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CFPB warns banks, non-banks on third party vendor compliance

The Consumer Financial Protection Bureau published a bulletin on Friday as a reminder to financial firms that they could face enforcement actions for violations under third party providers.

The agency acknowledged in the bulletin that both banks and non-banks may occasionally “outsource certain functions to service providers” but warned that the financial firm under which the third party vendor is contracted would still be responsible for compliance with consumer laws.

“The mere fact that a supervised bank or nonbank enters into a business relationship with a service provider does not absolve the supervised bank or nonbank of responsibility for complying with [f]ederal consumer financial law to avoid consumer harm,” the bulletin said.

In addition, the agency “expects” financial institutions “to have an effective process for managing the risks of service provider relationships,” ultimately reaffirming the CFPB’s role as regulator, supervisor and industry leader.

“Consumers are at a real disadvantage because they do not get to choose the service providers they deal with—the financial institution does,” CFPB Director Richard Cordray said, according to DSNews.com. “Consumers must not be hurt by unfair, deceptive or abusive practices of service providers. Banks and non-banks must manage these relationships carefully and can be held accountable if they break the law.”

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