How Can Credit Unions Create a Culture of Compliance?

In the post-Dodd-Frank world, regulatory compliance has taken on a new meaning. Where once small credit unions could stay on top of regulations with just one compliance officer, many credit unions – even the big ones – are struggling to keep up with a tidal wave of rules and regulations aimed at preventing another financial crisis. Even though credit unions didn’t start the last one, we’re still caught in the chaotic aftermath.

That’s why the nine most dangerous words a manager can say are: “Show me where it says I can’t do that.” We can no longer be a reactive culture, or a culture of “Don’t ask permission; ask forgiveness.” Many credit unions simply don’t have that luxury anymore. So, how can we change our culture into a culture of compliance – an environment where we can stop compliance snafus before they begin, by building risk management into product development from the start?

In the past, a compliance officer would be brought into a discussion at the tail end of a project’s development, to give approval or disapproval. In today’s world, a compliance officer needs a seat at the table to help evaluate the various risks of a new product or service. The Consumer Financial Protection Bureau is not just rule- and requirement-focused – it is principle-focused. Their offices want to know not only if a credit union’s product or service is compliant with rules and guidance, but if that product or service provides a real benefit to members.

The CFPB is made up of offices that focus not just on Dodd-Frank, but on groups of consumers who might be at particular risk in the marketplace: students, servicemembers, and senior citizens. NAFCU recently held a webcast featuring Holly Petraeus, the assistant director of the CFPB Office of Servicemember Affairs, in which she spoke at length about the various scams targeting military personnel, and her office’s attempts to stop them before they begin. She emphasized that credit unions can play a vital role in helping protect consumers in that way – by connecting with people in your community, staying aware of their concerns, and remaining vigilant about predatory or unscrupulous lending behavior.

Credit unions have always been about communities. Although this new wave of regulations certainly constrains credit unions and forces them to spend resources on compliance that they might have otherwise reserved for member services. But this new era of compliance can be an opportunity for a different kind of member service: instead of only reviewing how regulations affect products and services in the end stages, understand the rationale behind the rulemaking.

Is the product or service understandable and fair to members? Could what we’re doing pose a risk under the CFPB’s test for “unfair, deceptive and or abusive” practices? Credit unions need to remember those standards and that test from the get-go – and build it into the development process – instead of only comparing their product against the technical regulatory requirements.

Instead of a simple checklist, credit unions need to take a more three-dimensional approach to compliance. When examining new regulations, think about:

• Why is the regulator taking this action?
• How were consumers affected by previous practices?
• How do consumers view this product or service, and what do they want from it?
• How do we market this product or service? Does the marketing match how the product or service is actually used by members?

It’s a new kind of member service, and one that’s vitally important in the aftermath of the financial crisis. And it fits nicely with the kind of member service NAFCU strives to offer its members: our website features a host of compliance resources and guides, and of course our compliance team is there for our members as they navigate the new regulatory environment.

But nothing compares to face-to-face communication – and NAFCU has an important opportunity coming up for just that. We encourage compliance officers and staff, as well as CEOs, CFOs, and risk officers to attend the NAFCU Regulatory Compliance Seminar, from October 22-25, in Nashville, Tenn. During our feature presentation, you’ll hear from industry experts David Reed a partner at Reed & Jolly, PLLC, and Rusty Vellek, the compliance officer for Transportation Federal Credit Union, about what you can do to create a culture of compliance at your institution. The seminar will also offer details on the CFPB’s new mortgage rules, the NCUA examination process, vendor management, and fair lending.

The world is different for credit unions today, so we have to bring new strategies and a new attitude to face it. Our ability to foster a culture of compliance can mean the difference between struggling to stay afloat and thriving. We need to remember the importance of compliance in every stage of what we do, in order to make sure we continue to give our members the best service possible, no matter what regulations we face.