The leadership of a credit union facing pressure from state or federal regulators may have good reason to be concerned.
Regulatory bodies are subject to pressures from legislators and executive officers, as well as a host of other constituents, and credit unions should adopt a systematic approach to addressing concerns from regulators.
First, credit unions should take the extra step of involving the regulators on issues of concern. The old adage, "ask forgiveness, not permission" simply does not work, particularly if the credit union is already under scrutiny. While a credit union need not strictly ask permission, one feeling pressure would be wise to put the regulators on notice of major issues or events to allow the regulators the opportunity to object or provide input.
Providing regulators the chance to object will mean that they sometimes will. Even then, the credit union will have the opportunity to engage them on the issues and to address concerns ahead of time. This process, particularly if well-documented, might provide some defense if future regulators question the credit union's actions.
Second, credit union leadership should guarantee that the compliance staff, its board of directors, supervisory boards, and even its outside counsel have the opportunity to provide input on controversial approaches and policies. This will allow the credit union to have multiple perspectives and checks and balances on issues.
Third, a credit union feeling pressure from regulators must ensure the soundness of the data on which is its basing its decisions. Any decision based on faulty or incomplete data is more likely to be second-guessed or found to be lacking by the regulators, and decisions made on the basis of bad information are simply less likely to be good decisions.
Fourth, a credit union should make sure that its documentation process is systematic and complete. Decisions should be carefully and uniformly documented, with extra care paid to problematic areas. If regulators have expressed concerns about a credit union's policies concerning appraisals, it should take extra care that the processes for choosing an appraiser, completing appraisals, and updating appraisals are uniform and systematic and that procedures are in place to catch errors quickly.
Victor Hayslip is a partner at Burr & Forman LLP and chair of the firm's commercial litigation practice group. He can be reached at 205-458-5255 or [email protected].
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