Compliance: The Consumer Is King

Expect more scrutiny on fair lending and other consumer-focused issues.

March 11, 2012
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Managing the reg burden

A growing issue for credit unions is simply keeping up with all of the compliance changes and additions, particularly in the consumer protection arena, says Jami Weems, senior compliance officer at PolicyWorks.

“Credit union people are busy managing day-to-day operations,” she says. “They don’t have the time to track, interpret, and implement every rule and regulation.”

That’s where outside assistance with complex compliance issues comes in handy.

“We’ve been tracking compliance changes for years, which means we can pretty much offer any level of assistance to credit unions,” says Weems. “Some credit unions come to us strictly for disclosure reviews, while others may ask us to review their Truth in Lending and Reg E compliance—and still others may ask us for a full-scale lending and deposit audit.

“The latter gives us a baseline for a credit union’s compliance and helps us see its strengths and weaknesses,” she continues. “Sometimes a client is surprised by what we tell them because nobody had mentioned they weren’t doing something properly.”

PolicyWorks, which specializes in federal compliance issues, works exclusively with credit unions.

Weems says new compliance challenges are coming. “A main function of the new Consumer Financial Protection Bureau is consumer complaints, so it’s now easier for consumers to lodge complaints against financial institutions.

“When a credit union has a complaint lodged against it, it will call us for guidance on how to respond,” she says. “We’ll advise the institution on evidence it should gather in its favor, such as an account agreement that clearly states the rights and responsibilities of both the credit union and the member.”

Some new rules are basic and easy to interpret and implement, she says. “But others could be hundreds of pages long and take many staff hours to go through to make sure we understand the new law.”

Even then, regulators can seem almost capricious. “Rules can change suddenly and you may have only 30 days to come into compliance,” Weems says.

“Credit unions should prepare for amendments using the proposed rule so they understand the impact and what may need to be changed. However, they shouldn’t actually make the operational changes until they see the final rule. The final rule may have elements they had not expected.”

ACH and Wire Transfers Draw Regulator Scrutiny

Supplemental government guidelines on Internet banking are creating additional requirements regarding automated clearinghouse (ACH) and wire transfers, and how financial institutions protect consumers.

“ACH is a point of increasing scrutiny because it’s the step before money goes out and the place where you can stanch money outflow,” says Dr. Charles Robertson, an analyst and researcher at Verafin, a CUNA Strategic Services alliance provider.

“This means an increased emphasis on layered security, including strong passwords, authentication, and back-end transaction monitoring,” he says.

The Federal Financial Institutions Examination Council’s supplement to its “Authentication in an Internet Banking Environment” guidance provides “supervisory expectations” that financial institutions implement a “system of layered security.”

These expectations include, but aren’t limited to, conducting risk assessments at least every 12 months, customer authentication for high-risk transactions, and layered security programs.

Regardless of any new threat facing credit unions, one criminal element hasn’t changed: motivation.

“Criminals go to the weakest link,” Robertson says. “Their goal is to get as much money as possible as quickly as possible.”

Verafin’s compliance system provides back-end transactional analysis, where one determinant is whether a member’s activity is in line with past activity.

“Based on its built-in analytics, our system recognizes the overlap between fraud and money laundering,” says Robertson.

“So separate alerts are brought together across a unified dashboard, linking all activities,” he continues. “The speed of detection depends on the credit union core system’s speed and frequency.”


CUNA Strategic Services alliance providers:

  1. Abound Resources
  2. Verafin

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