Five cost effective ways to take compliance seriously
Regulatory reform is like the weather: everyone talks about it, but no one really does anything about it. So, even as you rail against the CFPB remember that, unless you think Tinker Bell is going to be elected President, this new hyper-regulatory environment is here to stay. Those credit unions that most successfully integrate compliance into their business structure as opposed to treating it as a costly appendage will be the ones for whom compliance might actually be a source of savings. After all, members are more likely to trust an institution that knows what they are doing and why they are doing it.
To be sure, larger credit unions a have a huge advantage when it comes to absorbing compliance costs. I feel your pain, but let’s get over it. There are cost effective steps that even the smallest credit unions can take to improve their compliance with all those nettlesome laws and regulations with minimal impact on their bottom line. I’ve chosen some examples that all credit unions should implement to cost effectively improve their compliance programs.
Customize Your Procedures. Just about every aspect of an institution’s consumer banking practices – whether that institution is JP Morgan Chase or a five person CU – can be reduced to procedures that can be applied over and over and over again. For example, as challenging as the new integrated disclosure requirements are, once you figure out how to comply, a well written step-by-step procedure can enable any employee you hire now or in the future to implement TRID in a way that makes the most sense for your credit union. In addition, as regulations change, you can simply tweak the procedures. Procedures codify institutional memory so that not everyone has to be a compliance expert. The only cost is the time and effort it takes to write down the procedures. Considering how much time your credit union has spent complying with the TRID mandate, this is an investment that makes sense.
Prioritize Vendor Management. CU CEOs are unabashedly frugal and they should be. A penny saved truly is a penny earned. One of the best ways to save money while improving your compliance is to take vendor management more seriously.
(A) Mandate that employees get quotes from multiple vendors regardless of the services for which they are shopping. Credit unions always say they don’t have leverage when negotiating contracts. This will always be true for those institutions that don’t start negotiating contract terms until after they have chosen a vendor.
(B) Make employees responsible for periodically checking in on each vendor with whom you contract. With so many regulations being implemented by vendors you must oversee vendor performance if you are going to oversee your CU’s compliance efforts. Many vendors are computer people who specialize in compliance software not compliance people who know software. Someone in your credit union needs to know a regulation well enough that you can double check your vendors.
(C) Make sure you know when contracts end. Many contracts have automatic renewal provisions and if your credit union gets sloppy, you will miss a golden opportunity to review the price and performance of your vendors.
Pool compliance services. Every credit union, no matter how small, needs a dedicated compliance professional but not everyone can afford one: I get it. The solution is for credit unions to pool resources. For example, New York has joined a growing number of leagues that hire a field level compliance specialist who works with a group of credit unions to provide ongoing compliance on issues unique to those credit unions. They could even draft a couple of those procedures I was talking about.
Don’t Do a Volkswagen – Make compliance everyone’s responsibility. The Executive team comes up with a great idea for a new financial product. The Marketing department comes up with a great campaign and the compliance officer is asked to review it for “compliance issues” the day before it is scheduled to be launched. I exaggerate only slightly. Financial institutions of all shapes and sizes have for too long let a culture fester in which compliance is viewed as an enemy to be conquered rather than a partner with whom to work to achieve greater efficacy. It’s time for a reality check: Any person responsible for any part of your credit union’s operations that is impacted by compliance. Given this reality, every single employee and department should have to work with, and not against their compliance person. For example, compliance should have a role in the development of every credit union project and initiative at the earliest stages of the process. Common sense tells you that a system that integrates compliance into a product’s design is more efficient than one that ignores it until the very end of the process. Just ask our good friends at Volkswagen.
Love ‘em or hate ‘em you still need a lawyer. . . Sometimes. A good compliance program not only has to be well conceived and consistently implemented but it needs to know where the gray areas are and how to exploit them for the good of the credit union. This is where a lawyer, albeit a lawyer who knows something about consumer banking, comes in. Not every threatened lawsuit should be settled and the plain language of statutes and regulations should be the beginning, not the end, of legal analysis when it comes to the most important legal and compliance issues facing your credit union. Consequently, there are times when the extra cost of an attorney is worth it. My rule of thumb is that the more you are dealing with an issue for which there is not a settled Yes or No answer, or that could expose your credit union to litigation, the more you should consider calling your counsel.
Each one of these steps will not only improve your compliance, but will save your credit union money. My point is this; compliance doesn’t have to cost your credit union as much money as you think it does. A well thought out system of checks and balances will lead to better functioning institutions that better present themselves to the public and comply with regulatory demands in the most cost effective manner.