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If your company offers lending services to your customers, you already know the complexity of staying compliant with all the state and federal regulations in place to protect yourself and your customers.

Lenders are constantly navigating the ever-evolving, ever-changing regulations, using the tools and strategies that ensure complete accuracy throughout each lending process.

Federal Regulation Examples

Some of the federal regulations that can apply to consumer lending include:

  • Truth in Lending (Regulation Z), which requires appropriate and timely disclosures about the terms and cost of the loans.
  • Fair Credit Reporting (Regulation V), which establishes consumer protections against unfair and inaccurate credit reporting and protects customers’ personal information.
  • Fair Debt Collection Practices Act (Regulation F), which prevents companies from enacting deceptive, abusive, or otherwise unfair practices in collecting debt.
  • Small-Dollar Rule, which requires specific communications between lender and customer and prohibits certain withdrawal practices for payday, vehicle title, and some high-cost installment loans.
  • Electronic Fund Transfers (Regulation E), which establishes guidelines that protect consumers who opt for electronic funds transfers (EFTs) and remittance transfers.
  • Equal Credit Opportunity Act (Regulation B), which protects consumers from experiencing discrimination of any kind during a credit transaction.

Depending on the nature of a lending company’s services or offerings, there may be additional federal regulations to adhere to, as well as state-specific regulations. These and other regulations are constantly being updated, making compliance risk management a challenging requirement to keep up with without the proper strategies in place.

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What Is Compliance Risk?

With all the current and evolving regulations in place, lenders have the inherent potential to fail to adhere to laws, regulations, policies, or practices. Even if a company follows everything to the letter, there is always the risk of slipping up somewhere (not realizing a law has changed, for example) and suffering the consequences, which can take the form of legal penalties, financial loss, material loss, or reputational damage.

Types of Compliance Risk

Types of possible compliance risks include:

  • Breach of Privacy – Lenders are required to do everything they can to protect their customers’ privacy and information. A breach of privacy can occur for several reasons, including improperly handling sensitive information or experiencing a data-hacking cyberattack. No matter how it happens, the lending company can suffer the consequences of violating privacy laws if there is a privacy breach.
  • Process Breaks – One of the strategies a company will use to stay in compliance with federal and state regulators is “proactive compliance,” where the company will create processes built around all necessary regulations. Failure to stick to any of the processes can result in the violation of one or more regulations.
  • Corruption – If an employee or a group of employees within the company are participating in illegal practices and corrupt operations—such as embezzlement, theft, fraud, money laundering, etc.—the company could be found in violation of industry laws and regulations.

How to Mitigate Compliance Risks?

There are two main strategies consumer lenders should take to ensure compliance with the established and applicable rules and regulations:

  • Reactive Compliance – Leaders review the laws and policies and create compliance reports that show how well their operations abide by the rules. Any errors or lapses can be caught and corrected.
  • Proactive Compliance – As mentioned earlier, proactive compliance requires the company to review and understand the laws so that it can build processes and procedures around the rules. Compliance is built into the systems in place, making it an automatic part of the day-to-day operations.

Minimize Your Risk with absVision from Allied Business Systems!

Lending is inherently risky, but absVision works to minimize risk or avoid it altogether and help keep your company compliant. Our loan origination and management software is robust, flexible, and customizable so that you can ensure compliance at every turn. Plus, we stay up to date on any changes to all state and federal laws related to consumer financing and the lending companies we serve.

Discover more about how absVision can boost your compliance risk management and better serve your team and customers. Talk with an ABS expert today: 800-727-7534

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