CFPB Sends Clear Message You Will Be Held Responsible for Your Affiliates and Lead Sources

You absolutely can’t overlook the April 13th announcement from the Consumer Financial Protection Bureau about the liability that extends to any debt relief company by the actions of service providers.

The CFPB will hold all appropriate companies accountable when legal violations occur with service providers you contract with.

“Consumers are at a real disadvantage because they do not get to choose the service providers they deal with—the financial institution does,” said CFPB Director Richard Cordray. “Consumers must not be hurt by unfair, deceptive, or abusive practices of service providers. Banks and nonbanks must manage these relationships carefully and can be held accountable if they break the law.”

The announcement is geared towards banks and nonblanks but it sends a clear message about what the CFPB feels is the chain of liability when it comes to selling consumers services that are not in the financial interests of consumers or cause them harm.

The CFPB recognizes that these outside parties that provide assistance to companies as service providers. These service providers are defined as “any person that provides a material service to a covered person in connection with the offering or provision by such covered person of a consumer financial product or service.”

While debt relief companies may use the services of these service providers, such as lead brokers, affiliates, backend service providers, etc. The liability for the actions of these service providers passes back to the company.

The CFPB recognizes that service providers can provide a valuable service and that some companies may use such outside companies for expertise that would not otherwise be available without significant investment or to help with marketing products or services.

A service provider that is unfamiliar with the legal requirements applicable to the products or services being offered, or that does not make efforts to implement those requirements carefully and effectively, or that exhibits weak internal controls, can harm consumers and create potential liabilities for both the service provider and the entity with which it has a business relationship. – CFPB

In the past some have looked at using outside service providers as a way to limit exposure and risk to the debt relief company. No more. This early warning from the CFPB should not be ignored. It is a groundwork that is being laid that will impact all.

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Using outside vendors can pose additional risks. In order to avoid such extended liability from service providers it is the responsibility of the company contracting with outside service providers to conduct a thorough and documented due diligence to positively verify the service provider or your company meets the following requirements.

  • The service provider understands and is capable of complying with Federal consumer financial law.
  • The service provider has strict policies, procedures, internal controls, and training materials to ensure the service provider conducts appropriate training and oversight of employees or agents that have consumer contact or compliance responsibilities.
  • You must establish your own internal controls and on-going monitoring to determine whether the service provider is complying with Federal consumer financial law.
  • You absolutely must take and document all prompt actions to address fully any problems identified through the monitoring process, including terminating the relationship where appropriate.

For debt relief providers, the largest exposure to this extended liability os going to come from lead generation sites that are sale, misleading, or non-compliant and from agents that are not properly supervised. The 1099 argument is not going to fly anymore if those agents generate business or services your debt relief company sells to consumers.


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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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