Academic journal article ABA Banking Journal

Is Compliance Y2K Compliant?

Academic journal article ABA Banking Journal

Is Compliance Y2K Compliant?

Article excerpt

Most of the talk about Year 2000 has involved making sure your bank is in compliance with the century turnover. It's far less common for bankers to get into the impact of the Year 2000 on their bank's compliance function.

ABA Banking Journal spoke to a range of bankers, vendors, and consultants noted for their expertise in bank compliance to find out what compliance officers ought to be worrying about and looking at as the Year 2000 nears.

Some of the folks we interviewed were skeptical, believing that Compliance is wholly dependent on each bank's central effort to make sure systems and software will handle the century change correctly. Those whose institutions had already been running tests, had found that some systems, such as mortgage processing packages, already had solutions built in. And in other cases, compliance-related functions typically are handled with personal computers, which often are Year 2000 compliant.

However, when you dig deeper, there are issues compliance officers need to stay on top of lest their banks, because of a Year 2000 problem elsewhere, trigger a bread-and-butter compliance violation.

For example, deep within one of the Federal Reserve's early advisories on the Year 2000 (SR 97-29), banks are admonished to consider Compliance as a mission critical" function that should be tested and ready prior to the turnover. As an example, the Fed cites truth in lending Regulation Z) compliance as an example f the type of function that could be affected if an open-end credit system has Year 2000 glitches. Other areas the Fed cited as concerns included the Expedited Funds Availability Act (Reg CC); the Electronic Funds Transfer Act (Reg E); the Flood Disaster Protection Act (Reg H); the Home Mortgage Disclosure Act (Reg C); reserve requirements (Reg D); consumer leasing (Reg M); truth in savings (Reg DD); the Real Estate Settlement Procedures Act (Reg X); the Fair Credit Reporting Act; the Deceptive Practices Act (Reg AA); and the Equal Credit Opportunity Act (Reg B).

Many of these laws and regulations require that banks adhere to notice periods after having taken certain actions. The more automated a bank's compliance effort in any such area, the more critical it is that Compliance be sure its part of the processing be ready and tested.

Failure to adopt systems for the Year 2000 "could have an impact on notifications made to customers," says Michelle Feeley, Feeley Associates, Allentown, Pa.

The Fed noted in SR 97-29 that examiners have been instructed to consider Compliance when reviewing bank preparedness for the Year 2000. Here are some issues to watch:

* Home Mortgage Disclosure Act. This is the subject of one of the clearest compliance-related guidelines from the agencies. In the Feb. 25 Federal Register the Federal Reserve published proposed rules, that, in part, address HMDA compliance in light of the Year 2000. (The comment period ends on April 27.)

Up until now, when banks recorded the date of covered loan applications and the date action was taken on the applications, the dates were entered in two-digit format. The Fed noted it is modifying the software it makes available to banks to accommodate four-digit format for dates, and that it is changing paper HMDA loan application register forms to track this. (Similar changes are being made to Community Reinvestment Act software.) The Fed plans to make the new reporting requirement effective for loans made this year, which will be reported in early 1999. The Fed is proceeding, it noted, on the assumption that private HMDA software vendors have or will amend their packages accordingly. Compliance officers will want to verify this.

* Truth in lending/Truth in savings. Truth in lending software has been around for years; truth in savings regulations are newer, but were substantially patterned after the older law's model. Compliance officers should verify that the package they use can handle the Year 2000. …

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