Third parties play a vital role in the operations of most consumer financial services companies. Service providers often support key functions such as loan origination and servicing, marketing, information technology, call centres, statistical modelling and credit reports, to name just a few. Third-party relationships can provide significant benefits including specialised expertise, highly scalable operations, penetrating untapped markets and reaching underserved consumers. But as financial institutions have grown to rely more and more on service provider arrangements, so too have the risks associated with these relationships increased. From 2012 through July 2017, the Consumer Financial Protection Bureau (CFPB) brought 60 enforcement actions focusing on third-party relationships in the consumer financial services industry, resulting in 52 settlements requiring consumer restitution in excess of $2.8bn (averaging over $54m per settlement) and civil penalties in excess of $260m.

The trend of intense regulatory scrutiny of third-party relationships shows no sign of slowing. For example, in April 2017 the CFPB announced a new programme to supervise service providers directly, and one-quarter of all CFPB enforcement actions in the first seven months of 2017 have focused on third-party relationships. Regulators have also continued to update their third-party oversight guidance in recent months, including new guidance from the Office of the Comptroller of the Currency (OCC) focusing on emerging trends and technologies.

Oct-Dec 2017 Issue

Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates