Regulations CC, DD, and Beyond

Deposit compliance doesn't seem to have the burning current issues that we see in lending and access to credit. However, the fee and service debate really centered on deposit-related services. This is the area where banks have implemented practices (holds on checks, payment of interest on investable balance, fees for basic services) that have engendered hot debates about unfair and deceptive practices. These debates are more than arguments about fees; they go to the question of what a bank is for and what a bank should be.

The new powers authorized by the Gramm-Leach-Bliley Act tie more closely to the deposit side of the bank's activities than to the lending side. For this reason, it makes sense to look at the experience of deposit-side compliance.

The warning signs for what constitutes fair or unfair customer treatment and what will lead to regulations or lawsuits lies in the existing deposit regulations. Consider how some of these issues will play out.

First, we already know that there is and will continue to be a raging debate about how to advertise or disclose potential return on non-deposit investments. Similar concerns will apply to any product that promises a return or benefit without the safety of deposit insurance. Banks will need to carefully monitor both the tone, content, and implications in their advertisement messages.

Second, we also know that people expect more from banks. They expect honesty, fairness, and reasonableness. In fact, when customers choose to purchase non-bank products from or through banks, it is probably based on their expectation of trust with the bank. In entering the new product arena, banks should keep this in mind. The industry will need to focus not only on the bottom line, but on the nature and benefit of new products from the customer's perspective. Otherwise, why buy from a bank?

Finally, anything - from product design through sales presentations - that involves any deception is just plain out. Anyone who ends up thinking that the bank tricked them into purchasing a product will come after the bank. What's more, the practice will be at the expense of the entire industry. That's why we have Regulations CC and DD, even though only a few banks indulged in the practices.

The future of regulations for new products depends on how banks present and sell them. The competitive edge that banks have lies simply in being a bank. Honesty is always the best policy.

The best thing that banks have to sell is service. When we focus on the products, and particularly on developing new products, we tend to overlook the overwhelming importance of service to bank customers. Build service into the product design, and banks should be winners.

ACTION STEPS

Sit down with your marketing staff and get a feel for how they plan to sell new products. Use your influence skills to get them thinking about fair and non-deceptive language.
Make sure that you are in the loop about new products or business ventures the bank may take up. Then you can fulfill your role as corporate conscience and make sure that the bank follows high standards for fairness.
Be ready with ideas about disclosures, sales scripts, and settings for new products. Remember to offer positive input - don't just say no.