HIFTINg
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Second, in the early 1990s, the introduction of a risk-focused
approach to compliance supervision further heightened examination attention on violations as risk indicators for the bank versus
the individual. For example, if a bank violated Regulation E’s
error resolution requirement to provide consumers provisional
credit when investigations require more than ten business days
to complete, the examination priority would be to determine
the attributing control weaknesses (e.g., procedures or training)
and incorporate that in the overall assessment of the adequacy
of the bank’s compliance risk management program. Typically,
the required corrective action would be focused on program
modifications, not remediating the consumer harm resulting
from the violations. But that’s changing. The agencies’ focus
on consumer harm is demonstrated in this bank enforcement
cases presented in Table 1 on page 18, which includes at least two
institutions with issues related to Regulation E error resolution.
Third, prudential regulators are increasingly seeking a holistic
view of bank risks through information sharing and coordina-
tion between different supervision disciplines, such as consumer
compliance and financial examinations. The disciplines’ shared
focus on standard core risk management elements has facilitated
a meaningful exchange to leverage findings and require compre-
hensive corrective action. As the Urban Trust Bank case listed
in Table 1 illustrates, consumer protection concerns triggered
by the issuance of debit cards with add-on credit features also
unearthed unsafe and unsound banking weaknesses, including
vendor management issues and gaps in product and service busi-
ness planning. The corrective action was designed to respond to
the array of exposures identified.
Interestingly, cross-discipline coordination required an adjustment for regulators accustomed to the long-held, silo-oriented
supervision approach. Not surprisingly, acclimating has taken
some time and the evolution continues. Fast forward to today. The
regulators’ transition to a more integrated supervision approach
is not too dissimilar to the paradigm shift the industry currently
faces regarding risk of consumer harm. Each shift requires a
mindset change—one that cannot happen overnight.
This is not to say that prudential regulators never give priority
attention to consumer harm posed by violations. Historically, they
have required action when individuals are harmed by violations
by invoking authority afforded them by the:
■ ■ ■ Policy Statement on Enforcement of Equal Credit Opportunity
Act and the Fair Housing Act for violations such as insufficient
adverse action notification and fair lending violations;
BANK sUpERvisioN By Bonita Jones
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