s a unique product, and there are other products that are like that in the market, and these products are high-risk in terms of the type of funding that’s being provided and the type of customer, and  care really needs to be given to those products to ensure that customers fully understand what it is that they are getting into from a financial obligation perspective.

Kevin Donahue: Thanks, Steve. And, Kat, I wanna thank you as well for  joining me today to discuss these latest topics that we cover in the October issue of our Compliance Insights newsletter. Definitely, both of you provided some great food for thought that I think will be helpful for our listeners in the financial services industry.

Please check out our October issue, as well as prior issues of Compliance Insights at

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