You can screw up by overdoing it, too
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One of my personal pet peeves has to do with over-complying with regulatory requirements.
Why does this even happen?
To make it easier on the bank and/or the compliance officer. Sometimes it's also to make life easier on the forms and systems vendors. The theory is that it doesn't hurt to over-comply, so take the easier path.
Except for this. It can hurt.
Both your customer ... and, possibly, your bank.
Sometimes too much is ... too much
In some cases, over-complying can lead to customer confusion, and customer confusion can lead to UDAAP--Unfair, Deceptive, And Abusive Acts and Practices.
UDAAP is a major new consideration that all banks and financial service providers must give to all aspects of operation.
What constitutes unfair, deceptive, or abusive? Well, that's the big question mark. In my opinion, it could even include some instances of over-complying when the result is contradictory or inaccurate information being provided to the consumer.
Five examples of overcomplying
Here are some examples of confusing disclosures that I've seen, all due to over-complying:
• Including the Early Truth In Lending Warning notice on the final TIL provided at closing
The notice, which tells the consumer that he is not required to complete the agreement merely because he has received these disclosures or signed a loan application, is sometimes found on the final TIL that the consumer receives at loan consummation.
This statement is actually false when it is given at time of loan closing. Yes, the forms vendor insists to you that there is no Regulation Z violation, because there is no specific prohibition against including the disclosure (outside the Fed box). But borrowers who read their TIL disclosure (granted that's an infinitely small percentage) may get the idea that they are not obligated on the loan even though they just signed the promissory note.
• Giving an applicant both a Regulation B Appraisal Notice and a copy of the appraisal
Regulation B offers two options regarding appraisals:
1. A creditor may routinely provide every applicant with a copy of the appraisal that was used in the credit decision, or
2. A creditor may provide a notice that tells applicants they have the right to request a copy of the appraisal if they make a request for it.
I've seen creditors go with both options simultaneously. They give the notice and they routinely give a copy of the appraisal.
That doesn't even make sense.
• Giving the credit insurance Anti-Coercion Disclosure when credit insurance is not even offered
A creditor is only required to provide the anti-coercion disclosure under the Consumer Protection in Sales of Insurance regulation if insurance is solicited, offered, or sold in connection with an extension of credit.
If insurance is not solicited, offered or sold, or even available, the disclosure doesn't make sense.
• Disclosing the creditor's Assumption Policy on the TIL Disclosure Statement for all loans
The Regulation Z Assumption Policy disclosure is only required for residential mortgage transactions. However, I frequently see it on TIL disclosures for all types of consumer loans.
As a consumer, I would be wondering, "Why are you telling me that someone buying my home may not be allowed to assume the loan on its original terms, when I'm getting a car loan? What does my house have to do with this car loan?"
• Disclosing both the Regulation E liability provisions and the stricter liability provisions under State law for an ATM card
In some states, the consumer's liability for unauthorized EFT transactions is subject to stricter liability provisions than federal Regulation E requires. Instead of disclosing just the ATM card liability provisions that apply, I've seen instances in which the bank discloses both sets of liability rules, just in case.
How am I, the consumer, to know which one is real?
Unfortunately, we also have RESPA, which requires that we disclose fees and charges that we aren't charging the consumer. Talk about confusing!
Watch your attitude—it might cost you
I think that many of us in banking have come to rely of the assumption that consumers generally don't read the disclosures anyway, so what's the difference?
That may be generally true. But the regulators and plaintiff lawyers are definitely reading the disclosures.
Over-complying should be re-examined. Is what we are doing and saying confusing to the consumer, just because it is easier to comply?
TALK BACK! What other examples of over-complying have you seen? Tell us in the comment boxes below
About Nancy Derr-Castiglione
“Lucy and Nancy’s Common Sense Compliance” is blogged by both Lucy Griffin and Nancy Derr-Castiglione, both ABA Banking Journal contributing editors on compliance.
Nancy, a Certified Regulatory Compliance Manager, is owner of D-C Compliance Services, an independent regulatory compliance consulting services business that has provided expertise in compliance training, monitoring, risk assessment, and policies and procedures to financial institutions since 2002.
Previously, Nancy held compliance positions with Bank One Corporation and with United Banks of Colorado.
In addition to serving as a Contributing Editor of ABA Banking Journal, Nancy has served on the ABA Compliance Executive Committee; National and Graduate Compliance Schools board; conference planning committees, and the Editorial Advisory Board for the ABA Bank Compliance magazine. She can be reached at
TALK BACK! What other examples of over-complying have you seen? Tell us in the comment boxes below.