Compliance Blog

Posted by Anthony Demangone

Happy Tuesday, everyone.  I survived and thoroughly enjoyed my weekend alone with the Dynamic Duo.  But let me say this: if you hear anyone utter words to the effect that stay-at-home parents have a cushy existence, feel free to give them the evil-eye on my behalf.

Maybe when things slow down a bit (say, in 2015), I can write more blog postings on single issues. But my in-box says otherwise. I hope you don't mind these "This and That" posts. 

MERS.  By now, I'm sure you've read one of a number of stories regarding MERS.  According to its website:

MERS is an innovative process that simplifies the way mortgage ownership and servicing rights are originated, sold and tracked. Created by the real estate finance industry, MERS eliminates the need to prepare and record assignments when trading residential and commercial mortgage loans.

Most of the recent stories about MERS are stories about foreclosures challenges based on the use of the MERS system. Here's just one example. The quote below was made about BOA and other major mortgage lenders.

“They're recognizing the writing on the wall, that there are serious problems associated with the basic business model and legal theories of the MERS system,” Christopher L. Peterson, a law professor at the University of Utah in Salt Lake City who has written articles on Reston, Virginia-based MERS, said yesterday.

Now, not every court appears to be coming to the same conclusions about mortgages perfected via the MERS system, so I won't try to generalize.  But if your credit union is relying on the MERS system for its mortgages, just be aware of the current situation. 

More compliance.  Here's a blog post that talks about the current state of compliance for banks. (BankNews.) (And a hat tip to C. Bruen.)  The author argues that more compliance is rolling down the hill at financial institutions, arguing that institutions might want to attack the burden more proactively.

To manage the upcoming regulations as well as the ones already in place, Michael Brauneis, managing director in the regulatory risk practice for Protiviti, an industry consulting firm, believes banks will have to change the way they manage compliance. No longer will an informal committee of management team members be able to keep up.

Brauneis also believes many banks need to shift away from the whack-a-mole game — where one mole (or compliance problem) pops up in one particular area so the bank focuses on that one, meanwhile other problems are popping up in other areas.

“I think a lot of community bankers feel today like that’s the game they’re playing continuously, and they can’t get ahead of problems the regulators keep finding and can’t get ahead of new regulatory changes because they keep coming out,” said Brauneis.

The more banks can do to shift from that type of reactive firing model to a more proactive model that focuses on risk assessment, the better. A risk-based approach, for example, identifies the business environment, the risks associated with that environment and the requirements to comply. It then looks at the controls in place to manage that compliance and allocates resources for automating compliance controls to the areas of highest risk.

I wonder how many credit unions use a risk assessment for their entire compliance program? 

Speaking of Compliance.  Read this CFPB blog post about how Ms. Warren hopes to improve consumer protections. Here's a portion of the post:

The CFPB is working to change that. When prices and risks are clear up front, consumers can make the choices that are best for themselves and their families. In other words, we want a credit market that works for consumers.

During this week, we will be listening directly to American families, and we’ll outline our vision for protecting consumers. Richard Cordray, Assistant Director for Enforcement and the former Attorney General of Ohio, will discuss how we can partner with the states to ensure consistent enforcement of consumer financial protections across the nation. Holly Petraeus, the Director of the CFPB’s Office of Servicemember Affairs, will talk about the unique challenges facing the men and women in the armed services. And I will travel to the Anacostia neighborhood of Washington, DC, to hear directly from families who are turning their finances around in the wake of the economic crisis.

I raise two points.  Ms. Warren has consistently talked about clear, up-front pricing.  To me, that signals that she'd love to see costs for products incorporated in the APR or in fees that are clearly disclosed "up front." Anything that a reasonable person could view as "rope a dope" in nature - a product that lures people in with what looks like a low cost only to be followed by "hidden" fees - is subject to "regulatory risk."  You may want to scan your products and services to see if any "rope-a-dopes" are there.  You've been warned.

Also, note that the CFPB will actively work with State Attorney Generals to enforce consumer protection laws. This should push compliance risk up, as cooperation between these two entities will only bring additional attention to state law issues that possibly were unknown or given low priority before.

Advertisements in statements.  This article (MSNBC.com) talks about this growing trend. As I've stated earlier, federal credit unions can do this as well.   Of course, whether one wishes to do this is a business decision. The article and NCUA's opinion do give some important risk-related questions to ask.  

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At some point, your kids stop being babies and become toddlers.  There's nothing that trumpets the arrival of such an event. But then someone takes a photo of your kid, like this one of Kate below just after she got a haircut, and you realize that it already happened.