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Beware these 4 Spooky Ghosts that Haunt Your Compliance Program!

6 min read
Oct 31, 2017

This Halloween, make sure that these 5 ghouls, ghosts, and goblins aren't haunting your consumer compliance program. If any of these problems are plaguing your program, you'll learn how to get rid of them - with just a little practical magic.

Halloween is here, bringing costume parties, trick-or-treating, haunted houses, and of course, scary movies and shows. From classics like the Rocky Horror Picture Show and Ghostbusters to new favorites like Stranger Things, there are lots of ways to experience Halloween's frightful fun from the comfort of your couch.

In that spirit (pun intended), here are 4 ghosts that may be haunting your consumer compliance program, and how you can exterminate them.

1. Your Budget is Too Small

Compliance is often considered one of the higher-cost areas of any financial institution. Some reports show that the average cost of compliance for a community bank is around $818,000. In addition, it seems that the cost of compliance has the potential to increase as regulators get more sophisticated risks get more complex, and staffing requirements increase.

The idea of increasing compliance costs can be scary, and asking for a bigger compliance budget even more frightening. 

How can you maximize your existing compliance budget, and ask for more resources if needed?

As you know, your compliance budget should be based on your institution's unique needs, risks, and realities. The larger and more complex your institution, the larger your compliance budget will need to be.

To maximize your budget, consider how you can leverage innovative solutions that can save you time and money.

Asking for a larger budget can be a major challenge, but here are a few tips:

  • Do your research on the budget of peer institutions, so that you know how your current and future budgets would compare.
  • Explain the goals you're hoping to achieve - and how you need more resources to get there.
    • In addition, ask yourself what your boss's goals are, and see if there are any ways that an increased compliance budget can help achieve their goals, too.
  • Define the cost and the value of each potential addition (such as a new software subscription, consulting service, or staffing additions) so that you can more easily justify them.
  • Plan for the minimum viable budget increase.
    • Your bank may not be willing or able to support the budget increases that you think are necessary. What is the minimum increase you absolutely need, and where will you allocate those resources? You may not want to share your minimum viable budget right at the beginning of the discussion, but it will help to have it in mind.

2. Weak Culture of Compliance

Regulators will evaluate your culture of compliance when they evaluate your program and risk management. This culture of compliance includes: 

  • Leadership and senior management support of compliance priorities.
  • Assistance from other divisions within the organization on achieving compliance goals and participating in relevant training.
  • Adequate resources, including tools and staffing.

Remember, all members of the Board and senior management are critical to a strong culture of compliance. They set the tone from the top, carry the decision-making power, and are accountable for the institution's risks.


How can you improve your culture of compliance and convince management that compliance is important?

Well, it's not easy. That said, here are some best practices for improving your culture of compliance and convincing your colleagues that compliance is important.

  • Relay accurate, timeline news about compliance developments. Make it as personal to your institution as you can, so that your coworkers can relate to the issues more easily.
  • Share details about the inherent risks in your market, and your compliance team's strategic approach to managing that risk.
  • Help you coworkers understand how each department plays a role in achieving your compliance goals. You may even want to cultivate "allies" within your institution in different departments who can help convey this information to others.
  • Discuss the importance of analyzing the institution’s HMDA and non-HMDA loans, showing how this is one of the best ways to identify disparities and pinpoint potential discrimination. Sharing the results of this analysis can also be effective.
  • Ensure that general and role-specific compliance training is offered to all employees of your instition.

3. Critical Consumer Complaints

Consumer complaints are a bit frightening. They tend to attract the attention of regulators, community action groups, and potential customers. Negative reviews, comments, and complaints have implications well beyond compliance, but it's important that compliance actively manage consumer complaints.

There are a few benefits to this approach, beyond the simple fact that it's required by some of the consumer protection regulations. These benefits include the following:

  • Gathering and managing complaints can help you respond to those comments and serve customers directly, without regulator oversight.
  • Embracing feedback will allow you to hear from clients you may lose because they did not share their opinion. Negative experiences can erode your brand, and it's best to identify potential issues as early as possible.
  • In today’s interactive, technology-centric world, encouraging client feedback (including inquiries and complaints from all mediums) will provide management great insights into the day-to-day operations that may be missed. 


What are the elements that a strong consumer complaints process needs to have?

A strong consumer complaints program provides insight into your markets' impressions of your brand and potential compliance risks. Best practices indicate that your consumer complaints program should include:

  • An active feedback program that makes it easy for clients and applicants to submit positive and negative comments. You may want to accept feedback via multiple channels, such as phone, email, social media, and online forms.
  • A complaints policy that includes that definition of complaint versus inquiry.
  • Clear procedures for managing complaints that avoid subjectivity and discretion. 
  • Training that ensures that all employees know the institution's complaints policies and procedures.
  • Easy-to-use tracking and documentation processes that employees will be able to adopt and integrate into their existing work.
  • Management reporting and review.

Focus in particular on any complaints that allege discrimination, as these are especially likely to attract the regulators' attention!

4. Disparities Lurking in Your Data

As a  financial institution working on consumer compliance, you're expected to proactively analyze their data. This helps identify any disparities, determine their causes, and monitor for evidence of discrimination. This is one of the best - and only - ways to effectively manage and minimize Fair Lending risks before the regulators arrive. Disparity doesn’t always mean discrimination, but analysis is the only way to know for sure.

If you have disparities lurking in your data, it means you probably have some unchecked Fair Lending risk exposure that needs to be managed.

How can you identify and reduce disparities in order to reduce your Fair Lending, CRA, HMDA, and Redlining compliance risk?

First, find a way to easily and efficiently analyze your data for disparities. The tool you use should make it easy to see any potential risks, and easily evaluate how serious they are. The best tools will also help you learn what is causing the disparity.

For example, TRUPOINT Analytics highlights your disparities in a color depending on its intensity (i.e. more intense disparities are darker). Then, you'll get a guided review to walk through the results of the analysis and find out what is causing those disparities.

Sometimes, a disparity might be easy to explain - maybe only a handful of people applied and one was denied so it wasn't statistically significant, or it was a simple error in the data. Other times, a disparity may be more difficult to understand. When it is, you may need a deep dive into your data, or even regression analysis.

Next, you'll need to consider your policies, procedures, and practices, and how they might be driving disparities. 


Happy Halloween from the team here at TRUPOINT!  Before you take off to celebrate, you may be interested in seeing that Guide to the 2018 HMDA changes mentioned above. Click here to get it today:


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