Combining Compliance
with Overall Governance-Just being a “commercial bank” won’t get you off the
Hook!
Like many credit officers around the country, you have been
reading with some amusement about the Consumer Financial Protection Bureau
(“CFPB”) and how it has begun imposing regulations on those poor banks that
make consumer loans. You chuckle as you
say to yourself that at your bank we don’t plan on doing any of “those” types
of loans. You know, “those” consumer
loans! Too much trouble, too many
regulations and not enough return. So,
you conclude, we won’t do any consumer loans and therefore, we don’t have to
worry about this stuff…right? Well, that
may not be the case at all!
There are areas where compliance and commercial lending do
intersect. Although commercial loans are generally not
covered by consumer compliance regulations, there are certain points where
these regulations and commercial lending do intersect. Included in these areas is the Equal Credit
Opportunity Act (Reg. B), Fair Lending Laws & Regulations and the Unfair,
Deceptive or Abusive Acts or Practices (“UDAAP”) regulations. Violations of any these regulations can lead
to enforcement action ranging from memorandums of understanding up to and
including civil money penalties if the regulators determine that a pattern or
practice of violations exists.
Remember that Reg. B applies its ECOA notification and 30
day limits for credit notices to all loans.
The commercial lending process can and often does cross into the area of
fair lending when properties have residential units attached. The Community Reinvestment Act is still in effect
along with its requirements for lending to small business and within assessment
areas. There is always RESPA and HMDA to
consider. The point is that there is no
such thing as a bank that has NO connection with compliance laws &
regulations.
Incorporating
Compliance
It is understandable that the first reaction to new
regulations is something akin to “why not pick on the big banks and leave us
alone!” And while that is an excellent point, the fact of the matter is that
the age of the CFPB is here, like it or not.
The real question is what is the best way to respond? There are a few steps that you can take to
make life easier:
1.
Accept that the fact that changes are coming and will be a part of your
lending life. The CFPB is not going away
and their influence on the regulatory agencies will continue to grow. Some of
the changes will be mild while other will be onerous. Regardless, your bank
will be expected to comply. There are definitely
times to stand and fight, but you must pick your battles wisely. Rather than resist, look for ways to build
compliance into the overall lending and credit process as your first instinct. For example, requiring CRA information or
tracking compliance with Reg. B can often times be built in to the credit
approval process.
2.
Read up on those changes. There is a great deal of information
available on the internet that does an
excellent job of summarizing what changes are being contemplated and what
changes are imminent. One good free site
to subscribe to is http://regreformtracker.aba.com.
3.
Comment and be a part of the changes
that are actually implemented. Almost
all regulations and rule changes announce a public comment period where the
general public is asked for thoughtful commentary on the rules being contemplated. Very often these calls go unanswered or
receive limited answers. However, the
regulators actually do read these comments and do a good job of considering the
arguments they advance. These comments
really do help to shape the scope and application of the regulations. A really good example of this can be found in
the 2011 Interagency Questions and Answers on Flood Insurance. [1]
One of the more vexing questions on how to determine the insurance value of
commercial property has been directly impacted by public comments.
4.
Start planning early. Once you become aware that changes are
coming, planning should take place immediately.
Many banks get caught attempting to come into compliance at the last
minute when it is clear that changes will impact the overall loan process. There is no time like the present to get
ready!
5.
Prepare your staff for the changes. Find out as much as you can about why the
regulation is being imposed and what it hopes to accomplish- the more people
understand about WHY, they will remember to do!
Incorporate the “why are we doing this” question into the training that
is provided to staff.
6.
Incorporate compliance into all that you do. No
need to fight it! Embrace it!
Compliance is a part of banking and will be a part of
banking. So embrace your inner
compliance officer!
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