chapter  9
19 Pages

The Role of Risk Management and Compliance in Consumer Protection Regulation

ByAlexander Dill

A vast network of statutory and regulatory law governs banks’ interaction with the consumers of their products and services. Chapter 9 first gives an overview of the unique compliance risks that banks’ consumer financial services present due to the sector’s highly competitive market, the high volume of frequently amended rules, and the high level of reputational risk involving these services. Regulators expect banks to establish a formalized firm-wide compliance management system, a CMS, to manage these risks. The chapter explains how the design of CMS policies and procedures reduces inherent compliance risk to a level of residual risk that meets regulatory expectations. There are three approaches in regulating consumer financial products and services: disclosure, terms-and-conditions, and conduct regulation, each of which has its own risk management and compliance best practices. Having established this foundation, the chapter discusses the four primary areas of financial consumer protection regulation – lending; depository services; unfair, deceptive, or abusive acts or practices; and privacy law – and how state consumer protection law interfaces with federal law.