December 10, 2024
As Kristen Tatlock, Senior Compliance Manager, prepares to retire in December 2024, she reflects on a career spanning 35 years in credit union compliance. From regulatory shifts to fostering a culture of collaboration, Kristen shares invaluable lessons learned from navigating the ever-evolving compliance landscape.
Over the past 35 years, the landscape of credit union compliance has evolved significantly, shaped by shifts in regulatory frameworks, technological advancements, world events, economic challenges, and changing member expectations. When I started in credit union compliance in 1989 as a Research Assistant in the Governmental Affairs department of the Virginia Credit Union League, compliance with the laws, rules, and regulations credit unions operated under as financial institutions was straightforward. Now, regulatory compliance requires a nuanced understanding of multiple regulations and a proactive approach.
This blog post presents some insights–and lessons learned–from decades of hands-on experience in navigating this complex and ever-changing regulatory environment. The aim is to serve as a guide for credit union professionals, offering practical advice and strategies drawn from real-world challenges and successes.
Regulations Don’t Write Themselves
Political action and advocacy are vital in the compliance world because they shape the very regulations that credit unions must follow. The phrase “legislation becomes regulation” highlights this process. Laws passed by legislators are translated into detailed rules that govern industry practices. By engaging in political action, compliance professionals can influence the development of legislation before it becomes regulation, ensuring that the resulting rules are practical, fair, and aligned with the realities of credit union operations. Advocacy allows the voices of those directly impacted by regulations to be heard, helping to create a regulatory environment that balances protection for consumers with practical application for credit unions. Without active participation in the legislative process, compliance professionals risk being subject to regulations that may be overly burdensome, ambiguous, or disconnected from the practicalities of day-to-day operations.
Regulatory Commentary
When I first started researching regulations, I quickly learned that sometimes the language used makes comprehension of the intent and significance of the provisions somewhat difficult. Luckily, I also found that regulatory Commentary and/or Official Interpretations often provide clarification of the rules and regulations and can help you understand the intent behind the rules and how they should be implemented. Additionally, the commentary offers guidance on compliance with the regulations.
Sometimes the commentary includes additional requirements. A great example of this can be found in the advertising provisions relating to Home Equity Lines of Credit (HELOCs), Regulation Z §1026.16(d). The regulation doesn’t say anything about including a statement regarding property insurance when disclosure of fees and costs is triggered, but the Commentary to §1026.16(d)-2 does: “Similarly, if property insurance is required to open the plan, a creditor either may estimate the cost of the insurance or provide a statement that such insurance is required.”
There’s Often an Exception to the Rule
This goes along with the discussion about reading the commentary. It’s dangerous to read a provision in the regulation and think it answers your question, so you stop reading. Why is this dangerous? Because if you look at subsequent provisions, or even preceding provisions, you’ll see that there may be an exception to what you just read.
Here’s an example. Someone at the credit union heard through the grapevine that credit unions must send periodic statements for closed-end mortgage loans. You know your credit union makes about 100 closed-end mortgage loans a year, so you decided to investigate. You start to research and find Regulation Z, § 1026.41(a), which requires periodic statements for closed-end mortgage loans. You start to freak out because you know your credit union hasn’t been sending periodic statements for those loans. If you stop at § 1026.41(a)(2), you’re going to put yourself and your credit union’s management in an unnecessary panic. Because, if you keep reading, you’ll see that § 1026.41(e)(4)(ii) contains an exemption from the periodic statement requirements for small servicers, those entities that service 5,000 or fewer closed-end mortgage loans. Phew, crisis averted.
Marketing Compliance–It’s Not an Oxymoron
It didn’t take long for me to understand that the relationship between credit union compliance officers and credit union marketers can be contentious. But it doesn’t have to be. Collaboration between credit union marketers and compliance officers is essential to create marketing materials that are both appealing and compliant. Marketers aim to design campaigns that capture attention, build trust, and attract members, while compliance officers want to ensure that these materials meet all regulatory requirements. When they work together, they can strike a balance where marketing messages are clear, engaging, and compliant. This teamwork helps avoid potential regulatory violations that could arise from misleading or incomplete information. By ensuring that all required disclosures are included without detracting from the material’s appeal, marketers protect the credit union’s reputation and foster transparency with members, reducing confusion and building lasting trust.
It’s Okay to Say “I Don’t Know”
It’s crucial for a credit union compliance officer to understand that “I don’t know” is a perfectly acceptable answer. In the complex and ever-evolving world of financial regulations, it’s impossible to know every detail offhand. Making assumptions can lead to costly mistakes, non-compliance, and potential legal repercussions. By admitting uncertainty and seeking further guidance or research, a compliance officer ensures that decisions are based on solid information, protecting the credit union from risk and upholding its commitment to regulatory integrity. This honesty also fosters a culture of continuous learning and collaboration, where seeking the right answers is valued over appearing omniscient.
Curiosity’s Curse: When the Truth Haunts
Early in my career with the Virginia Credit Union League, my job was to answer compliance questions from league-member credit unions. And if I didn’t know the answer, my job was to find an answer.
One day, we had a credit union ask if they could open an account for an estate. I looked and looked and looked for an answer, and I found out NCUA had never expressed an opinion on this issue. Like the dutiful Compliance Specialist I was, I penned a letter to NCUA, requesting an opinion on the matter. When the response became public, there were some unhappy compliance officers at credit unions that offered these accounts. The problem was the response from NCUA general counsel’s office indicated a lot of credit unions were doing it wrong, handling the membership aspect in a way that didn’t mesh with the opinion. To this day, there are compliance officers who curse my name about this issue.
(If you’re interested in reading the letter, it’s NCUA General Counsel Opinion Letter 92-0434, from May 1992.)
Don’t Forget Your Bylaws and Charter
The CEO wants to know when the credit union must send notice of its annual meeting. The Board is questioning how often they need to meet. They also want to know if the credit union can expel members who caused a financial loss. Meanwhile, your COO asks if the credit union can open an account for a business next door to a branch.
You check CFPB regulations, but these issues don’t fall under their scope. A Google search turns up nothing useful. Turning to NCUA resources doesn’t provide clear answers either. Frustrated, it feels like finding answers is impossible.
Here’s the key: Many questions about member meetings, elections, the board of directors, the supervisory committee, expulsion, and withdrawals are answered in the credit union’s bylaws. Questions about the field of membership are often addressed in the credit union’s charter.
Understanding the Why
Understanding and explaining the “why” behind regulations is crucial because it transforms rules from mere obstacles into meaningful guidelines. Take, for example, the Bank Secrecy Act. Complying with the various provisions of the Bank Secrecy Act and other anti-money laundering regulations can be burdensome and time consuming, especially for frontline staff. If you help them understand that the requirements under BSA are in place to help our government fight money laundering, terrorist financing, human and drug trafficking, and other criminal activity, they hopefully will approach their duties related to BSA with a renewed sense of purpose.
The purpose behind the Equal Credit Opportunity Act (ECOA) and Regulation B is another important story to tell. The ECOA was enacted in the early 1970s, a time when women faced a lot of discrimination when applying for credit. For example, a married woman could not get credit without the husband being on the loan. If she were pregnant, she would often be denied outright. Single women didn’t have it much easier, either. Highlighting the history behind ECOA and Regulation B can give employees an appreciation of the significance of fair lending practices and ensure they continue to protect members from discrimination.
It is important to take the time to investigate the purpose behind the regulations–this can help when you need to talk to staff and members about the specific requirements.
Only Shades of Gray
Compliance is not always black or white. It’s those gray areas where the dreaded “It’s a business decision” response often comes into play. When a “yes or no” answer isn’t available, credit unions must weigh the risk involved with each side and the credit union’s risk tolerance will provide the answer.
In these cases, as a compliance officer, it is paramount you document the situation–the question, regulatory research, potential consequences of each option, different perspectives of parties involved in the discussion, risk assessment, your recommendations, and the final resolution. Not only does this provide a historical record, but it also provides a way for compliance officers to protect themselves should the decision made ultimately be a bad one.
When You Need a Friend, Call Me
Having a network of people who are rowing the same boat is extremely important in compliance. Those compliance colleagues can provide a valuable support system as you navigate complex regulatory concerns. Having people to call for advice when you’re faced with a new issue can only help you enhance the effectiveness of your credit union’s compliance program.
Strike up conversations at conferences, go out of your way to get to know compliance officers in your area, participate in roundtables and seminars to meet fellow compliance professionals. The wider your circle, the more brains you have to pick. And be willing to share your expertise, experiences, and strengths to make the relationships mutually beneficial.
I’ve been blessed to have established work relationships with compliance professionals across the country (I call them the “Compliance Posse”) who, in addition to providing guidance on challenging compliance issues, have become cherished friends.
Compliance is Member Service
I stole this one from a member of my Compliance Posse, Gaye DeCesare. By making sure your credit union complies with the laws, rules, and regulations it operates under, you are helping your credit union treat members legally and ethically. And isn’t that what great member service is?
Happy Trails to You…
As I approach my official retirement date, I look back and am amazed at the regulatory changes for which I had a front row seat.
Truth in Savings was passed in 1993 and became effective for credit unions on January 1, 1995. HR 1151, the Credit Union Membership Access Act, was passed in 1998. The Gramm-Leach-Bliley Act, which brought about member information privacy requirements, was passed in 1999. The USA PATRIOT Act (I can still recite the full name of the Act) was passed after the terrorist attacks of 9/11/2001. The Credit Card Accountability Responsibility and Disclosure (CARD) Act was passed in 2009 and became effective in 2010. The Regulation E opt-in provisions went into effect on January 1, 2010. Dodd-Frank was passed in 2010 because of the mortgage meltdown that tanked the U.S. economy in 2008. From that came numerous updates and changes to mortgage lending regulations under Regulation Z and RESPA, including new TRID disclosures. The Loan Estimate and Closing Disclosure; those regulations became effective at varying times starting in 2011 through 2015. The SAFE Act Mortgage Registration rules became effective in July 2011. Rules regarding garnishment of federal benefits and electronic filing of BSA forms took effect in 2012. We saw new flood insurance rules and the Military Lending Act in 2016. Regulation C and HMDA rules have changed just about every year since 2017. Regulation CC has been amended twice in the past 5 years. The Anti-Money Laundering Act of 2020 and the Corporate Transparency Act of 2021 may bring about sweeping changes in requirements for BSA/AML compliance (which the regulators have said will soon become “anti-money laundering and countering the financing of terrorism, AML/CFT). I firmly believe the compliance environment will continue to change and adapt over the next 35 years.
The changes in the regulatory environment have been frequent but one thing hasn’t changed in 35 years. And that’s the pivotal role compliance officers play in credit unions. Credit union compliance officers are responsible for helping the credit union mitigate legal risks, but also fostering a culture of compliance, enabling credit unions to operate ethically and efficiently while maintaining trust with regulators and members.
Sometimes it’s a thankless job but most of us aren’t in this field for praise. We’re in it because we believe in the credit union movement and want to do our part in safeguarding the credit union’s integrity and protecting members’ interests.
I’ve learned many lessons in the past 35 years and earned a few wrinkles and gray hairs along the way. But, the knowledge I’ve gained, the impact I hope I’ve made in the credit union compliance world, and the enduring friendships and relationships I’ve been blessed with are gifts that I will treasure as I ride off into retirement.
