Pub. 2 2013 Issue 5

l e a d i n g a d v o c a t e f o r t h e b a n k i n g i n d u s t r y i n k a n s a s 22 A s the economic landscape begins to show signs of improvement from one of the worst financial catastrophes in American history, there are still many uncertainties financial institutions must be prepared to face. One of the biggest obstacles is the regulatory compliance burden that has been placed on financial institu - tions. The increased focus on compliance has caused many companies to dedicate more resources, both in financing and personnel, to dealing with the regulatory changes. Over the past few years several existing regulations have been up - dated and new regulations have been proposed; however, this article will focus on one area that could become more of a focal point with regulators: Fair and Responsible Lending (FRL). Banks have been portrayed as the bad guy over the last several years, and the public perception is that consumers have not been treated fairly after helping to bail out the banking industry. Due in part to the negative public perception, increased focus on FRL is anticipated in the next 12 to 24 months because of the increasing involvement of the Consumer Financial Protection Bureau (CFPB), the need for financial institutions to replace lost revenue and the impact the recession has had on many consumers. Impact of the CFPB The CFPB was created to ensure consumers are provided with the information they need to make a financial decision in the best interest of themselves and their families. Furthermore, it appears the inception of the CFPB has increased consumers’ awareness of FRL. Consumer ability to file a complaint against a bank, mortgage company, credit card company, credit reporting agencies and others has been cen- tralized through the CFPB, which has encouraged consumers to tell their stories, good or bad. Financial institutions need to ensure their complaint resolution process is capable of monitoring and resolving a consumers’ concern in a timely manner, both for itself and against third-party relationships. Experience shows the CFPB has a slightly different approach when conducting a FRL exam. The request lists have grown dramatically, and a specified exit date has not been communicated. This essentially leaves a bank with a continuous FRL review, which differs from what compliance officers have traditionally been accustomed to with other regulators. Many compliance professionals have January 2014 marked on their calendars, as multiple rules take effect this month. They in - clude updates or the implementation of new rules covering a qualified mortgage, consumers’ ability to pay, escrow accounts and loan officer compensation. Each of these rules will need to be reviewed from an FRL perspective as policies and procedures are updated to incorporate these new rules. Replacing Lost Revenue Many banks are looking for ways to replace income lost with the re- duction of interchange fees. Compliance officers should be engaged in this process, as revenue creation should be done in a fair and responsi- ble manner. One of the most common ways to offset lost income is to increase monthly fees for checking and savings accounts; however, in many instances a consumer can avoid these costs by following some simple guidelines outlined by the bank, such as direct deposit of a pre- determined amount or completion of a certain number of online pay- ments. Increasing account fees will not replace the amount of revenue that banks lost with the reduction of interchange fees and the increased cost of compliance, so some banks are implementing more risky products to generate income. One of the more recent and controver- sial campaigns has been the introduction of new products resembling payday lending and the offering of reloadable prepaid cards. The general outlook on these products has been that they are predatory and take advantage of consumers who are not financially savvy. If your bank plans to introduce similar products, your compliance department should be engaged in the beginning stages of the project to ensure it can be implemented in a fair and responsible manner. Lasting Recession Effects Finally, the last few years have had a negative impact on many consumers’ finances, meaning there has been an adverse effect on their credit history. Many people lost their jobs, experienced income reduction, saw the equity in their home vanish and experienced an increase in their monthly mortgage payments, and some ultimately lost their homes through foreclosure. As the economy slowly improves, many of these consumers are rebuilding their financial standing and working to improve their credit rating. Part of this credit rebuilding process is gaining access to credit products; however, consumers have found it is much harder to gain access to credit products, which only serves to increase consumers’ negative perception of banks. In recent months, financial institutions have begun to loosen—albeit very slightly—the underwriting standards of some credit products as the economy appears to be improving. Compliance officers will need to ensure a balance between being fair and responsible to consumers and mitigating the risk exposure of the financial institution. Best Practices With all the FRL risks a financial institution will continue to face, there are a few best practices that can have a positive impact on its FRL program. Banks should provide FRL training to all employees at least annually, conduct a review and update of policies and procedures annually or sooner if necessary, be consistent in the treatment of simi- lar situations, and properly document, monitor and report all incidents involving fair and responsible lending. This information was written by qualified, experienced BKD professionals, but applying specific information to your situation requires careful consideration of facts and circumstances. Consult your BKD advisor before acting on any matter covered here. Billy Seitz can be reached at bseitz@bkd.com. Article reprinted with permission from BKD, LLP, bkd.com . All rights reserved. Fair and Responsible Lending in Today’s Environment By Billy Seitz, BKD experience talent Billy J. Seitz, CRCM Managing Consultant Kansas City 816.221.6300 bseitz @bkd.com BKD is the top-tier U.S. CPA and advisory firm that delivers its experience and service with a deep understanding of your business, your needs and what it takes to improve your business performance . Billy is a member of BKD National Financial Service of banking compliance experience primarily focused Bank Secrecy Act/Anti -Money Laundering regulation Prior to joining BKD, Billy managed fair and respons the consumer credit department of a $127 billion regi working with the management teams of multiple busi mitigate, monitor and report compliance risk. Billy has extensive experience in the management and Ho e Mortgage Disclosure Act regulatory filing and for several organizati ns, ranging from a community global financial institution. In addition, he was respo of privacy and oversaw the implementation of the new multiple credit card portfolios containing more than 5 From 2008 to 2010, he served as a member of the PC Board. He received his Certified Regulatory Compliance Ma from the Institute of Certified Bankers in 2008. Billy is a 1999 graduate of Missouri State University, degree in finance, and a 2002 graduate of Rockhurst U Missouri, with an M.B.A. degree with a double emph management.