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Riskiest Compliance Regs? As Rated By The Regulators

At the recent National Graduate School for Compliance Management, a panel of regulators identified the regulations that they see as the greatest compliance risk or exposure in the coming year.

Ken Kieffer, FDIC-Kansas City, predicted that fair lending will continue at the top of the list. The risk to the bank's reputation from adverse reports or negative publicity relating to fair lending and CRA will be a concern for a long time to come.

Kieffer cautioned that Truth in Lending is always a high risk compliance regulation. He advised banks to pay special attention to making proper and complete disclosures for credit life premiums to exempt them from the finance charge. He also identified disclosure concerns with the new high cost mortgage rules, reverse annuity mortgages, adjustable rate mortgages, and the operating systems used to generate disclosures for credit cards.

Marge Wagner, FRB-Kansas City, agreed with Keiffer's predictions. She added RESPA to the list, specifically identifying kickbacks and referrals. She advised bankers to pay close attention to how they design and market products, how they structure any relationships, and when to pay and for what. Rick Freer, OCC-Washington, DC, added his concern about credit scoring and the use of score cards. He described credit scoring and score cards as a mine field waiting to blow up.

Freer identified consumer complaints as an area of vulnerability, especially to the bank's reputation. His advice is to emphasize customer service when dealing with complainants, even when the bank is right and the mistake was the consumer's. Taking a hard line with complaining customers can cause the situation to escalate.

Second, he flagged the rise in credit card fraud and recommended that banks take steps to protect credit card security. Finally, Freer reminded bankers that they should not limit their own compliance programs and self-assessments to the issues identified in the OCC's procedures. Because the OCC procedures are designed to examine, not to implement a program, they will always be less than what the OCC thinks banks should do.

Copyright © 1996 Compliance Action. Originally appeared in Compliance Action, Vol. 1, No. 7, 4/96

First published on 04/01/1996

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