Take a Holistic Approach to Compliance

CU can’t have separate compliance approaches for different products.

November 21, 2012
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As the discipline of compliance discipline continues to evolve in financial institutions, enterprise compliance management will become increasingly necessary, according to two compliance experts: CUNA Mutual Group’s Bill Klewin, director of regulatory compliance, and Lauren Calhoun, compliance manager.

The organization and all of its moving parts must be considered in managing compliance, especially at the consumer level.

Credit unions can’t have separate compliance approaches for mortgages, credit cards, and other loans. “They are now all inter-related,” says Klewin. “If you divide up responsibilities you’ll get inconsistencies.”

The staff member responsible for compliance shouldn’t report to the vice president of lending, he says, because that constitutes an inherent conflict of interest. Klewin compares the compliance officer to an internal auditor or general counsel—someone who looks out for the best interests of all departments in the organization.

New regulations will continue to challenge credit unions, sometimes at an overwhelming pace, he adds. The key is to be prepared—and careful.

Say a young couple that’s expecting a child comes to the branch to apply for a loan, Klewin relates. During a friendly conversation, a normal reaction is to ask when the baby is due. But if the credit union denies the couple a loan, the institution could be sued because the loan officer asked an impermissible question.

“There are valid reasons you don’t talk about certain things—money, religion, or politics—at a family event,” says Klewin. Staff training should also emphasize that certain topics and questions that come to mind during a loan application are better left unsaid.

New suitability requirements mean that credit unions must take into account whether a product makes sense for a member. A variable-rate annuity, for instance, that pays out in 10 years wouldn’t be suitable for a 90-year-old man, says Calhoun.

She says suitability tests could have helped prevent some of the financial mayhem and homes lost to foreclosure in recent years if the applicants’ suitability for mortgages were considered.

Another part of readiness is investing in education and training by sending staff to compliance training. The Internet and listservs also can be effective vehicles to gather information.

Directors also have a role to play in regulatory preparedness. As the board ultimately sets the direction for the credit union, it should be aware of regulatory compliance efforts.

“Directors need to monitor regulatory compliance,” says Klewin. “The board should show staff that they are interested in compliance. Directors have personal liability for the actions of the credit union. The credit union’s reputation in the community is at stake.”

Navigating regulations in 2013 will be challenging for credit unions in 2013 and beyond, Klewin and Calhoun say. In preparation, they advise credit unions to determine whether they:

Make compliance a top priority;

Klewin and Calhoun addressed the CUNA Lending Council Conference in Miami.

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