Outlook for 2011

Posted by Anthony Demangone

In the next issue of the NAFCU Compliance Monitor, I'll provide an overview of upcoming compliance issues that credit unions will need to deal with in 2011.  Quite a few of you have asked for that document to help in board briefings, so I hope that you'll find it to be useful.

But sometimes we can get too focused on the specific regulations that are coming, without remember the larger picture. With that in mind, I give a different kind of list today.  A reporter asked me to list the largest compliance issues for 2011. As I was picking through the list of usual suspects (CFPB, SAFE Act, etc.), it struck me: that list didn't really paint an accurate picture of 2011's compliance risk.  Here's how I responded to the reporter.

1. Risk management.  Each financial institution needs to take a look at its own products and services, and the characteristics of those products and services, to come up with their own list.  Some compliance regulations are building “risk management” into the fabric of the requirements.  Others, such as Regulation Z, create higher compliance hurdles for products that have perceived exotic or complex characteristics. There are few one-size-fits-all compliance programs anymore.
2. Burn-out.  I see a top compliance or regulatory issue to be staff burnout.  Compliance changes have occurred continuously for the past two-plus years.  I don’t see the rate declining any time soon.  Elizabeth Warren just announced that credit card disclosures will be a top priority for the new agency.  Financial institutions just completed a total overhaul regarding credit card disclosures.  That’s just one example.  On the horizon will be numerous changes to mortgage lending, a major rule on debit card interchange, a new financial regulator, as well as tougher exams from regulators.  In addition, with the economy far from recovery, all this is happening in an age of tight budgets. 
3. Internal expertise.  I see another major issue in 2011 to be how financial institutions maintain and attract the regulatory/compliance staff needed to deal with the new reality.  Regulations come fast and furious. Examiners are demanding more.  Financial institutions will need the right people to manage this process.  In addition, when the economy turns around, they’ll need to find ways to keep their staff from leaving to competitors.
4. Managing exams.  Examiners have indicated that exams will be tougher, and that they will be following up to see that expected changes have been competed.  Financial institutions will need to be able to manage the process: to push back on examiners when warranted and to be able to fix alleged problems within time-frames outlined by examiners.
5. Regulatory uncertainty.  We know about Regulation Z, risk based pricing, privacy, interchange, etc.  But an active CFPB could create a large amount of uncertainty.  As noted above, Elizabeth Warren has announced that credit cards will be the CFPB’s top priority.  What other issues will the new agency tackle? Will they take advantage of their role as steward for consumer-protection regulations to crack open Truth-in Savings or Regulation E?  Only time will tell.  

I think these global issues are the real threats 2011.