November 8, 2013
Reiss on Risk Management
Law360.com interviewed me in Banks Caught In Middle Of Regulators’ Fair-Lending Pursuits (behind a paywall). The article reads in part,
Federal and state regulators are increasingly enlisting banks in their pursuit of fair-lending and other violations at payday and auto lenders and other financial services providers with which they do business, a tactic that has also increased banks’ risk of penalties for conduct by third parties.
In late October, the Office of the Comptroller of the Currency was the latest to put out new guidance for banks’ responsibility to monitor the activities of third-party vendors that perform operations on behalf of the bank. Other federal and state regulators have been calling on banks with growing frequency and force in recent years in order to ensure their vendors and clients comply with fair lending and other laws.
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The increased use of pressure on banks to indirectly go after firms that may not be subject to federal or state laws or regulations comes after banks outsourced a great deal of their mortgage-lending operations and other services during the financial crisis, according to David Reiss, a professor at Brooklyn Law School.
While many of those vendors met high standards, others, particularly in the subprime loan context, did not. And banks didn’t monitor those failings, Reiss said.
“The crazy thing about that is you’d think banks would do this on their own,” Reiss said. “Why do they need their regulators to say, ‘Check on these things’?”
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