As Congress continues to debate financial services regulatory reform, the regulators themselves aren't waiting for marching orders.
In the past several months, a number of regulatory agencies have taken steps that will allow them to intensify their scrutiny of financial institutions' compliance with laws designed to protect consumers. For example, NCUA recently formed the organization's Office of Consumer Protection and named Kent Buckham as its director in November 2009.
In a Feb. 22, 2010 Credit Union Journal article, NCUA Chairman Debbie Matz said the Office of Consumer Protection will be a top priority for her organization this year, saying it will be responsible for not only enforcing consumer-oriented regs, but also for ensuring consumers have access to affordable financial services.
While NCUA hasn't explicitly stated it as such, it's very likely the organization created the 30-person Office of Consumer Protection in direct response to the Consumer Financial Protection Agency (CFPA) proposed by Congress. The NCUA is probably hoping that in being proactive in oversight of consumer protection measures, that credit unions will be exempt from regulation by the CFPA if it were to become reality.
What does this mean for credit unions from a compliance standpoint? There are two scenarios. First, the NCUA's Office of Consumer Protection steps up enforcement of existing compliance regulations in an effort to do what's right for members and exempt CUs from CFPA oversight. Second, despite NCUA's efforts, credit unions become subject to oversight by its Office of Consumer Protection working in conjunction with the CFPA. In either scenario, credit unions will be examined more closely for meeting consumer-oriented regulatory requirements.
Adding To The Burden
Adding to this compliance burden is the fact that besides federal laws, credit unions are subject to a broad array of new and existing state and municipal requirements. This comes at a time when many credit unions are trying to expand their mortgage and automobile lending businesses to better serve members and grow their bottom lines. As they do, they can't afford to let new and existing regulations, many of which emphasize fair and anti-predatory lending, slow them down.
The key to credit unions efficiently and effectively meeting these requirements is making regulatory compliance an integrated part of their mortgage and automobile lending workflows. Doing so helps credit unions manage regulatory risk more easily, saving them time and money, and allowing them to offer their members new products and services more quickly. It also helps a credit union protect its valuable brand and reputation.
All of this begins with a thorough fair lending self-assessment that helps determine the policies and procedures that will prevent violations to the law before they occur. A good fair lending self-assessment carefully examines mortgage and automobile loan portfolios to identify any potential instances of disparate decisioning or pricing in advance of a regulatory exam. The credit union can then fix any problem, if necessary, and revise its policies and procedures to ensure such issues do not occur again. Further, they can use this to demonstrate to the regulator that they are proactively working to ensure lending practices meet fair lending requirements. This is especially important if the credit union is originating loans through a third-party channel such as independent mortgage brokers who are given broad loan pricing discretion.
Once fair lending policies and procedures have been revised to optimize compliance with the requirements, a CU needs to make sure any staff member involved in lending process understands them. Therefore, all staff involved in need to be adequately and continually trained on policies, procedures, and fair lending requirements in general. This training also extends to any third parties such as mortgage brokers and automobile dealers that credit unions do business with, because it is the credit unions that are ultimately responsible for their compliance with fair and anti-predatory lending laws.
To manage continuous legislative changes and efficiently and effectively meet compliance requirements, many CUs are automating and integrating compliance within the mortgage and automobile lending processes. In the case of anti-predatory lending reviews, automated or real-time checks provide the option of analyzing loans from application to funding for compliance with all requirements.
This could be achieved manually, of course, but doing so would be a labor-intensive, time-consuming process for most credit unions. A technology solution that leverages compliance checks throughout the lending cycle, and before a loan is funded makes the process much easier and helps avoid having to reprocess the loan. It is particularly important to monitor any auto dealer markups to be sure there are no instances of disparate treatment of protected class applicants.
One of the other benefits of using an automated system for compliance is that many are continually updated to reflect new laws and revisions as soon as the changes take effect. This means the credit union using the system can be confident they are up-to-date in complying with all applicable regulatory requirements.
Finally, an automated system often allows credit unions to produce regular compliance reports with detailed results at the federal, state and municipal levels that can be viewed by management and regulators. The reports can be used to identify instances of noncompliance and help credit unions correct compliance errors before funding loans. And they can be utilized to prove to regulators that every good faith effort possible was taken to ensure compliance with requirements.
The Benefits of Being Proactive
Given the current mood in Washington and the temperature of the financial services regulatory environment, credit unions can't afford to take compliance with consumer-oriented laws lightly. They'll need to pay special attention to meeting fair and anti-predatory lending requirements, and make sure the third parties they do business with, do as well. But they'll also want to make sure none of this impedes their ability to grow their mortgage and automobile lending businesses and better serve their members.
Being proactive in their compliance by developing comprehensive polices and procedures, thoroughly training staff, and leveraging technology will help credit unions do so both effectively and efficiently.
Edward Kramer is executive vice president of Regulatory Programs for Wolters Kluwer Financial Services. For info: wolterskluwer.com.