Compliance Blog

Posted by Anthony Demangone

If you are a NAFCU member, your credit union receives a magazine roughly 6 times a year.  It is the Federal Credit Union.  Be sure to glance through each issue.  We always have a compliance-related column, and quite often there are addition regulatory or legislative articles that can be quite useful.  I wrote the following column for the current issue.  Often, my goal is to have a column educate others about the role of a credit union's compliance officer.   This column falls into that category.  NAFCU's compliance team strives to help you do your job, and we hope this column does just that. 

Editor’s note: This has been a tough stretch for credit union compliance officers.  Regulation Z, HVCC, the CARD Act, the FACT Act, Truth in Savings, Regulation E, MDIA, and HOEPA have all ganged up to throw myriads of new requirements at credit unions.  If you want to get the most out of your compliance officers and preserve their sanity, please pass this article around to your non-compliance staff.

 Compliance officers get questions.  That is a fact of life.  We get big questions and small ones.  Complicated questions, and simple ones.  Some questions, though, give us heartburn.  These questions cause us to close our door and bang our head against the wall.  

 In a perfect world, these questions wouldn’t exist. The world, however, is not perfect.  We know that.  All compliance officers want is to hold these questions to a minimum.

 The following list shows what to avoid when asking a compliance officer a question.  Whenever possible.  When that is not possible, go ahead and ask. But come bearing gifts.  Or antacid.

1. â€œI heard it from a friend who heard it from a friend…” questions.  These questions often start with the phrase, “I was at a conference, and I heard that we have to do (insert issue).”  Ah, the wild goose chase.  Compliance officers do appreciate it when other credit union employees come to them with new compliance information. 

Compliance is too complicated and broad in scope for any one person to master.  When you are at a conference, reading a magazine, or listening to a telephone conference, feel free to pass along compliance-related items.  But be sure to give as many details as possible.  NAFCU’s CEO, Fred Becker, does a great job with this.  If he reads something that he thinks I should know, he sends me the entire article with a note.   That way, I know when it was written, who wrote it, and what the article says.  If you are at a conference, rip out the PowerPoint slide, and note who delivered the presentation.  All of these details are useful.  However, when a compliance officer begins their research with nothing more than the statement “I heard that we have to do (insert requirement),” the officer has to cast a wide net and will usually waste time before they hone in on the right area.

2. Last-minute contract reviews. Often, these questions look like the following: Can you look at this contract?  We need to have it signed today, and we want to make sure that everything is OK.   Contract reviews are very difficult, and extremely complicated.  Contracts terms hinge on a number of factors.  Are the parties negotiating terms?  Or is the price of the product or service the only thing at issue?  Is the credit union willing to walk away?  What particular terms are troublesome? What does the credit union truly want out of the proposed relationship?  There are attorneys who have spent years specializing in contract reviews and negotiations.  Dropping a contract on a compliance officer’s desk hours before the contract must be signed will not generate much benefit.  Give them more time and focused contract review training if you expect results.

3. Oversimplifying questions.  Some questions might seem simple, such as this one: What disclosures do we need to have on this (insert document, such as periodic statement, late notice, etc.)? That question is not simple.  It is fairly complicated. What makes this question so troublesome is that the answer turns on many, many variables.  Credit unions often have options in how to deliver certain disclosures, or the disclosures themselves depend on decisions that are made away from the compliance division.  For example, Regulation Z requires an annual “billing rights disclosure.” This notice, though, can be substituted with a monthly notice on the statement.  The CARD Act and Regulation Z require repayment disclosures that hinge on how long it will take the member to pay off his or her credit card when making the minimum payment.  Statement and disclosure issues are best handled in a group setting with all parties having a roll in the “piece of paper” sitting at the table.  So, plan ahead.  Issues that you might see as “simple,” may take compliance officers quite a while to answer adequately. 

4. Conference call questions.  (The phone rings in a compliance officer’s office.)  Hello. We’re in the middle of a meeting, and a question has come up regarding the Home Valuation Code of Conduct.  Can we do (insert question)? Don’t worry…we’ll stay on the line and wait for your answer.   No one likes to be on the spot, especially when called away form an intense research project that was on an entirely different subject.  Very few compliance officers can jump from one complicated regulation to another at the drop of a hat.  If you make such queries, give background information, compliance-concerns, the credit union’s strategy or plans that led to the question…and time.  Good compliance is like a fine meal.  It takes preparation, seasoning, and effort.  Sometimes that is not possible, but do not expect a filet mignon when you are ordering off the fast-food menu.

5. Open-ended questions. These questions might look like this one: What do we need to know about this (insert subject)?   If you ask such an open-ended question to your compliance officer, you are requiring them to do a complete review of a regulation against your credit union’s operations and strategic plans.   Such a project is not impossible, but it is difficult and takes time.  The best that a compliance officer can hope for, usually, is to highlight “red flags” or areas of possible concern.  These areas must then be researched in detail with as much input from operations as possible. 

6. The “onion” question.  I call this type of question the onion, because it involves layers.  A compliance officer gets a question, and they answer it.  But then the person comes back with additional details.  And the compliance officer answers again, taking into account the new information.  And then the person comes back with additional details.  You get the picture.  Like an onion, the compliance officer is forced to peel away each layer, one by one.  And it likely makes them want to cry.  The best way to avoid “onion” questions is to give your compliance office details, information and context with your question. 

7. The “sneaky” question.  Often, credit union employees have disagreements concerning whether some action is permissible.  Sometimes, one of the employees involved in the disagreement will try to use a compliance offer to buttress his or her argument.  They’ll pose a question in a way that leads the compliance officer to agree with their position, often neglecting to include other important facts that the compliance officer should consider.  The employee will then use the compliance officer’s response as support for their position.  If things go wrong, they may use the response as a “get out of jail free” card.  Not cool.  Hiding facts from a compliance officer in order to get your way is dangerous.  You are playing with the compliance officer’s reputation and placing the credit union’s compliance program at risk.  If there is a disagreement regarding what the credit union must do, give the compliance officer all the relevant facts.

There you have it – the seven deadly sins when it comes to questions for your compliance officer.  If you follow the advice outlined above, your compliance officer will greatly appreciate it.  It will allow them to do their work efficiently, and it will help protect your credit union from costly compliance mistakes.