COMPLIANCE AND BANKING REGULATIONS BANKING AND FINANCIAL SERVICES.

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WHAT IS COMPLIANCE?

Compliance – the act of following banking regulations and laws

Main purposes: • to increase accountability in banking• The banking industry has a major impact on our

economy• to protect customers • Prevent future bank crises


MODERN DAY COMPLIANCE REGULATIONSPart 1: The Savings and Loan Crisis of the Early

1980s• The Financial Institutions Reform, Recovery, and

Enforcement Act (FIRREA) of 1989, also known as the Savings & Loan Bailout:• Abolished the FSLIC (Federal Savings and Loan

Insurance Corporation)• Replaced the Federal Home Loan Bank Board with the

Office of Thrift Supervision• Created the Resolution Trust Corporation to sell assets

of banks and savings and loans that had failed• Provided funds for FDIC to pay depositors who were

customers of the failed institutions


MODERN DAY COMPLIANCE REGULATIONSPart 2: Financial Crisis due to Major Corporate Failures in 2001

• Some of the major corporations that failed:• Enron• Arthur Andersen• WorldCom• mainly due to unethical accounting practices

• Sarbanes-Oxley Act of 2002• Provides for more reliable disclosure of financial information• More strict standards and guidelines for the preparation of financial

statements• Increased penalties for misleading accounting information• Affects banks because many are corporations


MODERN-DAY COMPLIANCE REGULATIONSPart 3: Financial Crisis of 2008 led to:

Credit Card Act of 2009 Dodd-Frank Wall Street Reform and Consumer Protection

Act of 2010 A few of the provisions:

Durbin Amendment Mortgage Reform and Predatory Lending Act – established

standards for underwriting residential loans Financial Stability Act of 2010

Financial Stability Oversight Council Office of Financial Research

Consumer Financial Protection Act of 2010 Wall Street Transparency and Accountability Act of 2010 Regulation CC-Availability of Funds and Collection of Checks


CAUSES OF THE FINANCIAL CRISIS OF 2008

Subprime mortgage lending – lenders making high-interest loans to risky borrowers, many of which became in default on their loans

Fear of losses in other investment areas spread throughout the country and in global markets as well.

Lowering of underwriting standards for real estate loans:• lower, if any, down payments required• more home equity loans, which created less equity when values of

real estate declined

Poor risk management on the part of lending institutions

A great deal of Chapter 11 bankruptcy filings which did not help the economy, but only attempted to help the creditors


GRAMM-LEACH-BLILEY ACT OF 1999

• Basically repealed part of the Glass-Steagall Act

• Allowed savings and investment banks to merge and do business together

• Required financial institutions to provide privacy notices to its customers


THE CARD ACT OF 2009

Also called “The Credit Card Accountability Responsibility and Disclosure Act of 2009”

Major sections of the act:1) Consumer Protection2) Enhanced Consumer Disclosures3) Protection of Young Consumers4) Gift Cards5) Miscellaneous Provisions


CONSUMER PROTECTION CARD ACT

Major Provisions:

Advance notice of at least 45 days prior to an interest rate increase or any other significant change

If interest rate is increased on a customer’s account, that account must be reviewed at least every 6 months to see when the rate can be decreased.

Payment deadline to be 5:00 pm


ENHANCED CONSUMER DISCLOSURES

Statements should include a Minimum Payment warning which outlines the effects of only making the minimum monthly payment.

A payment made in person at a branch shall be shown as being made on that same day.

Regarding credit reports, Federal law discloses annualcreditreport.com as a free credit report site, while any advertisements recommending other sites must disclose that it is not the site approved by Federal law.


PROTECTION OF YOUNG CONSUMERS

A credit card application may not be approved for anyone under age 21 unless a co-signer is on the account.

There is to be no approval for credit-line increases for college students under 21 without parent approval and the parent will also be jointly liable.

College students cannot be offered “gifts” to apply for a credit card if the offer is made at or near the college or institution of higher learning, or at an event sponsored by the institution.


GIFT CARDS

There are to be no inactivity fees for gift cards unless the card has not been used for at least a 12-month period prior to the fee being assessed.

Inactivity fees must be disclosed prior to the card(s) being purchased.

Gift cards should not have expiration dates unless that date is at least 5 years from the date of purchase.


MISCELLANEOUS PROVISIONS

Every two years this Act should be reviewed and amended as necessary.

A study will be conducted on the cost-effectiveness of an emergency PIN notifying local law enforcement if there is an incident at an ATM.

A study will also be conducted regarding financial and economic education programs and funding for those programs as well.

A study will be conducted analyzing native language and financial literacy and provide programs to assist in this area.


REGULATION CC (AVAILABILITY OF FUNDS AND COLLECTION OF CHECKS)

Employees must be trained on the policy.

The policy must be displayed for consumers.

Next-day availability, and

Delayed availability


REGULATION CC – NEXT DAY AVAILABILITY• Cash deposited in person

• Electronic payments

• U. S. Treasury checks

• U. S. Postal Service money orders

• Federal Reserve checks

• State or local government checks

• Cashier’s checks

• Checks on the same bank as the customer

• Up to $200 available for Delayed Availability checks


REGULATION CC – DELAYED AVAILABILITY• Deposits greater than $5000

• Redeposited checks (checks returned due to missing signature or another reason)

• Checks on accounts that are repeatedly overdrawn

• Reasonable cause, for example, checks dated more than six months before


CHECK 21 ACT OF 2003

• Allowed banks to send funds to other banks electronically

• Paper checks, called substitute checks, used if funds were not transferred electronically

• Paved the way for most electronic banking services


BIG BANK BAILOUTS

Following are some of the many banks bailed out by the federal government during the financial crisis:

• Citigroup• J. P. Morgan Chase• Wells Fargo• Capital One• Bank of America• Goldman Sachs• Merrill Lynch


CAREER AS A COMPLIANCE OFFICER

What they do Ensuring banks follow current regulations Explain rules and regulations to bank employees Maintain bank policy and procedure manuals Organize records for bank examiners

Work environment Usually work in a corporate office Travel to other banks

Education Bachelor’s degree Some hours in accounting


INDEPENDENT PRACTICE ASSIGNMENTS

Credit Card Laws Assignment #1 – Using the Credit Card Summary or gpo.gov reference listed above, have students create their own summary of each of the sections in the act with any form of diagram, for example, a table, a SmartArt diagram, or any other diagram the student chooses. They are to select the one provision of each of the first five-seven sections that they think would apply most to them and state their reason why they chose that provision, for example, in section three they might choose the provision about not setting due date times in the early morning because they may not wake up early enough to make the payment in time.

Funds Availability Assignment #2 – Make copies of the Applying Funds Availability Rules scenarios and have students in pairs select a scenario from a ‘hat’. Based on what they learned about Regulation CC using the Federal Reserve’s Reg CC web site, they will develop a response to the scenario. They are to present their findings to the class in any form they choose. They should have visuals, whether it is a handout, flip chart, or presentation on a projector.

Career Opportunities Assignment #3 – Students will research careers involving banking compliance on any of the career websites. They will select three careers and will create a Venn diagram with the 3 careers in each of the circles. The overlapping sections of the circles should include the duties, job responsibilities, or educational requirements that are the same for those jobs. If all 3 have the same attribute, that goes in the center overlap. If one particular job has a requirement the same as one of the other jobs, it goes in the overlap between those two jobs, not in the center because it is only particular to two of the three jobs. This can be done on the computer, flip chart paper, or any other medium available.


COMPLIANCE AND BANKING REGULATIONS BANKING AND FINANCIAL SERVICES.

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