Regulatory Compliance
Regardless of personal political affiliation or opinion, the presidential election is over, and the focus has shifted from debate to the impact the new administration will have on the regulatory landscape for banks. While many questions remain regarding the policy direction of a Trump administration, one thing is near certain: change is on the horizon. While on the campaign trail, Trump took aim at banking regulation: “Dodd-Frank has made it impossible for bankers to function. It makes it very hard for bankers to loan money…for people with businesses to create jobs. And that has to stop.” And in his first post-election interview, Trump outlined named financial industry deregulation to allow “banks to lend again” as a priority. Before Election Day, Experian surveyed members of the financial community about their thoughts on regulatory affairs. An overwhelming majority—85 percent—believed the election outcome would impact the current environment. Most surveyed are also feeling the weight of financial regulations established by the Obama administration in the wake of the severe financial crisis of 2008. Five out of six respondents feel current regulations have placed an undue burden on financial institutions. Three-quarters believe the regulations reduce the availability of credit. And less than half believe the regulations are positive for consumers. According to our survey, complying with Dodd-Frank and other regulations has a financial impact for most, with 76 percent realizing a significant increase in spend since 2008. Personnel and technology spend top the list, with an increase of 78 percent and 76 percent, respectively. Top regulations that require the most resources to ensure compliance: the Dodd-Frank Act (70 percent), Fair Lending Act (55), Bank Secrecy Act/Anti-Money Laundering (47) and Fair Credit Reporting Act (42). Specifically, the Dodd Frank and TILA-RESPA Integrated Disclosure were the two most frequently mentioned regulations requiring additional investment, followed by the Military Lending Act and Bank Secrecy Act/Anti-Money Laundering. What lies ahead? It’s difficult to determine how the Trump administration will tackle banking regulations and policy, but change is in the air.
How will the FinCEN revisions impact your business? (Part 2) I recently discussed the new FinCEN requirements to Customer Due Diligence. This time, I’d like to focus on the recent FinCEN advisory regarding “email-compromise fraud.” This new advisory sheds additional light on the dual threats of both Email Account Compromise impacting the general public and Business Email Compromise that targets businesses. FinCEN has rightly identified and communicated several high-risk conditions common to the perpetration of scams such as varied languages, slight alterations in email addresses, out-of-norm account and transaction information, and social engineering in the form of follow-up requests for additional transfers. In addition to introducing operational standards to detect such conditions, institutions also would benefit from these other tactics and focal points as they respond to email requests for financial transfers: Email validation and verification — use of third-party vendor services that can deliver a measurable level of confidence in the association of an email address to an actual, true identity. Multifactor authentication — use of dual-step or out-of-band verification of the requested transaction using alternate channels such as phone. Robust KYC/CIP at application and account opening to ensure that name, address, date of birth and Social Security number are verified and positively and consistently linked to a single identity, as well as augmented with phone and email verification and association for use in customer communications and multifactor authentications. Customer transactional monitoring in the form of establishing typical or normal transfer activity and thresholds for outlying variations of concern. Known and suspected fraud databases updated in real time or near real time for establishing blacklist emails to be segmented as high risk or declines upon receipt. Identity application and transactional link analysis to monitor for and detect the use of shared and manipulated email addresses across multiple transaction requests for disparate identities. Access to device intelligence and risk assessment to ensure consistent association of a true customer with one or more trusted devices and to detect variance in those trusted associations. Which of these 7 tactics are you using to stop email-compromise fraud?
How will the FinCEN revisions impact your business? (Part 1) Some recently published FinCEN revisions and advisories are causing a stir. First, let’s look at revisions to Customer Due Diligence that require compliance by May 2018. Under the updated requirements for Customer Due Diligence, covered financial institutions must expand programs, including Customer Identification Programs (CIP), to include Beneficial Owners of Legal Entity customers. Under the new rule, financial institutions must collect and verify identity information (name, address, date of birth, Social Security number or passport number for foreign individuals): For each Natural Person with at least 25% ownership in the Legal entity and For an individual with significant responsibility for managing or controlling the business — for example, a chief executive officer, a chief financial officer, a chief operating officer, a managing member, a general partner, a president, a vice president or a treasurer The U.S. Treasury estimates that illicit proceeds generated in the United States alone total $400 billion annually. These requirements are intended to prevent anonymous access to financial systems through shielded or minority ownership. While the effort to stem the tide of illicit proceeds is laudable, the impact to business may be significant. Most organizations will need to audit their data collection practices, and many will need to make changes to either data collection or workflow processes to ensure compliance. While quite simple and straightforward on paper, the standardization of additional CIP policies and procedures tend to create substantive impact to the customer experience as well as operational resource allocations and utilization. Covered financial institutions should already be discussing with their current or prospective fraud risk and identity management vendors to ensure that: There is a clear path to altering both data collection and verification of these additional identity elements. Clear and accurate benchmarking around expected verification rates is available ahead of the compliance date to allow for operational workflow design to accommodate both ‘verifications’ and ‘referrals stemming from lack of full verification.’ Service providers are granting access to best-in-class data assets and search & match logic related to identity element verification and risk assessment, along with multi-layered options to reconcile those initial verification ‘fails.’ Full business reviews and strategy design sessions are underway or being scheduled to align and document overall objectives of the program, benchmarking of leading industry practices, current and future state gaps, near- and long-term initiatives and a prioritized roadmap, a viable business case toward additional investment in services and resources, and a plan of execution. Will this impact your business? Will you need to make any changes? Click here to read part two - FinCEN and email-compromise fraud.
It’s been a wild ride for the financial services industry over the past eight years. After the mortgage meltdown, the Great Recession and a stagnant economy … well, one could say the country had seen better days. Did you watch The Big Short last winter? It all came crumbling down. And then President Barack Obama entered the scene. Change was needed. More oversight introduced. Suddenly, we had the Affordable Care Act, the Dodd-Frank Wall Street Reform Act and the creation of the Consumer Financial Protection Bureau (CFPB). Taxes were raised on the country’s highest earners for the first time since the late-1990s. In essence, the pendulum swung hard and fast to a new era of tightened and rigorous regulation. Fast forward to present day and we find ourselves on the cusp of transitioning to new leadership for the country. A new president, new cabinet, new leaders in Congress. What will it all mean for financial services regulations? It’s helpful to initially take a look back at the key regulations that have been introduced over the past eight years. Mortgage Reform: Long gone are the days of obtaining a quick mortgage. New rules have required loan originators to verify and document the consumer’s income and assets, including employment status (if relied upon), existing debt obligations, mortgage-related obligations, alimony and child support. The CFPB has also expanded foreclosure protections for struggling borrowers and homeowners. Maintaining the health of the mortgage industry is important for the entire country, and updated rules have enhanced the safety and transparency of the mortgage market. Home values have largely recovered from the darkest days, but some question whether the underwriting criteria have become too strict. Combatting Fraud: The latest cyber-attack trends and threats come fast and furious. Thus, regulators are largely addressing the challenge by expecting banks to adhere to world-class standards from organizations such as the National Institute of Standards and Technology (NIST). The Federal Trade Commission (FTC) and the National Credit Union Administration (NCUA) implemented the Red Flags Rule in November 2008. It requires institutions to establish policies and procedures to identify and recognize red flags — i.e., patterns, practices or specific activities that indicate the possible existence of identity theft — that occur during account-opening activities, existing account maintenance and new activity on an account that has been inactive for two or more years. Loss Forecasting: The Dodd-Frank Act Requires the Federal Reserve to conduct an annual stress test of bank holding companies (BHCs), savings and loan holding companies, state member banks, and nonbank financial institutions. In October 2012, the Fed Board adopted the Comprehensive Capital Analysis and Review (CCAR) rules. This requires banks with assets of $50 billion or more to submit to an annual review centered on a supervisory stress test to gauge capital adequacy. In January 2016, Dodd-Frank Act Stress Testing (DFAST) was introduced, requiring bank holding companies with assets of $10 billion or more to conduct separate annual stress tests known as “company-run tests” using economic scenarios. Every year regulators expect to see continued improvement in stress-testing models and capital-planning approaches as they raise the bar on what constitutes an acceptable practice. CFPB: No longer the new kids on the block, the CFPB has transitioned to an entity that has its tentacles into every aspect of consumer financial products. Mortgage lending was one of their first pursuits, but they have since dug into “ability-to-pay underwriting” and servicing standards for auto loans, credit cards and add-on products sold through third-party vendors. Now they are looking into will likely be the next “bubble,” – student lending – and educating themselves about online marketplace lending. Data Quality: Expectations related to data quality, risk analytics, and regulatory reporting have risen dramatically since the financial downturn. Inaccuracy in data is costly and harmful, slows down the industry, and creates frustration. In short, it’s bad for consumers and the industry. It’s no secret that financial institutions rely on the accuracy of credit data to make the most informed decisions about the creditworthiness of their customers. With intense scrutiny in this area, many financial institutions have created robust teams to handle and manage requirements and implement sound policies surrounding data accuracy. --- This is merely a sliver of the multiple regulations introduced and strengthened over the past eight years. Is there a belief that the regulatory pendulum might take a swing to other side with new leadership? Unlikely. The agenda for 2017 largely centers on the need to improve debt collections practices, enhance access to credit for struggling Americans, and the need for ongoing monitoring of the fintech space. Only time will tell, but one thing is certain. Anyone involved in financial services needs to keep a watchful eye on the ever-evolving world of regulation and Washington.
Experian awarded national contract with U.S. Communities for consumer data and predictive analytics We are excited to announce we have been selected by U.S. Communities to help state and local public agencies: Prevent fraud Maximize revenue Improve operational efficiencies Strengthen security within their programs We want to make sure you know about all the great capabilities you can expect with the new contract! Starting on Nov. 1, you can expect even more value with competitive pricing on selected product/service solutions, field sales support services and added incentives. Here are a few of the most important updates. Experian Contract 4400006681 offers unequaled value and the following exceptional up-to-date consumer data and analytical information solutions to participating state and local public agencies nationwide: Child support enforcement - Provides up-to-date contact data for noncustodial parents. Collections - Maximizes recovery efforts with flexibility and minimal cost. Contractor responsibility - Delivers essential data for vetting potential vendors and contractors. Data breach - Benefit from consumer credit monitoring and call center support for citizens impacted by a data breach. Data cleansing - Verify and update best addresses for voter registration list hygiene. Eligibility - Verify applicant identity and validate financial data for benefits determination, real-time monitoring of credit and financial data, and continued benefits eligibility. Online authentication/identity management - Use knowledge-based, out-of-wallet questions to authenticate new constituents for e-servicing and for online re-authorization of constituents who are already registered. Tax return fraud - Improve detection of identity theft–based income tax fraud. Please contact Experian toll-free at 1 855 224 9719 directly for any specific questions. For more information, visit www.experian.com/uscommunities, or join one of our webinars: New Contract Webinar: Data, Analytics & Fraud Detection Solutions Tue, Nov 15, 2016, 11:00 AM Eastern Standard Time: Click here to register Wed, Nov 16, 2016, 1:00 PM Eastern Standard Time: Click here to register
Call if you need to, but protect yourself from TCPA exposure first. Follow these steps when creating your dialing strategy: Obtain customer consent Determine if the number is attached to a landline or a wireless device Verify ownership Scrub your database Calling cell numbers can be a risky business, so be sure to set the proper workflow in motion to remain compliant. >>Learn more
In this new Telephone Consumer Protection Act (TCPA) era, calling your customers isn’t a thing of the past. It’s still okay to reach out to your clients by phone, whether to offer a new product or collect on an overdue bill. But strict compliance with TCPA rules is critical for any business that contacts customers by phone. Some of the very best ways you can protect yourself from TCPA exposure is to follow four steps when creating your dialing strategy: Customer consent: It’s important to maintain and update your customers’ contact preferences and consent to call them. Simply having a phone number on an application isn’t sufficient. Companies are required to have written permission, such as “I consent to calling my cell phone when there’s a problem …” Remember, permission may only be granted by the party who subscribes to the cellular service or who regularly uses that cell phone number. Landline or wireless?: Your database should also include the phone type for the telephone numbers you have for your customers. The dialing rules differ depending on the phone type, so it’s critical to know the type of phone you are calling or texting. Verify ownership: Ownership of cell phones should especially be validated to ensure the number hasn’t been reassigned and that the person who gave consent still owns the phone. One call can be made to a reassigned number with no liability, assuming you have no knowledge the number has changed. Repeating the action could lead to fines from $500 to $1,500 per infraction. Scrub Your Database: Have practices in place to remove any confirmed reassigned phone numbers from your database. This will help to improve your right-party contact rate and save you from potential TCPA headaches. No one disagrees that calling cell numbers is a risky business, but it can be done if you set the proper workflow in motion. Click here to learn more about Experian solutions that will help to reduce your TCPA compliance risk.
With the Oct. 3, 2016 compliance date upon us, many lenders continue to debate how they would like to solve for the Military Lending Act (MLA). With new enhancements, more protections have been granted to members of the military and their dependents when it comes to “consumer credit” products, specifically around the 36% cap on the MAPR. The key then becomes how to identify these individuals. At origination, how can the lender know if an individual is a member of the military, or a service member’s dependent? The answer, of course, lies in verification. Under the new Department of Defense (DOD) rule, lenders will have to check each credit applicant to confirm that they are not a service member, spouse, or the dependent of a service member. The final rule includes a “safe harbor” from liability for lenders who verify the MLA status of a consumer through a nationwide Credit Reporting Agency (CRA) or the DOD’s own database, known as the DMDC. Obviously, lenders will want to have this “safe harbor,” so the question becomes do you opt for the direct or indirect solution? The direct solution is to have the lender access the DMDC on their own. With this option, expected turnaround time is 24 hours for batch searches. The DMDC expects the volume of searches to their servers to increase from 220 million a week to 1.9 billion a week. For some, this feels like a more manual process, but it can be done. The indirect solution involves the CRA accessing the DMDC data on the lender’s behalf. In Experian’s case, this would translate into lenders seeing the MLA indicator on the credit report at point of origination or making a call out for just the MLA indicator. The process is integrated into the credit-pull cycle, so no manual effort is required on the lender’s end. MLA status is simply flagged. The rule also permits the consumer report to be obtained from a reseller that obtains such a report from a nationwide consumer reporting agency. Required data to perform a search includes full legal name, address, social security number and date of birth. This applies to both the credit report add-on and Experian’s standalone solutions. If any of this data is missing from the inquiry, Experian is unable to perform the MLA search. Credit card lenders have until Oct. 3, 2017 to adhere to the new standards, but all other applicable lenders must act now and build out their compliance standards and solutions. Direct or indirect? That is the question. To learn more about MLA or how Experian can help, visit our dedicated-MLA site.
This summer, the Consumer Financial Protection Bureau (CFPB) took a significant step toward reforming the regulatory framework for the debt collection industry. The focus is fueled in part by the large number of consumer complaints the CFPB receives about the debt collection market — roughly 35% of total complaints. Here are highlights from the recent CFPB proposal: Data quality: Collectors would be required to substantiate claims that a consumer owes a debt in order to begin collection Communication frequency: Collectors would be limited to six emails, phone calls or mailings per week, including unanswered calls and voice mails Waiting period: Reporting a person’s debt would be prohibited unless the collector has communicated directly with the consumer first The CFPB said its proposal will affect only third-party debt collectors; however, it may consider a separate set of proposals for first-party collectors. >> Insights into CFPB's latest debt collection proposal
Tick-tock. Tick-tock. Lenders are just weeks away from the required Military Lending Act compliance date of Oct. 3, yet many are scrambling to find a solution. In fact, officials with CUNA and the American Bankers Association said they were still confused by the rules, and requested a six-month extension from the Department of Defense for compliance. Card holders have until Oct. 3, 2017 to comply, but others are trying to navigate what the rule means and how to introduce new practices to protect and serve military credit consumers. What are the top questions still circulating about this key piece of regulation? Here are a few we’ve been tracking, along with some responses to assist with this shift in compliance. 1. What types of accounts are covered under the Military Lending Act (MLA)? It initially applied to three narrowly-defined “consumer credit” products: Closed-end payday loans; Closed-end auto title loans; and Closed-end tax refund anticipation loans. The new rule, issued in 2015 by the Department of Defense, expands the definition of “consumer credit” covered by the regulation to more closely align with the definition of credit in the Truth in Lending Act and Regulation Z. This means MLA now covers a wide range of credit transactions. It does not apply to residential mortgages and credit secured by personal property, such as vehicle purchase loans. 2. Who are the covered borrowers under the MLA? The DMDC database identifies individuals who meet one of the following criteria: Is on active duty Regular or reserve member of the Army, Navy, Marine Corps, Air Force, or Coast Guard, serving on active duty under a call or order that does not specify a period of 30 days or less, or such a member serving on Active Guard and Reserve duty as that term is defined in 10 u.s.c. 101 (d)(6) The member’s spouse The member’s child defined in 38 USC 101(4), or An individual for whom the member provided more than one-half of the individual’s support for 180 days immediately preceding the extension of consumer credit covered by 32 C.F.R. Part 232 The flag returned from DMDC will not specifically identify the active duty military member, but it will flag if the applicant is a covered borrower. 3. How is MAPR calculated? What additional fees are included? The MAPR includes interest, fees, credit service charges, credit renewal charges, credit insurance premiums and other fees for credit-related products sold in connection with the loan. You should work with your legal/compliance teams for MLA restrictions and applicability. 4. What is the difference between the Servicemembers Civil Relief Act (SCRA) and the Military Lending Act (MLA)? Both regulations are designed to protect U.S. service members and their families, but each focus on different areas. SCRA has been around for decades and was designed to temporarily suspend judicial and administrative proceedings and transactions that may adversely affect service members during their actual military service. In fact, if a service member has a debt before he or she joined the active military service, they can have the interest rate reduced to 6 percent, upon request. If the loan is a mortgage, that rate can also be reduced for the duration the member is in the military, plus one year. Other loans are only reduced for the duration the member is on active duty. MLA, on the other hand, is focused solely on providing specific protections for active duty service members and their dependents in certain consumer credit transactions. It was introduced in 2007, but strengthened in 2015. Specifically, it limits APR to 36 percent on covered products, which was recently expanded to include closed-end payday loans, closed-end auto title loans and closed-end tax refund anticipation loans. Unlike SCRA, where the responsibility to activate these protections falls on the service member, MLA requires creditors to verify active duty status and dependents at origination. 5. Explain the difference between accessing MLA status directly versus indirectly. The Final Rule permits a creditor to use information obtained directly from the Department of Defense’s Database. Information can also be obtained from a nationwide consumer reporting agency to determine whether a consumer applicant is a covered borrower. When working with Experian, the one-stop solution will entail outputting the MLA indicator on the credit report at point of origination. We anticipate this solution will be available in fall 2016. --- Not much is known about what the punishments or fines will look like for infractions, but now is the time to start reviewing business governance and procedures that support compliance. To learn more about MLA and to access an on-demand webinar with industry experts, visit our site.
At the end of July, the Consumer Financial Protection Bureau (CFPB) took a significant step toward reforming the regulatory framework for the debt collection and debt buying industry by announcing an outline of proposals under consideration. The proposals will now be considered by a small business review panel before the CFPB announces a proposed rule for wider industry comment. The CFPB said its proposals will affect only third-party debt collectors pursuant to the Fair Debt Collection Practices Act (FDCPA). However, the CFPB signaled it may consider a separate set of proposals for first-party collectors. The collections industry has long been a focus of the CFPB. In 2012, the bureau designated larger market participants in the debt collections marketplace and placed some of these entities under supervision. In 2013, the CFPB released an Advanced Notice of Proposed Rulemaking covering collections. The focus on debt collection is fueled in part by the large number of consumer complaints it receives about the debt collection market (roughly 35% of total complaints). Moreover, the CFPB’s proposals build upon some of the regulatory and enforcement priorities that the CFPB and Federal Trade Commission have pursued for several years around data quality, consumer communication and disclosures. Here are some of the key takeaways for third party debt collectors from the CFPB’s proposals: Address data quality: Collectors would be required to substantiate claims that a consumer owes a debt in order to begin a collection. Collectors would also be required to pass on information provided by consumers in the course of collections activity. New Validation Notice and Statement of Rights: The CFPB’s draft outline would update the information provided to consumers through the FDCPA validation notice, as well as require disclosure of a consumer statement of rights. Changes to frequency of communications: Debt collectors would be limited to six emails, phone calls or mailings per week, including unanswered calls and voicemails. After reaching the consumer, the debt collector would be allowed either one contact or three attempted contacts per week. There would also be a waiting period of 30 days before contacting the family of a debtor who has died. New disclosures on “out of statute” debt and litigation: In the outline, CFPB proposes having debt collectors provide new disclosures to consumers regarding the possibility of litigation and whether the debt is beyond the statute of limitations. Waiting period before sending collection accounts to a consumer reporting agency: Reporting a person’s debt would be prohibited under the draft outline unless the collector has first communicated directly with the consumer about the debt. The CFPB will next hear comments from a panel of small businesses in the industry, complete an analysis of how its proposals would impact small businesses, and take written comments from the public. Following those steps, the agency will issue a proposed rule for comment.
Congress recently took several actions signaling a growing interest in regulatory issues surrounding the Fintech sector. This growing attention follows a number of recent inquiries by federal and state regulators into the business practices in the industry. Subcommittee takes a deep dive into Fintech and OML regulatory landscape In July, the House Subcommittee on Financial Institutions and Consumer Credit held a hearing entitled Examining the Opportunities and Challenges with Financial Technology (“Fintech”). Witnesses and lawmakers voiced optimism that online marketplace lending can help to expand access to capital for consumers and small businesses, but the hearing also focused on a growing schism as to whether new regulations or changes to the underlying framework is necessary to ensure consumers are protected. Some lawmakers and the witness from the American Banking Association expressed concerns that the Fintech and marketplace lenders may benefit from being outside of the supervisory scope of prudential regulators and the Consumer Financial Protection Bureau (CFPB). Witnesses from the marketplace lending industry argued that they are obligated to meet all of the same regulatory compliance requirements as traditional lenders. Rep. McHenry introduces package of Fintech bills aimed at spurring innovation In addition, Congressman Patrick McHenry (R-NC), a member of the House Republican Leadership team and the Vice Chairman of the House Financial Services Committee, introduced two bills this month aimed at spurring innovation in the Fintech industry. H.R. 5724, the Protecting Consumers’ Access to Credit Act of 2016, would clarify that federal law preempts a loan’s interest rate as valid when made. The bill is in response to the Supreme Court’s recent decision not to hear Madden v Midland, a case in which the Second Circuit court ruled that the National Bank Act does not have a preemptive effect after the national bank has sold or otherwise assigned the loan to another party. The reading of this law has created uncertainty for Fintech companies and the banks that partner with them. H.R. 5725, the IRS Data Verification Modernization Act of 2016, requires the IRS to automate the Income Verification Express Service process by creating an Application Programming Interface (API). The legislation is aimed at speeding up and improving the automation of the loan application process. In particular, it is aimed at streamlining the process by which lenders gain access to tax transcript data. Currently, lenders may require applicants to fill out IRS form “4506-T,” which gives the lender the right to access a summarized version of their tax transcript as part of the process to confirm certain data points on their application. According to industry reports, this manual process at the IRS takes two to eight days, creating unnecessary delays for Fintech companies and banks that rely on leveraging data and technology to make faster, informed decision for consumer and small business lending Both bills have been referred to the House Financial Services Committee for review.
New industry report highlights the convergence of business growth and fraud prevention strategies Experian has published its first annual global fraud report covering the convergence of growth strategies and fraud prevention. The report, Global Business Trends: Protecting Growth Ambitions Against Rising Fraud Threats, is designed as a guide for senior executives and fraud prevention professionals, offering new insights on how the alignment of strategies for business growth and fraud prevention can help a business grow revenues while managing risks in an increasingly virtual world. The report identifies five trends that businesses should assess and take action on to mitigate fraud and improve the customer experience in today's fast-paced, consumer-centric environment: Applying right-sized fraud solutions to reduce unnecessary customer disruption: It's time to move on from a one-size-fits-all approach that creates more customer friction than necessary. Instead, companies should apply fraud solutions that reflect the value and level of confidence needed for each transaction. This means right-sizing your fraud solutions to align with true fraud rates and commercial strategy. Having a universal view of the consumer is the core of modern fraud mitigation and marketing: Achieving a universal profile of consumer behavior — beyond the traditional 360-degree view — requires access to a combination of identity data, device intelligence, online behavior, biometrics, historical transactions and more, for consumer interactions not only with you, but across other businesses and industries as well. Companies that translate this knowledge and use it to identify consumers can distinguish a fraudster from a real customer more easily, building trust along the way. Expanding your view through a blended ecosystem: In addition to using your own first-party data sources, companies need to participate in a blended ecosystem, working across businesses and even industries. Fraudsters have access to more data than ever before, including data traditionally used to verify identities, and they use that data to create an entire digital profile. Therefore, you can no longer get to the digital interaction data you need by managing the process in a siloed manner. Achieving an expansive view of the universal consumer requires multiple data sources working together. Achieving agility and scale using service-based models: Today, more and more companies are choosing subscription-based systems rather than building in-house or implementing on-premise solutions. Continuous upgrades and the access to new risk logic that come with subscription models provide more agility and faster response to emerging threats, no matter how fast your volume grows or what products, channels or geographies you pursue. Future-proofing fraud solution choices: Companies need access to a wide variety of traditional and emerging technologies and information sources to fill in knowledge gaps and blind spots where fraudsters try to hide. The ability to modify strategies quickly and catch fraud faster while improving the customer experience is a critical aspect of fraud prevention moving forward. Bringing together these key trends, the report provides business leaders with the insight they need to fight fraud using the same consumer-focused approach currently being used to attract new customers and grow revenue. "There is a persistent mindset that fraud loss is just the cost of doing business," said Steve Platt, global EVP, Fraud and Identity, Experian. "But as fraudsters evolve, those losses are climbing, and the status quo is no longer effective or acceptable. We all need to be as forward-looking in fighting fraud as we are in business operations and marketing, and a real understanding of consumers is critical for success. We're talking about the convergence of business growth and fraud prevention, and we're pleased to provide the first report in the marketplace covering this topic." Download the full report here. The report also features an interactive Fraud Prevention Benchmark tool that companies can use to explore how these trends impact their business and how the performance of their approach measures up against industry practices. The report is relevant to functions spanning the enterprise, including C-suite executives such as chief marketing officers (CMOs), chief risk officers (CROs) and chief data officers (CDOs). The report focuses on business processes where fraud infiltrates, including new account opening, account access, money movement transactions, and emerging trends combating fraud, such as advanced fraud analytics. In each area, the report details how multiple business functions can apply responses to create business growth. Steve Platt added: "We hear from our clients that they are most successful when CMOs along with CDOs and CROs all work together to understand the customer and develop fraud management solutions that create a better overall experience." Experian was recently cited in Forrester's 2016 Vendor Landscape: Mobile Fraud Management Solutions1 report and listed as having nine out of a possible 10 capabilities needed to combat mobile fraud. Experian was also identified as one of three leading players in the fraud detection and prevention space in a new study from Juniper Research.2 Experian applied best practices to create a global report on providing fraud management solutions that allow companies to maximize profitability while providing secure, hassle-free customer interactions. Learn more about Experian’s Fraud and Identity business. 1Vendor Landscape: Mobile Fraud Management Solutions, Forrester Research, Inc., June 2016. 2Online Payment Fraud: Key Vertical Strategies & Management 2016–2020, Juniper Research, June 2016.
What you give, you get. At least that is what popular philosophers claim. And if you think about it, this statement is also applicable to the world of data accuracy. As organizations of all sizes increasingly rely on data to interact with customers and create insights to drive strategy, it’s no secret bad data can quickly lead a company or financial institution down the wrong path, even landing them into regulatory troubles. A recent Experian Data Quality study found: Seventy-five percent of organizations believe inaccurate data is undermining their ability to provide an excellent customer experience. Sixty-five percent of organizations wait until there are specific issues with their data before they address and fix them. Fifty-six percent of organizations believe mistakes can be attributed to human error. For years, organizations have wanted good data simply for operational efficiencies and cost savings, but now a shift has taken place where businesses are using data for nearly every aspect of their organization. The majority of sales decisions are expected to be driven by customer data by 2020, with companies determined to turn data into actionable insight to find new customers, increase customer retention, better understand their needs, and increase the value of each customer. Additionally, the Fair Credit Reporting Act (FCRA) requires those contributing data to provide accurate and complete information to the credit reporting agencies. If they fail to meet accuracy obligations when reporting negative account histories to credit reporting companies, the result could be bureau action and fines. Organizations still deal with a high degree of inaccurate data because there are a number of challenges to maintaining it. Some of them are external forces, but many are internal challenges – most notably a reliance on reactive data management strategies. The biggest problem organizations face around data management today actually comes from within. Businesses get in their own way by refusing to create a culture around data and not prioritizing the proper funding and staffing for data management. Many businesses know they need to improve their data quality, but often have a hard time defining why an investment is needed in the current structure. Solutions exist to get in front of data accuracy challenges. DataArc 360 Powered by Experian Pandora, for example, is designed to check the consumer credit information provided by data furnishers prior to submission to credit bureaus. This allows data suppliers to take more of a proactive approach to ensuring the accuracy of information, that may result in fewer credit disputes and a more positive interaction between consumers and their credit. Creating a clear governance plan, and centralizing data management policies and policies can also clean up internal challenges and improve accuracy standards. The importance of data cannot be neglected, but again, the data has to be clean for it to matter. What you give is what you’ll get.
On June 2, the Consumer Financial Protection Bureau (CFPB) proposed a rule aimed at “payday lending” that will apply to virtually all lenders, with request for comments by Sept. 14. Here is a summary of the basic provisions of the proposed rule. However, with comments, the proposal is more than 1,300 pages in length, and the proposed rule and examples are more than 200 pages long. It is necessary to review the details of the proposed rule to understand its potential impact on your products and processes fully. You may wish to review your current and future offerings with your institution’s counsel and compliance officer to determine the potential impact if major provisions of this proposed rule are finalized by the CFPB. Coverage The proposal generally would cover two categories of loans. First, the proposal generally would cover loans with a term of 45 days or less. Second, the proposal generally would cover loans with a term greater than 45 days, provided that they have an all-in annual percentage rate greater than 36 percent and either are repaid directly from the consumer’s account or income or are secured by the consumer’s vehicle. Ability to repay For both categories of covered loans, the proposal would identify it as an abusive and unfair practice for a lender to make a covered loan without reasonably determining that the consumer has the ability to repay the loan. Or if the lender does not determine if the consumer can make payments due, as well as meet major financial obligations and basic living expenses during and for 30 days after repayment. Lenders would be required to verify the amount of income that a consumer receives, after taxes, from employment, government benefits or other sources. In addition, lenders would be required to check a consumer’s credit report to verify the amount of outstanding loans and required payments. “Safe Harbor” The proposed rule would provide lenders with options to make covered loans without satisfying the ability-to-repay and payment notice requirements, if those loans meet certain conditions. The first option would be offering loans that generally meet the parameters of the National Credit Union Administration “payday alternative loans” program, where interest rates are capped at 28 percent and the application fee is no more than $20. The other option would be offering loans that are payable in roughly equal payments with terms not to exceed two years and with an all-in cost of 36 percent or less, not including a reasonable origination fee, so long as the lender’s projected default rate on these loans is 5 percent or less. The lender would have to refund the origination fees any year that the default rate exceeds 5 percent. Lenders would be limited as to how many of either type of loan they could make per consumer per year. Outstanding loans The proposal also would impose certain restrictions on making covered loans when a consumer has — or recently had — certain outstanding loans. These provisions are extensive and differ between short- and long-term loans. For example: Payday and single-payment auto title: If a borrower seeks to roll over a loan or returns within 30 days after paying off a previous short-term debt, the lender would be restricted from offering a similar loan. Lenders could only offer a similar short-term loan if a borrower demonstrated that their financial situation during the term of the new loan would be materially improved relative to what it was since the prior loan was made. The same test would apply if the consumer sought a third loan. Even if a borrower’s finances improved enough for a lender to justify making a second and third loan, loans would be capped at three in succession followed by a mandatory 30-day cooling-off period. High-cost installment loans: For consumers struggling to make payments under either a payday installment or auto title installment loan, lenders could not refinance the loan into a loan with similar payments. This is unless a borrower demonstrated that their financial situation during the term of the new loan would be materially improved relative to what it was during the prior 30 days. The lender could offer to refinance if that would result in substantially smaller payments or would substantially lower the total cost of the consumer’s credit. Payments Furthermore, it would be defined as an unfair and abusive practice to attempt to withdraw payment from a consumer’s account for a covered loan after two consecutive payment attempts have failed, unless the lender obtains the consumer’s new and specific authorization to make further withdrawals from the account. The proposal would require lenders to provide certain notices to the consumer before attempting to withdraw payment for a covered loan from the consumer’s account unless exempt under one of the “safe harbor” options. Registered information systems Finally, the proposed rule would require lenders to use credit reporting systems to report and obtain information about loans made under the full-payment test or the principal payoff option. These systems would be considered consumer reporting companies, subject to applicable federal laws and registered with the CFPB. Lenders would be required to report basic loan information and updates to that information. The proposed regulation may be found here.
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