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Compliance Audits in the Modern Payday Lending Context

Compliance Audits in the Modern Payday Lending Context. Claudia Callaway Sabrina Smith Payday Loan Legal Summit November 13, 2006. What is a Compliance Audit:. An internal, top-to-bottom review of your policies and procedures, past and present Goes well beyond a state audit:

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Compliance Audits in the Modern Payday Lending Context

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  1. Compliance Audits in the Modern Payday Lending Context Claudia Callaway Sabrina Smith Payday Loan Legal Summit November 13, 2006

  2. What is a Compliance Audit: • An internal, top-to-bottom review of your policies and procedures, past and present • Goes well beyond a state audit: • Review policies and procedures • Marketing • Processing • Collections • Review forms • “Are there any kinks in our system?”

  3. Why a Compliance Audit? • Internal Decisioning: • Have we implemented new rules? • Are they being followed? • Is there a “weak link” in our system? • Is there an efficiency that we can achieve from improvement? • External Decisioning: • Lender wants assurances • In 2005-2006, saw increase in lending/equity participation from Wall Street and Silican Valley

  4. Areas of the Compliance Audit: Regulatory • Regulatory • At the outset: ARE ALL LICENSES CURRENT? • How is your MARKETING/ADVERTISING? • FORMS: Agreement, “Adverse Action” Notice, Collections AND Application! • ECOA/Reg B • Equal Credit Opportunity Act • Does your Application contain an impermissible question? • EFTA/Reg E!* • ESign!* • NACHA!* • TILA/Reg Z • You’d be surprised here… • “Check as security”: What does the state say? • State Law • Reg P/Privacy Policy • State Law • INTERNAL REPORTS/Data Collection • FACTA • Patriot Act • State Law • Database Reporting

  5. Areas of the Compliance Audit: Operational • Store Operations Manual: Is it fully compliant with applicable regulations? • Software: Is it functioning properly? • Internally: Is it providing needed/required reports? • Externally: Is it providing ACCURATE and COMPLIANT agreements/disclosures to your customers? • Employees: Are they functioning properly? • Component covered in traditional “store audits” • Cash procedures • Check procedures • “Getting Around” underwriting guidelines?

  6. Areas of the Compliance Audit: Collections • This is both operational and regulatory • Regulatory: Are your letters/phone calls/ communications compliant? • FDCPA • FCRA/FACTA • State Rules/Licensing • Operational: Do you have any loose cannons? • What do the reports say? • Of particular interest to internet installment/payday lenders, or companies marketing/servicing for a federally-insured depository institution

  7. Areas of the Compliance Audit: Outside of the Store • State Compliance Audits • Is there a pattern/practice that is not being addressed? • Litigation • Leases • Employment • Policies/Procedures • Litigation

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