There has been a lot of talk lately about “best practice lending”. Compliant lending means that you follow all the relevant rules. Best practice lending means you provide the best product for that particular customer’s needs and ability to repay the debt. For example, if the customer’s ability to repay the debt is not properly determined, one can be a compliant lender but not operating in a best practice environment
The CFPB by definition was designed to protect the consumer from irresponsible players and lending in this industry as well as many others relative to consumer finances. The CFPB has been revolutionary in regard to “transparency” when performing rulemaking. Granted the Dodd-Frank Act spelled out the requirements for the rulemaking, but the CFPB also uses its discretionary authority when they feel it necessary. The mandated education requirements, as well as, the plethora of other rules effective this year can lead you to believe the goal is not for basic compliance with the rules but a focus on doing what is right for the consumer. The industry has been through a lot over the past five years. Stepping up, being compliant, and understanding why the rules are in place will have the effect of best practice lending in addition to improving the reputation of the industry over time.
Why is it important to follow best practices to remain CFPB compliant? What do organizations gain?
Best practices are really “Tried and True” practices in the industry. Sometimes they come as a result of litigation (not doing what got that company into trouble) or as a result of regulatory examinations or simply a reliable way to be compliant and responsible. Organizations can gain insight, streamline processes, and most likely have less risk by paying attention to best practices of their peers.
Best practices are generally developed by what works for some institutions in meeting compliance after trial and error in some cases. Knowing other institutions are following similar practices can prevent you from standing out from the crowd in a bad way. Organizations can gain the knowledge of what seems to work for others, modify them for what may work better for them, use them to structure policies and procedures to help the organization make mortgage loan efficiently and compliantly.
Putting those practices into writing and insisting that your staff follow those practices is critical to maintaining a best practice environment and will go a long way to protecting your company’s bottom line as well as your peace of mind.