be given to services in a foreign language including documented materials, translation, and customer service personnel
who speak a predominant foreign language based on market
Addressing Fair Servicing Risk
Because of the breadth of servicing interactions and activities,
banks must first understand where risks occur. Focus should
include activities that are critical to a servicing process and present
the highest risk of compliance or service failure. Controls must
be designed to mitigate both the compliance and operational risk
and be periodically tested to verify that they continue to operate as
intended. Ineffective controls can lead to errors that may impact
one account or many account—especially if the error is a result of
a systems programming issue. Preventive and detective controls
and the processes they align with should be periodically evaluated
for effectiveness to help avoid difficult and costly remediation.
The preventive and detective controls in the box below, are
integral to a robust and well-functioning compliance management
system within the servicing function.
Second line compliance monitoring and third line internal
audit play instrumental roles in ensuring that controls are both
mitigating risk and providing effective identification of errors.
Customer feedback is also key to awareness of potential servicing issues. Feedback comes in all forms and does not necessarily
need to be tied only to complaints. For example, did the bank
just launch a new rewards program and customers are calling or
emailing with questions that indicate confusion about how they
earn rewards? This could be an early indication that the program
may not be operating as intended or that customer marketing was
not clear or was misleading. Additionally, pay attention to internal
reporting. Unusual changes or spikes in delinquency rates or payment patterns could indicate an issue with the servicing system
or failure to process payments in a timely manner.
Servicing and Fair Lending
Compliance issues in the loan servicing process may increase a
bank’s fair lending risk profile. The Equal Credit Opportunity Act
(ECOA) and Regulation B make it unlawful to discriminate against
any borrower in any aspect of a credit transaction, including loan
servicing, on the basis of race, color, religion, national origin, sex
or marital status, age (provided the borrower has the capacity to
enter a contract), because all or part of the borrower’s income is
derived from any public assistance program, or because the borrower has in good faith exercised any right under the Consumer
Credit Protection Act. ECOA applies to servicers that are creditors,
such as those who participate in a credit decision about whether
to approve a mortgage loan modification. Within the servicing
process, payment programs, interest rate reductions, modification
options, and fee waivers all represent decision points that present
potential fair lending risk.
The procedures CFPB examiners follow to evaluate a servicer’s
compliance performance are detailed in the CFPB Supervision
and Examination Manual. Understanding these procedures and
incorporating their intent within the bank’s fair lending compliance management system (CMS) will not only help provide better
customer service but it should also help mitigate fair lending
risk. Banks should review the following ECOA-specific exam
procedures against the bank’s fair lending CMS to determine and
address potential fair lending risk:
Compliance officers must ensure they continue
to help the bank successfully navigate the
landscape by identifying and mitigating
compliance risk in all aspects of account
servicing, including fair lending and UDAAP.
■ ■ Management and Board oversight (tone at the top).
■ ■ Detailed policies and procedures.
■ ■ Job-specific training on regulatory requirements,
policies, and procedures.
■ ■ Compliance review of new products during
development and prior to product launch.
■ ■ System controls including hard stops and warnings.
■ ■ User acceptance testing prior to going live with system
■ ■ A documented and established change management
process that includes review of new regulations,
regulatory newsletters, and enforcement actions
■ ■ First line quality assurance review and business
analytics (key performance indicators, key risk
indicators) for timely identification of errors and ongoing
■ ■ Second line compliance monitoring to ensure first
line processes and monitoring efforts are effective in
identifying errors and potential risks.
■ ■ Third line internal audit will ensure the bank’s
compliance management system is robust and
effective. The last check before regulatory examinations.
■ ■ Customer feedback including focus groups and
consumer complaint data.