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New Horizons for Compliance
Compliance programs tend to focus on the "alphabet" regulations like B, C, CC, DD, Z and their peer regulations. Compliance managers maintain a handy library of materials, most of which are published by their regulatory agencies. Essential items include the regulatory services and examination manuals. Any other literature from the bank regulatory agencies is useful too. And banks tend to operate as though they are connected at the hip to their regulatory agency, taking all cues about concerns and priorities from what the agency stresses.
When we focus on the bank regulatory agencies, we often overlook laws or regulations administered by other agencies. In fact, the regulations issued by the bank regulatory agencies comprise only a slice of the pie. There are lots of other regulations out there to be concerned about - and lots of other agencies.
For example, there is that equal employment stuff. There is an agency called OFAC. And then there is the SEC, the Department of Labor, HUD, and - a favorite - IRS. Bank and thrift examiners tend to give priority to the banking agency regulations. It's natural. Their agencies have primary responsibility for them. They wrote them, and their job is to enforce them.
Rules issued by other agencies are generally treated as a lower priority. They aren't part of the primary, core mandate. That's why examiners don't look at OFAC compliance quite as carefully as they look for violations of Regulation Z.
However, don't let this lull you into a comfort zone. Your examiner's primary responsibility is to make sure the bank is operating in a safe and sound manner. When something heats up - like CTR filing, or OFAC, so that the threat of penalties looms large enough to threaten the bank's soundness, your examiners will suddenly become very diligent on that topic.
One of the sleepers that banks often overlook is the Federal Trade Commission's authority to pursue and prevent unfair or deceptive trade practices. Some of the regulators are warning banks about this. On ABA's annual Compliance Symposium, Richard Riese, OTS, warned banks to watch out for unfair or deceptive trade practices involving sub-prime lending. His remarks are well taken. It is the sub-prime lending market that brought us the high cost mortgage rules in Regulation Z.
Commercial activity that takes advantage of customers has consequences, usually in the form of regulatory burden. In fact, that is where most of compliance comes from. One of the largest technical compliance questions for today is how to conduct banking on the Internet. It's a new world out there, full of opportunity for new products, new sales techniques - and new ways to fool customers.
How to translate compliance into the electronic world is a question that now arises under almost every compliance regulations on the books. The FRB has just issued a series of proposals which take a commendably reasonable approach to the problem. Their proposal is based on defining what the paper-based rules require and translating that into the electronic world. The proposals focus on getting the information to the customer. That, after all, is what most of the regulations are for. Then the FRB says the electronic disclosures should pass the clarity test. Don't try to conceal or misrepresent information. The FRB would not hold the creditor responsible for ensuring that the consumer actually read and understands the disclosures.
In the world of compliance, this is a minimalist approach. Whether it succeeds is up to the industry. This approach leaves banks free to design distinctive home sites, disclosures, and unique ways to communicate with customers. If banks use this freedom wisely, they will win this round. But if they indulge in what are fundamentally unfair or deceptive trade practices, they will lose this and more.
Copyright © 1998 Compliance Action. Originally appeared in Compliance Action, Vol. 3, No. 4, 3/98
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