A recent article posted on the Credit Union Times’ website makes the case for greater scrutiny of vendor services – and notes the need for closer, systematic contract management.
For any company, vendor services can be the lifeblood of its business. For credit unions, however, an underperforming vendor can be worse than a headache—it can bring federal regulatory scrutiny and even penalties.
In the article “Third Party Vendors Issues and Checklist,” credit union attorney Andrew Keeny notes that as the economy has steadily improved, more vendors are approaching credit unions to get a chunk of new business.
Credit Unions typically deal with a wide range of vendors for services such as loan servicing, mortgage brokers, disclosure preparers, and outsourced compliance services (like fair lending reviews).
However, not all vendors are equal. Keeny reports that in addition to the National Credit Union Administration stressing closer vendor scrutiny, the relatively new federal Consumer Financial Protection Bureau is busy shedding new light on defining unfair practices in lending.
And what’s one of the top ways to expose your credit union to risk? Failure to adequately monitor the vendor. According to Keeny:
Too often a vendor contract is placed in the file and only reviewed after it is “automatically renewed” or after there is a dispute. There should be periodic/risk-based monitoring so that the frequency and type of monitoring would depend on each vendor and the assignments of the vendor.
This observation makes a strong point for contract management software. Using a program such as Contract Assistant, credit unions can centralize all of these diverse contacts in one place. Once centralized, using default and customizable fields for notations (and linking to or storing related documents) all helps to monitor vendor performance as measured against contract commitments.
Vendors can be organized and searched by type, and alerts can be set up to remind contract management users of times for periodic reviews. After reviews are conducted, notes and documents on those reviews can be stored (or linked to) with each contract record.
This contract management “paper trail” of reviews on due diligence is itself useful should there be any future regulatory reviews.
Considering the improving economy and closer bad-practices oversight, implementing contract management software is a wise choice for credit unions. Read more about the ability of contract management to mitigate risk in Blueridge Software’s white paper on the topic.