CFPB Sends Clear Message That FinTech Start-Ups Have Same Obligations as Established Companies

CFPB Sends Clear Message That FinTech Start-Ups Have Same Obligations as Established CompaniesIn a clear message to FinTech start-ups, on September 27, 2016, the Consumer Financial Protection Bureau (CFPB) ordered online lender Flurish, Inc. to pay $1.83 million in refunds and a civil penalty of $1.8 million for failing to deliver the promised benefits of its products. Flurish, a San Francisco based company doing business as LendUp, offers small dollar loans through its website to consumers in certain states. In its consent order, the CFPB alleged that LendUp did not give consumers the opportunity to build credit and provide access to cheaper loans, as it claimed it would. LendUp did not admit to any wrongdoing in the order.

Just a few months ago, news headlines touted an opportunity for innovative, tech-savvy start-ups to fill a void in the payday lending space amidst increasing regulatory enforcement against legacy brick-and-mortar payday lenders. In fact, in a June 2016 article, CNBC reported on how online lenders could use technology to lower operating costs and fill the traditional payday loan void created by increased regulation. LendUp even issued a statement in June after the CFPB released proposed small-dollar lending rules, stating that the company “shares the CFPB’s goal of reforming the deeply troubled payday lending market” and “fully supports the intent of the newly released industry rules.”

With its order against LendUp, the CFPB made clear that despite the physical differences between brick-and-mortar lending operations and FinTech alternatives that may ultimately benefit underserved consumers—both are equally subject to the regulatory framework and consumer financial laws that govern the industry as a whole. Specifically, the CFPB alleged that LendUp:

  • Misled consumers about graduating to lower-priced loans: LendUp advertised all of its loan products nationwide but certain lower-priced loans were not available outside of California. Therefore, borrowers outside of California were not eligible to obtain those lower-priced loans and other benefits.
  • Hid the true cost of credit: LendUp’s advertisements on Facebook and other Internet search results allowed consumers to view various loan amounts and repayment terms, but did not disclose the annual percentage rate.
  • Reversed pricing without consumer knowledge: For a particular loan product, borrowers had the option to select an earlier repayment date in exchange for receiving a discount on the origination fee. LendUp did not disclose to customers that if the consumer later extended the repayment date or defaulted on the loan, the company would reverse the discount given at origination.
  • Understated the annual percentage rate: LendUp offered a service that allowed consumers to obtain their loan proceeds more quickly in exchange for a fee, a portion of which was retained by LendUp. LendUp did not always include these retained fees in their annual percentage rate disclosures to consumers.
  • Failed to report credit information: LendUp began making loans in 2012 and advertised its loans as credit building opportunities, but did not furnish any information to credit reporting companies until February 2014. LendUp also failed to develop any written policies and procedures about credit reporting until April 2015.

In addition to the CFPB settlement, LendUp also entered into an order with the California Department of Business Oversight (DBO). In its order, the DBO ordered LendUp to pay $2.68 million to resolve allegations that LendUp violated state payday and installment lending laws. The settlements with the CFPB and DBO highlight the need for FinTech companies to build robust compliance management systems that take into account both federal and state law—both before and after they bring their products to market.

Despite levying hefty penalties against LendUp, the CFPB expressed to the marketplace that it “supports innovation in the fintech space, but that start-ups are just like established companies in that they must treat consumers fairly and comply with the law.” In a press release following the announcement of the settlement agreement, Lendup stated that the issues identified by the CFPB mostly date back to the company’s early days when they were a seed-stage startup with limited resources and as few as five employees.

In this action, as was the case in the CFPB’s enforcement action against Dwolla, the CFPB expresses a reluctance to grant start-up companies any grace period for timely developing compliant policies and procedures, even where those companies are seeking to develop products that could one day benefit millions of underbanked consumers. One of the key challenges for both new and existing tech-savvy lenders is being able to expeditiously bring innovative financial products to market, while ensuring that their practices are in compliance with the regulatory framework in which they operate. As is clear from the CFPB’s recent enforcement actions, FinTech companies need to create and implement thorough policies and procedures with the same zeal with which they are building their technology.

CFPB Director Cordray Emphasizes Major Changes Coming to the Debt Collection Marketplace; Bradley Analysis Coming Soon

CFPB Director Cordray Emphasizes Major Changes Coming to the Debt Collection Marketplace; Bradley Analysis Coming SoonAs noted previously, the Consumer Financial Protection Bureau (CFPB) published an outline on July 28, 2016, of proposed debt collection rules intended to “drastically overhaul the debt collection market.” Earlier this week, CFPB Director Richard Cordray, in prepared remarks to the National Association of Federal Credit Unions, highlighted the Bureau’s efforts to overhaul the debt collection market, for both third-party and first-party debt collectors:

We also are taking steps to reform the troubled debt collection market. Our proposal under consideration would apply to the third-party debt collectors covered by the Fair Debt Collection Practices Act, including many debt buyers. As part of our overhaul, we also plan to address first-party debt collectors, and you will hear more about that soon. The basic principles we are considering are grounded in common sense. Companies should not collect debt that is not owed. They should have reliable information about the debt before they try to collect, and they should be barred from collecting on disputed debt that lacks proper documentation. They should give consumers better information and more control over the process. The same requirements would follow along with any debts that are sold or transferred to another collector.

These remarks underscore the CFPB’s continued focus on the third-party debt and first-party debt collection markets. Companies that purchase defaulted debt or assume servicing responsibilities after a loan is in default should closely follow developments concerning the CFPB’s debt collection related activities.

Stay tuned to Bradley’s Financial Services Perspectives blog for a series of in-depth articles concerning the forthcoming debt collection rules and practical advice for navigating those rules.

CFPB’s New Servicing Requirements for Borrowers in Bankruptcy Likely to Cause Operational Challenges – Attend Part 3 of Our Webinar Series to Learn More

CFPB’s New Servicing Requirements for Borrowers in Bankruptcy Likely to Cause Operational Challenges – Attend Part 3 of Our Webinar Series to Learn MoreThe CFPB’s recent amendments to the mortgage servicing rules in Regulations X and Z will soon force servicers to significantly change the way they currently do business. Without limitation, the amended mortgage servicing rules fundamentally change how servicers are required to interact and communicate with borrowers in bankruptcy by imposing certain periodic billing statement requirements and revising the early intervention bankruptcy exemption. Servicers likely will face substantial technological and procedural challenges in the coming months as they implement the bankruptcy-specific aspects of the amended rules.

Upcoming Webinar

If this is an area you would like to learn more about, we encourage you to join us for Part 3 of our “CFPB Mortgage Servicing Amendments” Webinar Series, which is scheduled for Tuesday, September 27, and will focus entirely on the new rules related to borrowers in bankruptcy. More information on the webinar can be found at the end of this post.

Early Intervention

Under the current regulatory framework, servicers are able to take advantage of a broad exemption from the early intervention live contact and written notice requirements with respect to borrowers in active bankruptcy and those who have received a bankruptcy discharge. Under the amended mortgage servicing rules, the live contact exemption remains largely intact. However, the amended mortgage servicing rules contain only a partial exemption for the written notice obligation. Going forward, a modified early intervention written notice requirement will apply unless a consumer has submitted a cease communication request pursuant to section 805(c) of the FDCPA or no loss mitigation options are available. The new rule also includes unique timing and frequency requirements for the written notice when a borrower’s bankruptcy case is active.

Periodic Billing Statements

Like the early intervention requirements described above, the current regulatory framework includes a blanket exemption from the closed-end periodic billing statement obligation for borrowers in active bankruptcy and those who have received a bankruptcy discharge. Going forward, the general rule in Regulation Z will instead be that billing statements are required, irrespective of a pending bankruptcy case, unless certain limited exceptions apply. When a consumer is in bankruptcy, the rule requires significantly modified content, some of which depends upon the type of bankruptcy case. The CFPB has provided sample forms that demonstrate compliance with these new requirements. Finally, the rule provides specific guidance on when to transition to, or from, a modified periodic statement, or, in the case of conversion from one type of bankruptcy to another, between modified periodic statements.

Impact

The aspects of the 2016 final rule that are specifically related to borrowers in bankruptcy likely will be challenging for mortgage servicers to successfully implement. The CFPB listened to the comments received from the industry and ultimately recognized that implementation of these rules will require significant efforts. As such, they have provided longer implementation periods than they originally proposed. Once the final rule is published in the Federal Register, servicers will have 12 months to implement the early intervention requirements described above, and 18 months to implement the periodic billing statement requirements for consumers in bankruptcy. With respect to the statement requirements, the CFPB acknowledged that “servicers and third-party service providers need sufficient time to coordinate, develop, and test systems required to modify periodic statements for consumers in bankruptcy. They also need sufficient time to train employees regarding the bankruptcy periodic statement requirements.”

To ensure compliance with these new communication requirements, servicers will likely be forced to diligently track information about a borrower’s bankruptcy that previously may not have been necessary. As such, servicers would be well-advised to begin digesting and planning out the necessary system and operational changes necessary for implementation as soon as possible.

Register to attend Part 3 of our “CFPB Mortgage Servicing Amendments” Webinar Series

In Part 3 of our “CFPB Mortgage Servicing Amendments” Webinar Series, we will discuss the requirements related to borrowers in bankruptcy and the implications these rules may have. We will also address emerging areas of concern and challenges that are likely to be encountered. Finally, we will provide practical implementation tips—such as suggested terminology adjustments—based upon prior experience in this area.

Please join us on Tuesday, September 27 from 11:30 a.m. to 12:30 p.m. CT to learn “What You Need to Know” about the new requirements related to borrowers in bankruptcy. Click here to RSVP to the webinar. Webinar login information will be provided one day prior to the event.

Federal and State Authorities Take First Steps Toward Regulating Blockchain, Mobile Banking and Digital Financial Services

Federal and State Authorities Take First Steps Toward Regulating  Blockchain, Mobile Banking and Digital Financial ServicesLast week, federal and state lawmakers took significant steps toward specific regulations targeting digital financial technology, mobile banking and cybersecurity, signaling the possibility of wholesale changes to the legal landscape. The federal and state legislative proposals follow significant vertical market development and industry investment in financial technology, including an industry-wide consortium of banks’ investment in blockchain technology; the use of robotic process automation (RPA) by financial institutions to streamline operations and to enhance customer service; and increases in FinTech investment from $1.8 billion in 2010 to $19 billion in 2015. Given the increasing connectivity between technology and finance–an intersection that often does not naturally fit within the confines of existing regulatory schemes– these proposed regulations have the potential to transform the financial services sector.

On September 12, 2016, the U.S. House of Representatives passed a nonbinding resolution, House Resolution 835 (HR 835), calling on the government to establish a national policy for technology to promote consumer access to financial tools and online commerce. HR 835 specifically expresses a legislative desire to:

  • Develop a national policy to encourage the development of tools for consumers to learn and protect their assets in a way that maximizes the promise customized, connected devices hold to empower consumers, foster future economic growth, and create new commerce and markets;
  • Prioritize accelerating the development of alternative technologies that support transparency, security, and authentication in a way that recognizes their benefits, allows for future innovation, and responsibly protects consumers’ personal information;
  • Recognize that technology experts can play an important role in the future development of consumer-facing technology applications for manufacturing, automobiles, telecommunications, tourism, healthcare, energy, and general commerce; and
  • Support further innovation and economic growth and ensure cybersecurity and the protection of consumer privacy.

The focus of HR 835 on prioritizing acceleration of the “development of alternative technologies that support transparency, security and authentication” signals national support for the further development of blockchain technology, while underscoring the need for a national policy and legislative framework under which this technology can operate.

Similarly, on September 13, 2016, the state of New York proposed new regulations which would require financial institutions to take steps to “protect consumer data and financial systems from terrorist organizations and other criminal enterprises.” If adopted, financial institutions regulated by the New York Department of Financial Services will be required to (1) establish a cybersecurity program; (2) adopt a written cybersecurity policy; (3) designate a Chief Information Security Officer; and (4) implement policies and procedures designed to ensure the security of information systems.

These recent legislative and regulatory developments are the latest in the fast-changing legal landscape related to digital financial services, data privacy and cybersecurity. To be sure, in light of the regulatory focus on the use of financial technology and customer harm, financial institutions should comprehensively evaluate current and emerging regulatory frameworks for consumer and data protection concerns. As regulatory agencies continue to place an emphasis on the way digital financial systems interact with consumers, it is critical for financial institutions to evaluate the development and operationalization of verticals, emerging technologies and business goals within the context of current and anticipated consumer protection, data privacy and cybersecurity regulations.

Mortgage-Loan Modification Scam Ends with Serious Consequences

Mortgage-Loan Modification Scam Ends with Serious ConsequencesA California man that operated as a high-level sales executive for a fraudulent residential mortgage-loan modification scheme will now spend several years in jail.

From 2009 to 2016, Mehdi Moarefian (aka Michael Miller) acted as a senior sales manager for a series of California-based companies that purported to help struggling homeowners under names such as “Hardship Solutions,” “First Choice Financial,“ and “Best Rate Financial Solutions.” These companies sought out borrowers that were in foreclosure trouble and promised them a loan modification for a substantial fee, ranging from $2,500 to $4,300. Company representatives promised these borrowers that they had already negotiated loan modifications with the lenders and servicers and that the borrowers were pre-approved under modification programs such as HAMP. Few, if any of these targeted borrowers were ever actually successfully modified. It is estimated that this modification scheme resulted in over $3 million in losses to over 1,000 troubled homeowners.

Late last week a federal judge in Connecticut sentenced Moarefian to 52 months in prison, followed by three years of supervised release. Judge Underhill also ordered that Moarefian provide $2.3 million in restitution. The ringleader of the operation, Aria Maleki, was previously sentenced by Judge Underhill in July to nine years in prison for his role in the scheme.

CFPB Takes Next Step Toward Issuing Debt Collection Rules

CFPB Takes Next Step Toward Issuing Debt Collection RulesThe Consumer Financial Protection Bureau (CFPB) published an outline on July 28, 2016, of proposed debt collection rules intended to “drastically overhaul the debt collection market.” Pursuant to the Small Business Regulatory Enforcement Fairness Act (SBREFA) consultation process, the CFPB convened a SBREFA panel that met with small entity representatives (SERs) concerning the debt collection proposal on August 25, 2016. The SBREFA panel has 60 days to submit a report on the meeting. However, the final report will not be public until the CFPB issues its proposed rule.

On Tuesday, the CFPB took the next step toward issuing its new debt collection regulations. Specifically, the CFPB published a notice in the Federal Register announcing a meeting of the Community Bank Advisory Council on Thursday, September 29, 2016, from 3:30 to 5:00 p.m. EDT. According to the notice, as well as the agenda published on the CFPB’s website, one of the primary topics for the meeting is a discussion regarding debt collection.

The meeting is open to the public and available via Livestream. Individuals who want to attend the meeting can RSVP and view the agenda here.

Non-Federally Regulated Banks Are Target of Proposed FinCEN Rules

Non-Federally Regulated Banks Are Target of Proposed FinCEN RulesLast month the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) proposed new rules which would require non-federally regulated banks to implement Customer Identification Program (CIP) requirements related to the collection and verification of customer information. Financial institutions have until October 24, 2016, to comment on the proposed rule, which, if adopted, is estimated to affect more than 700 financial institutions across the country.

Who will be affected by the proposed rules?

The new rules would affect a large number of financial institutions lacking a “Federal functional regulator.” While non-federally regulated banks have other obligations under the Bank Secrecy Act, they are not currently covered under FinCEN’s anti-money laundering (AML) regulations. The proposed rules seek to close that regulatory gap.

The proposed rules identify the following five categories of non-federally regulated financial institutions which fall within the scope of the new regulations:

  1. State-chartered non-depository trust companies
  2. Non-federally insured credit unions
  3. Private banks
  4. Non-federally insured state banks and savings associations
  5. International banking entities

What are the CIP requirements?

Pursuant to Section 326 of the USA Patriot Act, FinCEN has promulgated a number of regulations requiring financial institutions to establish CIPs to prevent the use of the financial system for illicit purposes. In order to comply with CIP requirements, financial institutions are required to implement procedures for account opening that, at a minimum:

  • Verify the identity of any person seeking to open an account, to the extent reasonable and practicable;
  • Maintain records of the information used to verify the person’s identity, including name, address, and other identifying information; and
  • Determine whether the person appears on any lists of known or suspected terrorists or terrorist organizations provided to the financial institution by any government agency.

According to FinCEN, “[b]anks without a Federal functional regulator may be as vulnerable to the risks of money laundering and terrorist financing as banks with one.”

New Uniform Requirements

The proposed rules would also impose uniform regulatory requirements on all banks, including AML program requirements and the recent Customer Due Diligence (CDD) Rule.

Under the new CDD Rule, financial institutions lacking a federal regulator would be required, among other things, to collect and verify information on beneficial owners of accounts opened in the name of a legal entity. The CDD Rule also requires covered financial institutions to monitor accounts and identify suspicious activity utilizing customer risk profiles to enhance detection of suspicious transactions. Under the CDD Rule, covered financial institutions will need to formulate updated procedures and guidelines for identifying suspicious activities to include reasonable consideration of customer risk profiles.

FinCEN’s proposed expansion of the CIP, as well as uniform AML and CDD requirements, could present significant operational challenges for the more than 700 affected financial institutions related to establishing procedures for the gathering, storage, and effective utilization of customer and beneficial owner information. Stay tuned for further developments, as we continue to monitor the proposed rule during and after the October 24, 2016, comment period.

Preparing for FHA PACE: What Mortgagees Need To Know Before September 17

Preparing for FHA PACE: What Mortgagees Need To Know Before September 17The U.S. Department of Housing and Urban Development (HUD) and Federal Housing Administration (FHA) issued Mortgagee Letter 2016-11, which specifically permits properties encumbered with a Property Assessed Clean Energy (PACE) obligation to be eligible for FHA-insured mortgage financing, whether for new purchases or refinancing. The guidance goes into effect this week on September 17, 2016. Here is what you need to know about the changes.

PACE Obligations May Be Superior or Subordinate, But May Not Fully Accelerate

The FHA guidance stresses that PACE obligations must be treated and follow the same rules as other special tax assessments levied by municipalities. In that vein, FHA will require that only delinquent payments may take priority over a mortgage. A delinquency on a PACE obligation cannot trigger acceleration of the entire loan. In the event of a sale, including a foreclosure, the PACE obligation will run with the land, and the new homeowner will be responsible for payments on any outstanding PACE amounts. In the event of a foreclosure, municipalities or other PACE administrators may allow any priority on the delinquent payments to be subordinated, waived, or otherwise relinquished. The PACE industry has embraced this guidance and begun to use it in its pitches to lenders as a way to quell fears that PACE loans are a risk to the safety and soundness of mortgage loans.

The PACE Loan Must Meet Certain Criteria to Be Eligible

In order for a PACE-encumbered property to be considered for FHA-insured mortgage financing, the mortgagee must verify that the following requirements are met:

  • Must be a special assessment – The PACE obligation must be treated like a special tax assessment under the PACE-enabling legislation or ordinance. Accordingly, PACE obligation payments should be made to the local municipality in the same way that the property owner makes its local property payments. For collection purposes, the PACE program should not deviate in how they collect PACE obligation payments from the way in which they collect other tax assessments.
  • No Nevada HOA-type problems – Under the PACE-enabling legislation or ordinance, only delinquent special assessment payments may take priority over a mortgage. While the entire PACE obligation may be recorded in local property records, the entire PACE obligation cannot be accelerated upon delinquency.
  • PACE obligation must freely and automatically transfer upon sale – The PACE-enabling legislation or ordinance may not limit the transfer of the property to a new property owner.
  • PACE obligations must be recorded on the land records – PACE obligations must be recorded in the public records and include: (1) the expiration date and (2) the cause of the expiration (which cannot be caused by acceleration by default).
  • Outstanding PACE obligation must run with the land– In the event of a sale, including a foreclosure sale, any outstanding PACE obligation must continue with the property, causing the new homeowner to be responsible for making the payments on the outstanding PACE amount.

New Disclosure and Appraisal Requirements

Under the FHA guidance, when a PACE-encumbered property is sold, the property sales contract must indicate whether the seller will satisfy the PACE obligation at or before closing or whether the obligation will remain with the property. If the obligation will remain with the property, the property sales contract must include and incorporate all terms and conditions of the PACE obligation. Additionally, if the obligation will remain with the property, the appraiser must analyze and report the impact of the PACE-related improvements on the value of the property.

Guidance May Expand Residential PACE Obligations, So Mortgagees Should Develop Policies to Address PACE in Origination and Servicing…  

It is anticipated that FHA’s guidance will lead a number of municipalities to pass new PACE-enabling legislation. We also expect to see municipalities that currently have PACE programs in the commercial space expand to allow residential property owners to obtain PACE loans. Lenders should be aware that they are more likely to see PACE obligations appear when conducting underwriting, and they should have policies and procedures in place to ensure that the PACE obligation conforms to FHA guidance. Servicers should be aware that PACE obligation may be superior to the mortgage and understand the mortgagee’s rights in the event a borrower defaults on a PACE obligation. Servicers may also need to consider PACE obligations on foreclosure properties in REO.

… But  FNMA and FHLMC May Not Purchase Mortgages on PACE-Encumbered Properties

Despite a change of heart on PACE loans by the FHA and the Veterans Administration, the Federal Housing Finance Agency’s (FHFA) has made no indication that it will change its position prohibiting Fannie Mae, Freddie Mac, and Federal Home Loan Banks from purchasing mortgages on PACE-encumbered properties. Lenders and servicers that work with the FHA and the FHFA will need to ensure that its policies are consistent with both agencies’ directives.

CFPB Proposed Rule Could Allow Agencies without Jurisdiction to Access CSI

CFPB Proposed Rule Could Allow Agencies without Jurisdiction to Access CSIThe CFPB issued a proposed rule which significantly affects  third-party access to information obtained by the Bureau. In addition to public requests under the Freedom of Information Act, the Privacy Act of 1974 and in legal proceedings, the proposal would also affect the treatment of confidential information obtained by the CFPB under federal consumer finance laws, including “the Bureau’s discretionary disclosure of confidential information to other agencies.”

The proposal would codify the Bureau’s revised interpretation of 12 U.S.C. 5512(c)(6)(B)-(C) regarding the treatment of confidential supervisory information (CSI), as the “Bureau believes that subparagraphs (B) and (C) can reasonably be read to establish an information-sharing regime with a limited set of agencies.” Currently, the Bureau may only share CSI with agencies “having jurisdiction over a supervised financial institution.” The proposed change would remove the requirement for jurisdiction and allow the Bureau to disclose CSI to another agency “to the extent that the disclosure of the information is relevant to the exercise of the [agency’s] statutory or regulatory authority.”

While the CFPB states that the revised interpretation “is intended to facilitate communication and information-sharing among the Bureau and government authorities,” it also states that the proposal will “not alter the Bureau’s policy on disclosing [CSI] to law enforcement agencies.” However, in removing the requirement for jurisdictional authority, the proposal effectively places total discretion with the CFPB regarding the disclosure of CSI gathered through its supervisory or enforcement activities, and it is likely to result in state and other federal agencies acquiring CSI which they previously had no authority to obtain.

Companies in the financial services industry should review the proposed rules with care and consider whether they should submit comments, which must be received by October 24, 2016.

10 Questions to Ask your Law Firm Vendor Management Program (Part 2)

10 Questions to Ask your Law Firm Vendor Management Program (Part 2)We previously provided you five questions to determine whether your law firm vendor management program is sufficiently comprehensive. Given the attention drawn to such programs by regulators such as Office of Comptroller of the Currency (OCC) and the Consumer Financial Protection Bureau (CFPB), it should be no surprise that these five questions are just a few of the questions you should ask. Here are five additional questions:

6. Is your program sufficiently nimble to respond to new developments/issues?

No vendor management program can be crafted and then simply placed on autopilot. Just as regulations and business needs frequently change, so too must a vendor management program adapt to changing requirements. The best programs are designed to allow for quick and manageable changes. This usually includes a process for identifying changes, a communications system for notifying vendor law firms about new requirements, a process for modifying documentation used in the review process, and tracking system for identifying the stages of implementation. A program designed to accommodate changes makes it easier to improve the program on an incremental and frequent basis, as opposed to trying to make numerous and significant changes only once or twice a year.

7. Does your program take advantage of internal expertise within your organization?

Your organization is comprised of people with diverse skills and experience. Your vendor management program should capitalize on this wealth of experience by allowing for involvement from various employees. Some employees will be best at assessing vendor law firms’ operational activities, while others will have the insight to assess the vendors’ legal activities. Employees who communicate daily with law firms will have insight on each firm’s ability to manage timelines and expectations, and employees who handle documents prepared by firms will have insight on quality and effectiveness. Capturing the vast body of knowledge within your organization should be a key aspect of your vendor management program.

8. Does your program ensure that stated expectations are, in fact, evaluated?

Making lists of expectations is easy. Making sure your program encapsulates all expectations is not. Designing a system which allows for a consistent and thorough evaluation of all expectations takes experience and patience. It is important to consider how each expectation is to be assessed across different environments, as the legal process varies widely from state-to-state. What works for evaluating a large law firm with high referral volumes may not work as well for a smaller firm with fewer matters. In our experience, the process of creating evaluation systems requires a heightened awareness of the many different environments, as well as how each of your expectations varies across these environments.

9. Does your program consolidate and capture all internal and external information streams?

How can you really know if your vendor law firms are successful at meeting your needs? Getting an informed answer to this question requires asking many questions and evaluating information from various sources. We have found through our years of experience that the best vendor management programs are fed by many different information streams. These sources include those with knowledge about regulatory requirements, the competitive landscape, and pending changes. Keeping abreast of frequently updating information requires a system for identifying, evaluating, and responding to changes. Your program should be designed with such a system in place as this will alleviate the stress of managing large networks of data.

10. Are there real consequences for law firms that fail to correct identified issues?

We all like to think that vendor law firms will respond quickly and effectively to issues identified while servicing your needs. This is true in many cases, but not in all. Firms may lack the personnel or financial capability to address certain deficiencies. Other firms may not be willing to accommodate changes required by clients who do not provide a significant volume of referrals to the firm. Still other firms may not be able to figure how to handle special requests which may run counter to the requirements provided by other clients of the firm. Regardless of the reason for non-compliance, vendor management programs should have measures in place to address deficiencies which are not adequately remediated. Is this something that can be waived depending on the circumstances, or is the issue non-negotiable?  Does the failure to correct an issue raise additional questions about the law firm’s abilities? Is it time to part ways? These are all valid questions to consider when creating and managing your program.

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