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Community banks and consumer compliance: a new-world co-dependency


In the new world spawned by Dodd-Frank and the CFPB, community banks need to exploit every possible revenue possibility.  Not all, by any means, are viable. Of those that are, bank management needs the help of compliance people who have more to offer than knee-jerk “can’t do that.” A bank compliance officer (or Risk Manager) should be all about, “here’s how we can do that.”

To be effective, compliance people need to be in the bank’s management loop. They need to be brought in early, at the beginning of the strategic plan, so they can evaluate the compliance implications of the bank’s revenue development. This makes sense because a bank has to calculate the risks and costs of all enterprise revenue streams in advance of launch. Failing to consider compliance costs, can be a crippling management error.

It’s more likely that bankers who complain about compliance cost generally have not actually done a ROI study. 

The last link is this chain is willingness to invest the resources required to market a compliant product in a compliant fashion.  It’s a mistake (frequently made by management) to assume this process won’t yield a profit. Those banks who have done studies on the actual costs of compliance have often been pleasantly surprised to learn there is a positive ROI. This is true because there is a sizable group of consumers who are willing to buy products and services from banks who treat customers with respect—which includes clear disclosures of fees and providing those disclosures conspicuously and in plain English. (Respectful treatment does not include permission for the bank to wash their hands and turn a blind eye toward shoddy treatment of their customers by third parties.)

There’s a strong co-dependency between the C suite and the compliance department. Bank management needs the enlightened, proactive support of compliance people who are smart enough to look through the right end of the telescope and find a way to do business that complies with the letter and spirit of the regs. In turn, people who runs banks, including the Board, need to smarten up and involve the compliance department when products and services are evaluated and deployed – I hope it goes without saying that existing products and services will benefit from an ongoing compliance evaluation.

Management and compliance people, acting in concert, have a positive effect on the bottom line. Those who can’t manage to pull this off will inevitably discover the market will make a re-evaluation of its own.

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