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Manage Transition: For Banks 0-5 Years

Consumer Compliance

An institution faces many challenges during the first five years of operation, or the years as a de novo bank. Paramount among those challenges is the pressure to generate earnings while controlling expenses—particularly personnel expense. During this time frame a new bank will have its first series of supervisory events, including some type of examination or review covering consumer compliance, fair lending, and CRA.

To ensure the effectiveness of a de novo bank's consumer compliance program, management should follow the steps outlined below.

Develop a Consumer Compliance Risk Management Program

The overall program should be developed before the bank opens and fully implemented during the first months of operation. While a program on paper may appear sufficient, until all elements of the program have been fully implemented and tested, reliance on the program may not ensure that the bank is in full compliance with applicable laws and regulations. Once a program is implemented, it is important to conduct periodic reviews of deposit and loan operations with priority given to those areas posing the highest degree of risk to the organization.

Provide Appropriate Consumer Compliance Training

Personnel responsible for compliance should receive consumer compliance training related to the bank's product offerings and level of risk. Appropriate training should also be provided for any automated tools used to support the compliance function, such as those used as part of the deposit operation and lending function.

Review Consumer Documentation to Ensure Compliance

The various documents required by consumer regulations can be complex. It is important to ensure that each document provided to the consumer is not only accurate and in compliance with consumer laws and regulations but also consistent with other documents provided as part of the transaction. Inconsistency between documents often occurs during transition to a new software application or a change in interest rates. The implementation of these types of changes elevate compliance risk and should be appropriately incorporated into the audit schedule for these functions.

Establish a Fair Lending Program

Fair lending compliance is an important consideration for every bank. Ensure that loan policies and procedures are in compliance with consumer protection laws and regulations and that loan applicants are treated in a nondiscriminatory manner throughout the credit process. Review advertising and related brochures to ensure that they reflect the demographics of the entire community and do not discourage a reasonable person from making or pursuing a credit application.

CRA Asset Thresholds

CRA regulations specify different examination procedures for banks based on their asset size. New banks should be aware of the different asset thresholds and be prepared to plan for their transition from small bank (less than $265 million in assets as of 1/1/08) to an intermediate small bank ($265 million up to $1.061 billion) given the different nature of the two tests.

Establish Relationship with Primary Regulator

Regulatory agencies frequently conduct an advisory visit with a new institution prior to conducting a formal examination. This outreach effort may include a discussion of the bank's overall compliance management program, as well as an overview of what will be covered during the examination process.