Tell us
what you think
Our Sponsors
 |
Our Sponsors
|
Compliance Thirty Years After Agnes
Hurricane Agnes hit us 30 years ago, in the summer of 1972. It was a watershed event. Agnes generated some horrible floods. Her waters ran through hilly country, gouging through and underneath coal mine tunnels in Pennsylvania. Agnes left 13 feet of mud in homes in Elmira, New York. Agnes left a legacy of flood hazard legislation.
Agnes was not the only disaster of that era, merely one of the wettest. Agnes was preceded by Hurricane Carla in 1962, Hurricane Betsy in 1965, and Hurricane Camille in 1969. Hurricane disasters were supplemented by earthquake activity, including the Alaskan earthquake of 1964 and the San Fernando Earthquake of 1971.
These disasters generated the modern version of the flood hazard insurance program. The 1968 National Flood Insurance Act offered flood protection to homeowners. The 1974 Disaster Relief Act established the process of Presidential disaster declarations. But FEMA didn't exist yet. President Carter established FEMA in 1979 by merging a variety of separate disaster-related agencies into the new Federal Emergency Management Agency. FEMA took on the responsibility of managing responses to disasters ranging from floods and earthquakes to terrorist attacks.
Flood hazard insurance compliance issues begin with this legislation and the creation of FEMA. It is one of the leading compliance violations cited in bank examinations. As we approach the 30th anniversary of Hurricane Agnes, it seems appropriate to ask how long it takes to get compliance right?
In the world of compliance, there is no "been there, done that" solution. In fact, some of the thorniest compliance problems are also among the oldest. How many lenders have Truth in Lending under complete control? What about Fair Lending?
We see two fundamental problems. The first problem is that compliance isn't easy. Good compliance takes work. It takes training. It takes procedures. It takes tools. And it takes commitment.
The second problem - and this is the big one - is attitude. Too many employees see compliance as a regulatory burden add-on rather than as part of their job. How many loan officers think that they make loans and don't "do compliance?" Compliance will be deficient as long as this attitude prevails. Reality is that lenders do compliance - just as everyone else in the institution does compliance.
We can't help wondering why a loan officer sees it as his or her job to make a loan on property that may wash away in a flood and not require the customer to take out flood insurance on the property. This attitude raises certain questions about the safety and soundness of that loan. In fact, it raises certain questions about the safety and soundness of that loan officer's thinking.
Obviously that loan officer has never tried to shovel out 13 feet of Hurricane Agnes mud from a home used as security for a loan!
We have similar concerns with loan officers who don't think it is important to tell the customer everything that the customer is paying for. That is what happens when the Truth in Lending disclosure and the HUD-1 are not accurate or complete.
The thirtieth anniversary of really bad flood is a good time to take stock of your compliance program and how it works. Use the anniversary of Hurricane Agnes and other disasters to remind bank staff why we have some of these laws. Use the opportunity to guide their perception of what compliance is all about. These laws exist to protect customers and financial institutions - even when the customer object that they don't want it (flood insurance.) When staff understands that compliance is fundamentally a customer service and a protection for both the customer and the institution, you may find they are more attentive in training and more willing to follow procedures.
Copyright © 2002 Compliance Action. Originally appeared in Compliance Action, Vol. 7, No. 8, 7/02
|