NEW HAVEN, Conn.-One person is predicting greater regulatory scrutiny of product and service marketing and advertising in 2012.
Pam Perdue, chief compliance strategist at Continuity Control, said credit unions can expect to see "a lot more scrutiny around their behaviors with their members, and by that I mean the ways in which they advertise their product and service offerings," as well as the disclosures associated with those offerings.
Perdue added that all regulatory agencies will be paying increased attention to unfair, deceptive, abusive acts and practices (UDAAP for short). Credit unions "have been insulated thus far from that sort of scrutiny because of their focus in membership as opposed to where commercial banks were more profit-motive based, but what examiners are finding ... is that because of the lower levels of formality around their compliance processes, [credit unions] tend to have a greater risk exposure to getting it wrong," Perdue said. "So I think that we will see the need for increased formality-not just in that particular area of regulatory focus, but also just an increasing attention to the detail that is associated with proving that you are in compliance."
A Frequent Marketing Mistake
Perdue said scrutiny of credit union marketing messages will focus on three issues: that offers being advertised are actually available; that what's being offered is being fully disclosed, and that all of the documentation is uniform throughout.
"So the ads, disclosures and account-opening documentation all have to say the same things," said Perdue. "A mistake credit unions often make is that because they're not developing all three of these things at the same time, they often forget to go back and confirm that the product is being disclosed correctly and the account-opening agreements reflect what has been disclosed and advertised. A tip would be to always be double and triple checking those documents against each other."
Perdue added that just because a credit union has previously passed muster with its examiner doesn't mean that it will pass muster again. She added that examiners will specifically be looking at checking products with incentives attached, while on the lending side "virtually all of the attention is going to focus on home-secured loan products."
While Reg Z will remain crucial, "there's not going to be a single regulation to watch," she said. "They're all going to be in flux."
Adding to the confusion will be that the Consumer Financial Protection Bureau has its own alphabet soup of regulations that will differ from other agencies, meaning yet another source of compliance. One additional place Perdue recommended CUs look to is FTC Section Five, which remains a good catch-all, particularly for UDAAP.
Some analysts have posited that much of what CUs will see in 2012 is just putting standard best practices into regulation. But Perdue countered that while credit unions have in the past operated in a more casual, less formal way, the real shift to come in 2012 will be "to get them in the habit of applying more formality and rigor to what they have always done informally."
CUs may have had certain areas in the past that didn't have written procedures because those tasks were being performed by knowledgeable, experienced staff. "Expect to see examiners asking for more written programs and more hard evidence that you are indeed applying these best practices in the operation of your business," Perdue said.
Other Areas To Watch
Perdue noted Reg Z, which governs Truth In Lending, "has undergone 27 changes in the past 24 months. So the ability to keep up with what's required has been a challenge for most credit unions-particularly if they don't have a full-time dedicated compliance resource, which 85% of the nation's credit unions do not."
Perdue observed that regulation and de-regulation tends to run at roughly 20-year intervals, regardless of politics, and right now we're in a regulatory cycle. "I wouldn't expect that cycle to be broken," she said. "People need to stop hoping regulations will go away and just get a better sense of how to ride that wave. ...Fighting it is only going to make you fall off the surfboard."
