How to know whether your policies/procedures are "adequate"?
What's growing faster - overhead costs or the size of policy/procedure manuals? Discussing how to determine whether you need a particular policy/procedure on any given topic.
No doubt you feel like you have a policy or procedure on every possible scenario. No doubt you feel that your policies/procedures are good enough. But how do you know? Know whether you need to address any particular topic in a written policy/procedure? Whether your existing policies/procedures are good enough?
Whether you're regulated by the FDIC, CFPB, or anyone else, a lending or banking institution has to have "adequate" written policies and procedures. Let's discuss what this means ...
Strict Test: Some Specific Regulations
Some regulations actually say expressly that we need a written policy/procedure covering the topic. That makes it simple. Do we need them? Yes. They often also say what needs to be included to be considered sufficient.
Some examples are the LO Compensation Rule (for depositories only) and RESPA servicing regulations (for non-small servicers).
Balancing Test: Everything Else
But most regulations don't themselves require a written policy/procedure to be put in place. That just leaves us with a balancing test to determine what regulators are going to consider "adequate." We will need to balance a number of factors to determine whether (a) our existing policies/procedures are "adequate" as-is and/or (b) it is still "adequate" for us not to have a written policy/procedure on a particular subject.
Balance these factors:
(1)Size of Institution
The larger the institution, the more written policies/procedures are required. The procedural manual at a $100 mm community bank will look nothing like the procedures for Wells Fargo. There will both (i) be a procedure for EVERYTHING and (ii) it will be extremely detailed.
(2)Percentage of Institution's Business
If the Bank does one mortgage loan every year, I'd expect the residential lending policy/procedure to be much less sophisticated than a Bank that does 3,000 mortgages a year.
(3)Risk of Violation
Consider both the likelihood of a violation and the amount of harm that could be caused. Consider this both from the standpoint of the consumer and your institution itself.
Example - Truth in Lending violations can result in hefty penalties. Truth in Lending regulations have also changed dramatically in recent years. Therefore, the need for a good TILA policy/procedure is pretty high right now.
(4)Continuity of Staff
How long have applicable staff members been on staff? Are they planning to retire soon? The better your continuity of staff is, the lower the need for written policies/procedures.
Example - Your HMDA procedures are sparse and hard to follow. Not terrible, but not great. But your in-house HMDA expert has been with the Bank for 10 years and doing HMDA for 8. You have no reason to believe she won't be with the Bank and doing your HMDA for the next 20 years. On these facts alone, your procedures are probably fine.
(5)History of Problems
Have you been cited or otherwise struggled in this area in the past? If so, this suggests a greater need for stronger written policies/procedures. You should have a written policy/procedure on the topic, and it should be better than it might otherwise be.
Example - Your institution has had repeated problems of settlement agents overcharging fees to the borrower and violating privacy rights. There should be a good written procedure in place to review agent submission and monitor actions for compliance.
In Other News:
Thoughts on proposed regulation to require largest U.S. banks to have 1 year worth of liquid assets on hand? Read here.
If you were on the Supreme Court, would you rather decide ... the Brady v. Goodell case or the PHH vs. Cordray case?
Wonder why HMDA and other fair lending regulations have so much buzz about them? Look at how politicized it is (and I'm not picking side here, just a fact) - Hillary Clinton fervently declaring "Blacks are three times as likely as whites to be denied a mortgage" at a campaign speech this February.
Counsel without help is useless. A boy bathing in a river was in danger of being drowned. He called out to a passing traveler for help, but instead of holding out a helping hand, the man stood by unconcernedly, and scolded the boy for his imprudence. "Oh, sir!" cried the youth, "pray help me now and scold me afterwards."
"The world can only be grasped by action, not by contemplation. The hand is the cutting edge of the mind."
- Diane Arbus
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