Posted by Lucy Griffin in Lucy and Nancys Common Sense Compliance
Bankers are used to commenting to financial regulators. We know them and they know us. We both know the drill.
However, when comments go to the Consumer Financial Protection Bureau, it will be a whole new game.
The Bureau is not so much a financial institution regulator as a consumer protector. This gives their approach to rule writing a whole new slant.
Contrasting two approaches to rulemaking
When a financial institution regulator, such as the Federal Reserve or FDIC, is writing a rule, it starts with a high level of knowledge about the operation of the institutions it regulates-long before any comments come in. After all, the regulators visit each institution on a regular schedule, and have done so for decades
Rulemaking by our regulatory agencies also takes place in the context of supervision. As supervisory entities, the agencies are responsible for ensuring that banks, thrifts, and credit unions operate safely and soundly. Compliance, and any other issues, are considered in the context of the business and how it operates.
When commenting, the industry doesn't have to do a whole lot to argue the points of cost and feasibility. The regulator always knows that staying in business, being able to afford to perform the requirements in the regulation, is an essential consideration.
Things can look quite different when the only obligation is to protect consumers.
Whether banks can stay in business is not the Bureau's problem. Consumer protection is. This means that the priority when considering each element of a proposed rule will be what the element does for the consumer. What happens when this is the process?
Think of how much weight HUD gave to comments from financial institutions when redesigning the good faith estimate. HUD's focus was almost exclusively on the consumer. What banks cared about and what banks said was given laughably little attention.
In the past, banks have placed little emphasis on providing information in their comment letters. They have voted "yes" or "no" and, when sorely tried, offered alternative approaches. This is not likely to persuade regulation writers with the primary mission of protecting consumers. Comment letters written to the bureau will have to do a much better job of explaining the business costs and feasibilities of any proposal.
Rethinking your approach to comment letters
But whining about cost, by itself, won't work.
The "this will drive us out of this business" argument will only go so far. It is going to sound too much like the boy who cried wolf when there was none and then had no credibility (and no rescue) when the wolf actually came.
So what can-and must-we do?
First, we cannot sit back and let ABA do all the work for us.
One comment letter, no matter how thoroughly and masterfully written, cannot do the job. All banks must jump on the bandwagon. So don't wait until the final version of a regulation or rule comes out to figure out what you are dealing with.
Take preemptive action by participating in the comment process. Only those who write comment letters will have griping rights when the rule is in final.
Second, take the proposal and put it to the test.
Bring together the people in your organization who will be affected by the changes proposed. Talk through how things work now, what the proposal would change, and what would have to be done to make the changes.
Be thorough. Include expenses such as forms, systems, and training. Also consider timing.
Third, use this information to draft your comment letter-round one.
You can expect to go through several drafts. In order to draft an effective rule, the rule writers need to do more than simply protect consumers. They need to design a rule that will work.
Because they do not work in financial institutions, they need your information about process-the operations of the organization. The more quality information you can give them, the better the ultimate rule will be.
Fourth, in every point you make, consider (and even mention) how it will benefit consumers.
This means much more than simply attempting to rebut what consumers argue. You need to make a case. When consumers lobby or comment, they don't necessarily have full information at hand. For example, they don't know what your choices and obstacles are. We often see passionate consumer arguments that are functionally spitting in the wind because they just won't work.
So, when there is a better alternative out there, put it in your comment letter. Nothing is more persuasive than a good idea.
Fifth, use your own information-gathering process to find out what your customers like and want.
Sometimes a small group will get a bright idea, but the majority of customers don't particularly want that-or actually want something quite different.
Sharing information and feedback from your customers can have a big influence on the final rule. It also makes the point that you are not raising issues in a vacuum but that you actually interact with and listen to your customers.
Sixth, offer alternative ideas.
This is your chance to get ideas on the table-ideas that work for your institution and-hopefully-for others as well. Simply saying that you do or do not like what was proposed doesn't get anyone very far. It is a yes-no situation, and the regulation writers get to choose one.
Since they proposed the regulation - especially if the law required the proposal - they are likely to choose "yes."
However, when there are alternative methods on the table, the game changes. Now the rule writers have to consider and compare the merits and effectiveness of each idea on the table.
(Now you have made them work by reconsidering how to shape the rule. Isn't that satisfying?)
Seventh, even though arguments about excessive costs and hand-tying procedures tend to generate disbelief in the hearts and minds of consumer advocates, there is a need to raise these issues.
Do so responsibly, with solid information.
No exaggerating. Exaggerating is where we go wrong. Real numbers, backed by research (starting with those meetings you had to scope out the issues) can be persuasive. The most important aspect of cost arguments is to be credible. When the industry makes reasonable arguments supported by credible information, the Bureau must listen.
Cost is real. But remember, no exaggerating. You lose credibility if you simply toss around large numbers.
Remember when HUD justified the new GFE format by stating that lenders could purchase GFE software over the internet for $79? You let them get away with that. Sure you can make that sort of purchase. But what banks had to do was integrate the software with all the other operating systems. No one pointed that out or provided numbers.
Finally, be sure to share your letter with ABA and other trade groups as well as with each other.
ABA needs to know what you care about, are concerned about, and are saying in your comments in order to represent you effectively. And comment letters are not, by any means, a trade secret. In fact, they are made available to the public-anyone with an internet connection can download them for free.
Sharing with others who are working on comment letters will help everyone with their comment letter process and stimulate ideas.
So, get in there and do it!
About Lucy Griffin
"Lucy and Nancy's Common Sense Compliance" is blogged by both Lucy Griffin and Nancy Derr-Castiglione, both longtime ABA Banking Journal contributing editors on compliance.
- Lucy, a Certified Regulatory Compliance Manager, has over 30 years experience in compliance. She began as a regulator, including stints with the Federal Reserve Board, the Federal Trade Commission, and the Federal Home Loan Bank Board. For many years she managed the ABA Compliance Division. Since 1993 she has served as a compliance consultant as president of Compliance Resources, Inc., Reston, Va. She is also editor of Compliance Action newsletter and senior advisor with Paragon Compliance Group, a compliance training firm.
In addition to serving as a Contributing Editor of ABA Banking Journal, Lucy serves on the faculty of ABA's National Compliance Schools board. For more than a decade she developed and administered the case study at ABA's National Graduate School of Compliance Management. She can be reached at firstname.lastname@example.org
From ABA Government Relations:
Follow developments with the Dodd-Frank Act's implementation with ABA's Dodd-Frank Tracker. Learn more, and sign up for alert services now
- Community Bank Compliance Officers: Be sure to check out our other compliance blog, "AML, Fraud, and Other Things." BSA expert John Byrne blogs on money-laundering and related matters with a definite point of view. Check it out
- For ABA Member Banks Only: Get regular compliance news updates with ABA's Compliance Source E-Letter
- ABA member-bank employees have access to almost three dozen ABA news and information e-bulletins on important industry topics. One e-bulletin, THE Compliance Source, is dedicated to becoming your source for compliance information in the electronic world. Compliance Source is published each Monday throughout the year. In this changing regulatory environment, every compliance professional should subscribe THE Compliance Source. It will link you to recent compliance developments and alert you to upcoming compliance events. In addition to regular sections on "What's New in Review" and "On the Compliance Horizon," THE Compliance Source will have rotating sections including analysis of compliance issues by ABA staff in the "ABA Reports" section.
- To subscribe, click here