One Final Note About Compliance
Deep Thoughts By A Non-Deep Person
by Chuck Lewis, CRCM
Vice President, MBA Compliance Services
Two score and a couple of years ago, I misunderstood the question Crosby Kemper asked me, and I’ve been in the banking compliance arena since then. I’m not complaining; I’m just amazed at how fast the time has passed and how the world of financial institution regulations has progressed (maybe that’s not the right word).
I was blessed to have a boss and mentor when I arrived in the compliance world who realized the importance of getting this “stuff” right. Jack Burlingame had 45+ years as a banker, so he was well-qualified to provide guidance as to how these rules and regulations would impact the business of banking. At this time, the rules primarily consisted of Regulation Z, Regulation B, CRA and BSA — all in their infancy stage. Jack held the Federal Reserve’s Reg Z and Reg B booklets behind his back and said, “Pick a hand.” I said, “Right hand,” and he handed me Reg B. My assignment was to read and to try and determine what the bank would need to do to implement this vast rule and what the bank would need to do to appease the examiners when they came in to “inspect” our efforts with this implementation.
From that original effort, the process of banking compliance hasn’t really changed. Banks try to interpret and implement new and revised regulations while the examiners come in to see how these efforts are working (or in some cases, not working). But in many situations, my concern has been that the authors of some of these rules don’t have a true understanding of the “workings” of the banking industry. HMDA is a great example. The original intent was to confirm that banks were making residential mortgages to all segments of their market areas and to determine where the distribution of federal and state housing assistance might be needed. However, for those banks affected, it’s now become an almost impossible, time-consuming task of verifying that data input information is correct and basically disregarding any trends or consequences that the results might be indicating.
But I can honestly say that I’ve witnessed immense efforts by banks to gamely try and implement these rules and regulations — from concentrated training efforts to money spent on system upgrades to attempts to explain to their customers the whys/what fors/hows of the rules’ impacts. I’ve watched new account representatives valiantly attempt to explain a new deposit account’s features via a wordy Truth-in-Savings disclosure. I’ve observed loan officers spend way more time completing loan disclosures involving TRID, appraisal documents, flood determinations and, heaven forbid, HMDA data than they ever spent on the actual credit decision. I’ve watched directors’ eyes glaze over as I’ve conducted board BSA training, knowing that the directors are thinking “Why did I agree to be on this board?”
And as I leave the industry to embark on my next life of raising grandkids, trying to catch that elusive bass and letting the daily hygiene habits loosen somewhat, my final comments to those bankers who are still reading this epistle are as follows.
- No one buys a car based on the seat belts or air bags. Yet without either, a person is more likely to be much more severely injured in a wreck. Management, look at your compliance program as your seat belt. If you’re willing to “drive” your bank without regard to the compliance rules or requirements, any future wrecks (exams/customer action) will be much more severe and costly. Support the compliance effort and listen when advice is given. One third of compliance examinations currently center on management’s involvement.
- Compliance people, learn to be an asset or as I used to say during my UMB days, be a thesaurus. Offer solutions and/or alternatives. Don’t just always respond with “We can’t do that.” I tell the story of a loan officer who called and wanted to know if he had to get flood insurance on a property with a couple of structures where the flood map indicated the properties were in a Special Flood Hazard Area. I said if he took those properties as collateral, then yes he would need the borrower to purchase flood insurance. However, I then told him that he could consider taking other collateral, such as a deposit account or titled property such as a vehicle or maybe even other real property, if available, that wasn’t in the Special Flood Hazard Area. Or, he could make it unsecured. He responded that he didn’t want to “force” the borrower to get flood insurance and how could he waive it? I told him I’d given him at least three other options, but waiving insurance with this property couldn’t be done. He mumbled something about inflexible compliance people and hung up. Again, try and be considered as a resource to the bank. Offer viable solutions that will still allow the bank to maintain a strong compliance program.
- Finally, as my momma used to say to me, “Pay attention.” Where are the next series of rules/regulations going to originate and why? Remember that as bankers, we gather an enormous amount of data on customers — from net worth to deposit habits to ownership/titling of accounts. Although our industry, I truly believe, is miles ahead of other industries when it comes to data protection, how long would it take for your institution to recover from a large data attack? What is your backup plan, not only for being able to be up and running the next day but to be able to publicly address customers’ concerns and complete transactions after the attack? Hopefully, the next big data breach won’t involve a bank. But with that said, the Target data breach didn’t involve a bank either and look at all the cost and efforts our industry took as a result of that incident. And not to dwell on disasters, but our state is definitely not immune to them. From the massive damage with floods this spring to the memories of Joplin’s horrendous tornado to winter storms that never end, as the government continues to look for solutions to provide financial assistance to the public — where is one always quick solution to the problem? Think us! Need I remind you about the flood insurance requirements? And please be involved with your banking associations. When Max Cook, Craig Overfelt or others at MBA ask for comments or for banker involvement, please do your part and become involved for our industry. Write comment letters. Visit our legislators, both in Jefferson City and in D.C.
That’s it — my deep thoughts about the world of banking compliance. I thank you for the wonderful friendships over the years, for the opportunity to work with some of the hardest-working, most decent people in the industry and for allowing me the chance to share an awesome, satisfying career with you. And as the great writer for television comedies Gene Perret once said about retirement — “Retirement: That’s when you return from work one day and say, ‘Hi Honey, I’m home – forever!’”
The Missouri Banker