|ABA Bank Compliance Officers Survey Part 1|
Compliance, product offerings, and risk management
Editor’s Note: ABA recently released the results of the 2011 ABA Bank Compliance Officers Survey. This is the first in a series looking at report findings, with commentary from industry experts. Over 900 compliance officers from a full range of bank sizes responded to ABA’s survey. An ABA member link to the survey report is provided at the end of this article.
By Steve Cocheo, executive editor & digital content manager
Has your bank ever discontinued a product out of concern about the accompanying compliance burdens? You have a great deal of company, according to ABA’s Bank Compliance Officers Survey.
The latest edition of this survey found that nearly half of the institutions reporting had reduced their consumer financial product or service offerings because of compliance concerns. Of the 45.3% of the sample reporting this development, here’s how decisions broke out:
• 19.3% of the total sample had reduced both credit- and deposit-related products and services.
• 20.6% had backed off of credit-related products and services.
• 5.4% exited deposit-related products and services.
Examples of such decisions, cited in the questionnaire, included offering fewer mortgage options or eliminating some overdraft features of deposit accounts. The findings by bank size were mostly consistent with the total sample findings.
In the 2009 edition of the survey, answering a similar question, only 21.9% of the compliance officers said that they had exited a product line, a delivery channel, or a geographic market due to compliance risks and costs.
The substance behind the statistics
In the February ABA Banking Journal, ABA Community Bankers Council Chairman William Grant noted how his First United Bank & Trust, serving markets in western Maryland and eastern West Virginia, had exited mobile home lending when new compliance requirements made the product too difficult to offer.
“We just stopped offering mobile-home loans,” says Grant, chairman, president, and CEO of $1.4 billion-assets First United. “And when you look at how many of our branches are in Appalachia, where mobile homes are a viable housing alternative, that’s discouraging.”
In a related question, the 2011 survey asked if respondents’ banks had decided not to launch a new product or delivery channel or enter a geographic market because of expected compliance risks and costs. Nearly 43% said yes. This result was on par with the 41.2% reported in the 2009 survey.
The growth in exiting product and service lines, on top of the steady state of deciding not to launch new ones, may in part reflect fears over the expansion of UDAP to UDAAP under the Dodd-Frank Act, suggests Mitch Lucas, vice-president, product management and legal compliance, at Harland Financial Solutions. (UDAAP stands for Unfair Deceptive And Abusive Acts and Practices and is the special purview of the Consumer Financial Protection Bureau.)
Lucas believes that in the current atmosphere top executives are bound to review product and service offerings and rethink anything that could expose their institutions to compliance risk. “It’s one thing to be legally compliant,” the attorney explains, “but if you are doing something that can be confused by consumers, it’s a risk.”
Lucas also sees additional factors at work, among bank size categories, although the numbers are similar. Smaller institutions lack the resources and understanding necessary to keep a broad array of products and services, and must consolidate or eliminate in order to better manage what they stick to. On the other hand, Lucas continues, the larger institutions, while chock full of compliance expertise, have been reviewing the developments of recent years and “have become risk averse.”
Managers increasingly need to weigh costs and benefits of products and services, suggests Linnea Solem, director of data privacy and business risk management at Deluxe Corp. “Some loan types are no longer profitable,” says Solem, in the face of increasing costs of compliance plus financial factors. Bankers find it takes more resources to demonstrate compliance to examiners than it used to, she explains, pointing out that much more data is requested than used to be the case.
Upcoming survey and commentary segments:
• How does compliance prevent regulatory costs?
• How are attitudes towards compliance accountability changing?
• How are boards’ expectations shifting and evolving on compliance?
The ABA Bank Compliance Officers Survey is a project of the ABA Center for Regulatory Compliance. Members of ABA can download the entire survey report here.
[This article was posted on February 10, 2012, on the website of ABA Banking Journal, www.ababj.com, and is copyright 2012 by the American Bankers Association.]
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