Compliance

When Woody Hodgdon attended CUNA's Regulatory Compliance School in1981, he spent two and a half days there and brought home one book that was about threequarters of an inch thick. Now, when he and his collegues teach the course, their students attend for five and a half days and bring home two books, each one measuring more than two inches thick.

It's not that Hodgdon, the compliance and collections manager at HP Rocky Mountain Federal Credit Union, Loveland, Colo., is a taskmaster. The course has grown more rigorous because regulations governing credit unions, and the challenges of complying with the regulations, have grown to mindboggling proportions during the past three decades.

"As credit unions have added services over the years, the regulatory burden has increased exponentially," says Bruce Jolly, an attorney formerly with CUNA, now with Shook, Hardy, & Bacon in Washington, D.C., and a frequent speaker at CUNA's Regulatory Compliance School.

It's a jungle out there The proliferation of rules governing credit unions began in the late 1960s and continues today. From 1968 through the mid-70s, it grew with the passage of a set of laws known collectively as the Consumer Credit Protection Act. This included such fundamental laws as the Truth in Lending Act, the Equal Credit Opportunity Act, and the Fair Credit Reporting Act.

These laws were passed to make sure consumers would get accurate and complete information when shopping for loans; to prohibit discrimination by lenders on the basis of age, sex, race, or religion; to require full disclosure of reasons for denying loans; and to prevent debt collectors from threatening and abusing debtors.

Following these laws came multiple regulations that impose rules for implementing the laws and penalties for breaking them. Then came a host of state laws and regulations. Adding to this regulatory load were court rulings coming out of thousands of civil lawsuits filed under these laws.

With the advent of home equity lines of credit about 10 years ago, credit unions saw another proliferation of federal regulations, according to Jolly. Growth of federal and state regulations has continued through this decade, and additional rules have been handed down from the Federal Reserve, the Federal Trade Commission (FTC), and the National Credit Union Administration (NCUA). Hodgdon estimates that, in all, there are now more than 180,000 pages of regulations affecting credit unions.

Penalties for failing to comply with these laws can be stiff. It's no wonder, then, that compliance has been a growing priority for credit unions. And one way credit unions are handling this priority has been to appoint or expand the duties of a compliance officer-someone to stay on top of all the rules and regulations and to make sure the credit union is in compliance.

"First of all, it means reviewing all the changes to state and federal laws and regulations, all the time," says Gaye DeCesare, compliance manager at State Department Federal Credit Union, Alexandria, Va. "I spend a lot of time reading."

Compliance officers have to read not only federal and state laws and regulations, but also rulings from the Federal Reserve Board, FTC, NCUA, and summary interpretations from CUNA and the leagues. DeCesare says today's compliance officer also writes policies and disclosure documents for all transactions, reviews all marketing materials, chairs a compliance committee, and makes regular reports to the board.

It might seem that such a job description would be more than enough for a full-time position. But DeCesare also supervises new product development and oversees development and maintenance of hundreds of operational forms. When she took the position of research and development manager in 1988, compliance was a small part of the job, and research and development took most of her time. Those proportions have since been reversed.

The number of full-time credit union compliance officers is growing, but they're still fairly rare. Shayne Wymore, compliance officer at SELCO Credit Union in Eugene, Ore., said that when he attended CUNA's Regulatory Compliance School last year, he was the only full-time compliance officer in his class of 85 people. But that's changing, he says, noting that Oregon has a small but growing Association of Compliance Officers. Hodgdon and others estimate that fewer than 10% of credit unions employ full-time compliance officers.

Most credit unions, especially small and medium-size organizations, manage compliance in one of two ways. Some split compliance responsibilities along product lines and assign those responsibilities to different people. Other credit unions give the responsibilities to one person who has other duties, such as a vice president of finance or research and development.

How do they do it?

Credit union compliance officers unanimously agree the one thing they need more than anything else is time. Even for full-time compliance officers, just doing the basic job of understanding and communicating regulatory information to everyone in the credit union takes more time than they have.

Making the problem even worse is a tendency some credit unions have to consider their compliance departments as "catch-all" departments, according to James Allan, vice president of finance at First Flight Federal Credit Union, Havelock, N.C.

"The word 'compliance' gets overused, and its meaning keeps expanding," says Allan. "At a time when regulation is becoming increasingly pervasive, some credit union managers assume `anything complicated' must have the compliance officer's input. This often gets that person involved in processes beyond the scope of consumer credit regulations and compliance. So the realm of compliance keeps expanding, and time becomes even more scarce."

Allan is working on a solution to the workload problem by establishing a compliance committee with representatives from each of his credit union's major operational areas.

While each committee member would still report to a designated compliance officer, they would become specialists in their areas, attending regular meetings, working with branch offices, and helping with training and development. Allan says the compliance team concept can be helpful for small and medium-size credit unions that can't afford full-time compliance officers.

Another workload-reducing idea comes from Rick Wargo, director of the Pennsylvania Credit Union League's compliance and information department. He learned of a director at one credit union who was planning to semiretire. He plans to have compliance-related publications sent to his home, where he'll review and summarize the information and communicate it to people at his credit union.

Computers can help

Computer technology is also helping to alleviate the workload problem. One commonly used tool is a CD-ROM product called The Credit Union Library, from CUNA and IHS Financial Products, Englewood, Colo. ("Software streamlines compliance process," CU Mag 3/98, p. 38).

IHS's product is updated bimonthly and contains regulatory changes, NCUA letters, Federal Reserve Board rulings, and CUNA's regulatory interpretations. IHS provides the same information on the Internet through a paid subscription.

The Internet is becoming an invaluable resource for many compliance officers. Most regulatory agencies have Web sites with current information available. CUNA's Web site (www.cuna.org) contains a compliance section under its "Resources for Member Credit Unions" area. CUNA's CobWeb (Compliance Brainstorming on the Web) listserv lets compliance officers use e-mail as a networking tool.

To get on CUNA's listserv, go to www.cuna.org and click on the "Affiliate Info" button, then click on "Government Affairs," then "Regulatory Compliance," where there's a subscription area for CobWeb. Enter your full e-mail address and you'll receive a message once your address has been added to the list.

Computers also help compliance officers with training programs. Hodgdon says a compliance officer could spend hours teaching employees about the Bank Secrecy Act or 15 minutes getting employees started on a computer tutorial.

While available for questions, the compliance officer/trainer can now spend most of that training time on other tasks. Employees proceed through the tutorial at their own pace. The computer scores each employee's performance and tracks training progress.

What's on compliance officers' wish lists?

Most compliance officers would like to see credit unions with fulltime positions dedicated exclusively to compliance tasks. And if they had another wish, they'd like to see compliance officers report directly to their chief executive officers (CEOs). The advantage, says Hodgdon, is that compliance officers could then lobby their CEOs to direct other managers to implement changes regulatory directives require. This way, compliance considerations would become an integral part of senior management's decision-making process.

If a credit union has made a commitment to hire a full-time compliance officer, what qualities should that person possess?

"Good eyes," says Hodgdon with a chuckle. You need someone who can read and digest an endless amount of rules and regulationssomeone with a high tolerance for details, he says. In addition, Wargo adds, compliance officers must be able to effectively communicate their interpretation of all that information to others.

Most compliance officers agree the ideal candidate for the job has come up through the ranks and been exposed to many facets of the credit union. Wymore, for example, has worked in credit unions for 16 years in several positions, including teller and loan officer. "It's helpful to have walked in someone else's shoes," he says.

Perhaps the compliance officer's greatest challenge is that of communication. Hodgdon, who has taught on this subject, says compliance officers can enhance their communication skills by:

Screening out unnecessary information that weighs down the message. Boil material down to the point where it becomes relevant and easy to understand.

Getting buy-in from the managers and staff who must live with the policies and procedures the regulations require. Invite staff to help design those procedures.

Creating incentive programs. At Hodgdon's credit union, any employee who finds something that needs correcting for compliance purposes gets a gift certificate to a local ice cream shop. Compliance officers can turn compliance into a game where winners receive instant rewards.

Allan puts it another way, saying compliance officers need to be more facilitators than officers. Their job is to help people comply, not to be naysayers. Compliance officers shouldn't act as regulators or examiners, he says. They shouldn't be threatening. They should be comfortable working with other people and have a natural ability to enlist cooperation.

Because in the end, Allan says, "compliance is everyone's duty." .

RESOURCES

CUNA's Regulatory Compliance School: An Introduction. May 17-22 in San Antonio and Sept. 2025 in Savannah, Ga. An update to the introductory school runs concurrently at those same locations. The update school ends one day sooner than the introductory school. For more information, call Tricia Tooman at (800) 356-9655, ext. 4130.

Credit Union Magazine's quarterly Compliance Matters supplement, which runs in the first month of each quarter.

CUNA's Web site (www.cuna.org contains a regulatory compliance section within its "Resources for Member Credit Unions" section.

The CobWeb (Compliance Brainstorming on the Web) listserv gives credit union compliance officers an opportunity to post compliance questions and discuss regulatory concerns with a group of participating credit unions. Instructions for signing up are contained within this article.

A CD-ROM compliance product called The Credit Union Library from CUNA and IHS Financial Products, Englewood, Colo.: (800) 757-8670.

Copyright Credit Union National Association, Inc. May 1998
Provided by ProQuest Information and Learning Company. All rights Reserved