31 Hoosier Banker January 2015 with regulators, we can expect examiners to pay more attention to this area of compliance. 4. Unfair, Deceptive and Abusive Acts and Practices. The purview of UDAAP has expanded in scope to include marketing, products, disclosures and beyond into other business practices, and has begun to focus on interactions with third-party agents. Community financial institutions should be cognizant of this “scope creep.” 5. Fair lending. Indirect and direct lending practices received a tremendous amount of scrutiny last year. Increased regulatory scrutiny affected a number of financial institutions and other types of lenders. A rash of consumer complaints have created a lending environment that is ripe not only for regulatory enforcement, but also for consumer and class action lawsuits. Community financial institutions could see another strong wave of enforcement this year, similar to what the industry experienced a decade ago. 6. Compliance management systems. Last year, community financial institutions were criticized publicly for not having effective compliance management systems and cultures of compliance in place. Enforcement actions specific to these shortcomings were issued, and financial penalties were enacted (e.g., institutions and individual board members fined for poor compliance oversight). Examiners continue to expect more concrete evidence of appropriate management in these areas, and will not hesitate to levy penalties. 7. Call reporting accuracy. Community financial institutions need to improve their compliance capabilities in this area, starting with new policies to ensure procedural implementations. 8. Consumer complaint management. How financial institutions handle consumer complaints has become an area of examiner scrutiny, especially as it applies to so many different regulatory requirements. (Fair Lending and Reg E are two examples.) Examiners want community banks to demonstrate formal processes that define, intake, investigate and resolve complaints, as well as identify risks. 9. Social media. One year ago, regulators issued guidance on how financial institutions should understand and identify the risks of social media. The guidance was not prescriptive, which led to confusion and questions that still exist. Meanwhile the risks inherent with social media are growing. Community banks need to be proactive and focus on risk mitigation strategies. 10.Vendor oversight. The number of enforcement actions related to poor vendor management spiked in 2014, and there is little reason to expect a change this year. Third-party marketing partners and other vendors have aroused concern over whether community financial institutions are appropriately managing these partners and their activities. As this trend grows, examiners will pay closer attention. As you review the compliance areas above, be aware that there are many interdependencies and crossovers. For example, how a financial institution addresses vendor oversight may impact its ability to meet BSA requirements. An institution’s use of social media could have UDAAP implications. Mortgage lending practices could generate consumer complaints … and so on. Because of this interconnectedness, problems can sneak up quickly, and simple mistakes in one area can gravely impact another. With expectations clarified, stay ahead of these predictions by taking a holistic approach, and remove the obstacles of inconsistency and human error from the equation. t
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