Most consumer finance companies and credit sellers are also borrowers. That is, they look to banks and investment groups to provide the capital with which to operate. And, their promissory notes and retail installment sales contracts are given as the primary collateral to secure that financing from banks and investors. (I wrote about E-contracts as collateral in Back to Basics, Continued—E-Contracts As Collateral!)

Lenders to the industry are vitally interested in making certain that their borrowers are operating their businesses in compliance with state and federal law. After all, if the collateral offered by the borrower is not in compliance with law, that collateral may be worthless or worth very little. Since the consumer finance industry is so highly regulated, it is no easy task to comply with the myriad of laws and regulations that affect every aspect of the industry. And, we all recognize that the penalties for non-compliance in the consumer finance industry are exceedingly high.

So, it seems to be a good idea for consumer finance companies and credit sellers to pro-actively “audit” their contract forms, policies and procedures—and to do so repeatedly. Such an audit helps assure the continuity of the business—for both ownership and for their lenders.

We know that laws and regulations frequently change. It is really important in this industry that we keep up with those changes. Most in our industry have compliance counsel for just such a purpose. 

Periodic audits do not come without cost. But, if there is ever merit to invoking the expression: “An ounce of prevention is worth a pound of cure,” this is that time.

Please Note: This is the one hundred seventy-fifth blog in a series of Back to Basics blogs, in which relevant and resourceful information can be easily accessed by clicking here.