More than a few people attending last week's Bank Administration Institute compliance conference were surprised to learn that NationsBank representatives would be leading sessions on nondeposit investment products.
Just last month, the North Carolina-based bank agreed to pay nearly $7 million to settle charges it misled customers about uninsured investment products in 1993 and 1994.
Judy A. Gauthier and Linda J. Haught, both senior vice presidents at NationsBank, led the breakout session, titled "N-DIP: Caviar for Banks." During their explanation of the enticements-and potential potholes-of bank- based brokering and referrals, they said nary a word about the bitter entree served up in May by the Securities and Exchange Commission, the Office of the Comptroller of the Currency, and the National Association of Securities Dealers.
The question-and-answer session was a different story, however. John Topczewski, vice president for risk management at Johnson International in Racine, Wis., asked the first question, getting right to the point. "In retrospect," he asked, "what went wrong" at NationsBank?
Ms. Gauthier's response was taut. Under the settlement agreement, she said, she could not comment on specifics. But she did say there are two sides to every story, and she asked those in attendance to take into account the economic and interest rate environments that existed at the time of the alleged violations.
Olga Trammel, assistant vice president for corporate compliance at Old National Bancorp in Evansville, Ind., asked the second question. "Is this program old or new?"
The subtext of her question was clear: Was this the same marketing and compliance plan that got NationsBank into trouble, or a revised plan informed by the bank's unpleasant experience?
"Obviously, we have been making many, many changes and improvements" to the program, Ms. Gauthier answered.
Among the compliance aids touted at the BAI conference was BankAmerica Mortgage's Fair Lending Challenge software, an interactive CD-ROM that tests the user's know-how using a virtual loan office.
After a blare of music and an introduction by a BankAmerica executive, the software puts the user, visually, at a desk-complete with clock, coffee mug, phone, calculator, and personal computer. Just like a real loan office, applicants stop by, a secretary announces phone calls, and someone from the legal department pays a visit.
"If I hear you're not doing it right," the lawyer says darkly, "you'll be hearing from me."
After listening to an applicant, recording the applicant's income, credit record, and other relevant data, and reviewing an on-line guide to federal fair-lending rules, the user must decide whether to approve or deny the loan request.
A correctly approved loan might generate a thank-you note from the applicant. A denial violating fair-lending rules, by contrast, could lead to a letter from the applicant's lawyer alleging discrimination.
At the game's end-it takes one to two hours to play-the user receives an overall evaluation, feedback on specific performance measures, and recommendations for improvement. Also reflected in the user's grade is the income she generates for the bank.
"What we want game players to come away with from this is to treat all applicants consistently," said Frank Carbone, vice president for regulatory compliance and a key player in the software's design.
BankAmerica created the CD-ROM to provide fair-lending training for its 2,000 far-flung loan officers and underwriters.
Although the software is fun-a photo of Bank of America founder A.P. Gianinni graces the wall of the virtual office; click on it, and an actor recreates one of a half-dozen Gianinni speeches-the test results are taken seriously. BankAmerica employees must get a passing grade to keep their jobs.
The mortgage company spent $400,000 on the CD-ROM, which it crafted in concert with software developer InterWorks. It is selling a generic version with software developer PCi Services Inc. For information, call 800-261- 3111.
Regulators have nearly completed their long-awaited draft rewriting of the Truth-in-Lending and Real Estate Settlement Procedures acts, said Glenn E. Loney, associate director of consumer and community affairs at the Federal Reserve Board.
"Expect it in weeks, not months," Mr. Loney said.
Although he gave no hints what the proposed rewrite will contain, Mr. Loney said it will be "very substantial" and reflect a general agreement between the Fed and the Department of Housing and Urban Development.
About two years ago, Congress ordered regulators to combine the rules implementing the two mortgage disclosure laws. Regulators reported back last year that they could not merge the rules without changes to the laws. Congress asked for suggested legislation, and the agencies started drafting.
At a seminar on fair-lending trends, Timothy D. Marrinan, a director of KPMG Barefoot Marrinan, Minneapolis, said banks praised by regulators are not free and clear.
Mr. Marrinan says he knows of at least three banks facing Justice Department fair-lending charges despite "outstanding" scores on their compliance exams.
More agencies are beginning to enforce fair-lending laws, he says.
HUD and the Federal Trade Commission, too, are focusing more attention on fair-lending compliance. Many HUD veterans, for example, are becoming compliance examiners for the banking agencies. In addition, he said, Justice and the FTC may soon begin using non-fair-lending laws like Respa to enforce fair-lending-type violations.
State and municipal governments are getting tougher, too, Mr. Marrinan said, citing New York State's move against Roslyn Savings Bank. "Expect to see enforcement from a lot of different directions," he said.
Because potential dangers lurk in so many corners, he added, some bankers have "delusions of adequacy" in assuming that a good score on their compliance or Community Reinvestment Act exam means all is well.
To stay out of trouble, banks must create, update, and document an ongoing fair-lending training program for employees. They also need to keep their distance from third parties who might expose them to risk, Mr. Marrinan said.
In addition, compliance staff not only must develop a fair-lending training program but should monitor their institution's actual lending practices and trends.
At a separate session, Stephen M. Cross, deputy comptroller for community and consumer policy, said the agencies will release joint fair- lending examination guidance this year.
The guidance will instruct examiners to check whether banks are illegally steering minorities to higher-priced FHA loans even though they could qualify for conventional loans, he said.
Compliance officers need to spend more time ensuring their banks do not inadvertently violate U.S. trade sanctions, says Elizabeth A. Santos, assistant general counsel at Mellon Bank, Pittsburgh.
The government is making it harder to comply with trade sanctions harder, she warned. No longer can a bank be confident of following the law simply because it is not sending money to a foreign country under a U.S. embargo. Instead, laws such as the Helms-Burton Act bar U.S. banks from sending funds to foreign companies that do business in countries under a U.S. embargo, she said.
"The blacklist idea is a coming trend," Ms. Santos said. "You can see its zenith in the Cuba sanctions."
Senior officials at BankAmerica Corp. and Banc One Corp. urged bankers to consider outsourcing at least part of their internal audit operation.
Bruce Mitchell, group vice president at BankAmerica, said his firm has outsourced 15% of its internal audit work, most of it for offices in foreign countries where it is unsafe or too expensive to send U.S.-based employees.
Robert O'Neil, an auditor at Banc One, said it is cheaper for the bank to use outside accounting firms to conduct internal audits of high- technology units.
"If you don't believe you should use it, you should probably check your ego at the door," Mr. O'Neil said.
