Compliance Blog

Posted by Anthony Demangone

I'm not a very creative guy, so when I add a catch-phrase to my limited arsenal, it tends to be inserted into the line-up almost immediately.  At some point, I added "reading the tea leaves" to my vocabulary.  Rarely a day has gone by without me uttering those words.

"Reading the tea leaves" is a form of fortune telling.  In short, some folks allegedly can look at used-up tea leaves and tell someone's future.  To most folks, the leaves just look like a pile of wet leaves. But to the trained eyes, they'll see the future.  I'm sure mine would be something like this:

Fortune teller speaking to me: I see crayons on walls, requests for car keys, and immense checks being written to institutes of higher learning. 

As compliance officers, we can do something similar.  We keep track of a multitude of issues.  When a regulator or some other credible source adds new information to our matrix, we may see how that new piece of information creates "ripples on the pond."  And we may see how those ripples might affect the operations of our credit union.  Let me walk through a few items that I've seen recently to show you how I try to read the tea leaves.

Directors.  The Bank Lawyer's Blog recently wrote this post regarding how recent developments may make it difficult to recruit/find new candidates for a community bank's board of directors.  Credit unions are not community banks, and an uptick in FDIC lawsuits against the directors of failed banks does not mean the same will happen for us in credit unions. But, articles like these show how prospective directors might perceive an unpaid spot on your board.  Add to this NCUA's recent rule on fiduciary duties, and you see a trend.

Reading the tea leaves...Your credit union may see the availability of viable board candidates shrink.  It isn't that there are fewer qualified people within your field of membership.  It may be that fewer of them would be interested in serving.  It may be time to look at how you recruit and retain strong officials in light of these facts.  Possible areas to look?  Nominating committees.  Associate board members.  Supervisory committee. Other volunteer committees. 

Foreclosures.  Two recent events popped up on my radar screen regarding foreclosures.  First, the GAO issued this report that calls for federal regulation of the foreclosure process.  Second, the FDIC recently devoted an entire issue of its "Supervisory Insights" publications to foreclosures. Here's how the FDIC spun that issue: "This Special Foreclosure Edition describes lessons learned from an interagency review of foreclosure practices at the 14 largest residential mortgage servicers and includes examples of effective mortgage servicing practices derived from these lessons."

Reading the tea leaves...The issue of federal regulation of the foreclosure process is quickly rolling downhill.  Many experts expect a ton of additional foreclosures, and others are predicting further drops in the market value of American real estate.  After a crisis, one often sees new regulation.  (PATRIOT Act, Sarbanes-Oxley, Credit CARD Act, Dodd-Frank.)  I would expect federal action in this area.  So, look at your own credit union's foreclosure policies and procedures.  Take a look at the FDIC and GAO recommendations.  That's a good start.  And stay tuned.  

There you have it.  As a compliance officer, it is understandable when one focuses on the trees instead of the forest.  But the more that you can take a step back and see where that forest is heading, the better off you'll be, as well as your credit union.