September 5, 2013 Southern Region Break-Out NAAA Annual Convention

Agenda CFPB overview How are consigners and auctions impacted Service provider’s role Share IARA meeting with standard audit recommendation Discussion/Questions/Next Steps

CFPB Highlights Consumer Financial Protection Bureau (CFPB) established through Dodd-Frank – Protect consumers by regulating lenders – Ensure in compliance with all federal financial laws – Lender’s responsible for internal actions and their service providers – Many consignors are already subject to the CFPB’s enforcement authority – Likely be (if not already) subject to supervisory authority by the CFPB in the near future

Putting the CFPB in Context Committed to their mission Broad, wide-ranging POWER CFPB is a policing agency ⁻Investigative powers, Civil Investigation Demands, subpoenas ⁻Examinations ⁻Regulations ⁻Bulletins Strong on communication and collaboration Data driven, scrutinize and suspicious of everything Big on social media Big on use of technology

CFPB Audit Highlights Priorities Compliance Management System Effective communications Board and management involvement/oversight Training programs Reliable data Fair lending, Fair lending, Fair lending Address complaint resolution UDAAP Policy and procedure documentation 3rd party oversight

CFPB Bulletins Bulletin , Service Providers – Written company vendor policy – Accountability – Conduct due diligence – Review policies and procedures, internal controls and training material – Include in contracts expectations about compliance as well as consequences for violations – Establish internal controls and on-going monitoring – Take prompt action to address identified problems Bulletin Responsible Business Conduct – CFPB’s guidance to favorably affect the ultimate resolution of enforcement investigations Self-policing Self- reporting Remediation Cooperation

How Are You and Your Clients Impacted? Use of third-party service provider does not absolve Consignor of responsibility for compliance Consignor is ultimately responsible for actions of their service providers Policies and procedures to monitor and test for compliance of third party with federal consumer protection laws Enforcement

And the Fines Continue to Come Capital One Bank – Liable for violations of 3rd party service providers – July 18, 2012: $150M in restitution; $60M in civil penalties Discover Bank – Must hire independent auditors to monitor future compliance – September 12, 2012: $200M in restitution; $14M in penalties American Express – New compliance obligations – October 1, 2012: $85M in restitution; $28M in penalties US Bank – June 27, 2013: $6.5M

Your Role Talk with your legal and compliance department Work with your clients and prospects as a resource to understand requirements, due diligence requests, standardization, etc Familiarize yourself with the CFPB-they are everywhere and not going away – – Twitter, Facebook, complaint portal, etc. Join trade groups, find on-line sources for information from law firms and others, participate in webinars, and network Know the CFPB’s philosophies, “hot topics”, etc.

Challenges for the Service Providers Requests require time and resources Current variances – Different formats – Different wording and number of questions – Various turnaround times – Different methods for requesting Entity –direct or independent , formal due diligence document, or automated process

Review CFPB Auction Standards Survey Results IARA conducted a confidential survey Goal to develop standardized industry compliance process 23 organizations participated in the survey 65% already have some type of program for 3 rd party vendors 53% have program for auctions 40% have vendor management group 70% feel there should be industry standards 67% feel auctions are somewhat in compliance

Need/Benefit of Standardized Audit Process for Auctions 70% responded you would like to see a standardized compliance process Current state of industry – Consignors – Service Providers Audit/due diligence questions – 80% are standard – 20% specific to the client

SAMPLE DRAFT CFPB Compliance Audit Standards

Questions and Discussions Presentation will be available This presentation is for general information and is not intended to be legal advice Thank you