July Compliance, Meet Marketing: The Impact and Opportunities of New Regulation on Credit Unions

Transcription

1 July 2013 Compliance, Meet Marketing: The Impact and Opportunities of New Regulation on Credit Unions

2 Compliance, Meet Marketing: The Impact and Opportunities of New Regulation on Credit Unions As credit unions determine how best to comply with new regulations from the Consumer Financial Protection Bureau (CFPB), chief compliance officers have an unusual opportunity to partner with their marketing counterparts and transform compliance investments into an engine for business value creation. Today s credit unions are growing. Many consumers are choosing membership in financial institutions that have strong, local connections instead of large, global banks. And more members mean more interactions. As a chief compliance officer of a credit union, you are no doubt faced with the overwhelming task of processing large amounts of member data to meet the new CFPB regulations around complaint management. These regulations apply to all financial institutions, and starting in 2013 those with more than $10 billion in assets will receive annual examinations from CFPB teams. Whether you re implementing policies to achieve compliance, preparing for a CFPB review, or both, gathering and making sense of the thousands of s, phone calls, letters, and in-person communications that occur with your members on a daily basis is no easy feat. Furthermore, social media has amplified their voice dramatically and added to the urgency of finding a solution that can aggregate and analyze all these types of communications. Adding to the pressure is the fact that CFPB examiners are reviewing not only data analysis outcomes but also the methodology, systems, and tools behind them to ensure accuracy. If an institution cannot comply and satisfy the CFPB, it risks additional scrutiny and additional, more frequent reviews. In extreme cases of noncompliance, the CFPB is empowered to monitor a financial institution onsite and on a daily basis. However, there is a significant opportunity to gain much more than just meeting the regulations and a CFPB stamp of approval. By using the data you are gathering not only to achieve regulatory compliance but also to acquire better insight into your members perspectives, you can partner with your chief marketing officer to improve service levels and create targeted marketing campaigns that deliver products and services that members desire. Ultimately, this enables you to nurture current member relationships, attract new members, and build and enhance your brand reputation. 2

3 Getting started The first step before implementing a complaint management solution is to provide a formal definition of a complaint. Satisfying the CFPB means not only defining complaints but also distinguishing them from routine member interactions and general inquiries. An effective management process must also be in place to document each step in the lifecycle of a member s complaint, inquiry, and resolution. A comprehensive complaint management solution should be: Flexible: To achieve full compliance, information must be able to be sorted and analyzed in a variety of ways. Agnostic: Because the required data often comes from different systems, any solution must work across different technologies and platforms. Adaptable: As regulations continue to evolve, any potential solution must be elastic enough to adapt to future requirements or interpretations. Scalable: As the volume of data associated with member interactions continues to increase, with an ever-expanding array of channels and mediums through which a member can provide feedback, the solution must involve sufficient automation to ensure that internal staffing and support levels remain manageable while data volume grows. Because regulators normally make contact with financial institutions well before a formal review, there is an opportunity to evaluate your planned solution with CFPB staff in advance of an examination. By the time a formal review occurs, examiners should already have a good understanding of the solution you expect to present to them. This proactive approach eliminates a possible stumbling block and builds trust before a review takes place. HOW DO THE NEW CFPB REGULATIONS AFFECT COMPLAINT MANAGEMENT? The CFPB has identified effective complaint management as a critical component of a sound compliance program and has made complaint management a key part of its new regulations that are scheduled to take effect within the next year. These regulations apply to all financial institutions and require timely responses to both formal complaints and inquiries. Those with more than $10 billion in assets must be able to provide supporting documentation of these interactions/responses during annual reviews by CFPB examiners. If such a review occurs, CFPB examiners will evaluate the answers to questions such as: Are consumer complaints and inquiries appropriately recorded and categorized regardless of where they are submitted? Are complaints and inquiries addressed and resolved promptly, whether they regard the entity or its service providers? Are complaints that raise legal issues involving potential consumer harm, either from unfair treatment or discrimination, or from other regulatory compliance issues, appropriately escalated? Is complaint data being utilized to drive adjustments to business practices as appropriate? Does the supervised entity apply retrospective corrective action, when appropriate, to address the results of consumer complaints? Are there weaknesses in the compliance management system, based on the nature or number of substantive complaints from consumers? Source: CFPB Supervision and Examination Manual 3

4 Lessons learned from recent rounds of increased regulations New regulations have often created complications for financial institutions trying to comply and gain additional value through their efforts. Many organizations struggled to find ways to leverage their investment in complying with regulations such as the Real Estate Settlement Procedures Act (RESPA), the CARD Act, the Loan Originator (LO) Compensation Rule for Mortgage Loans, Dodd-Frank Wall Street Reform, Consumer Protection Act, and others. Financial institutions faced challenges such as: Understanding the severity of what the new RESPA rule meant to lending workflows, and rapidly adapting in the face of an extremely challenging mortgage market environment in late A very short lead time in advance of the CARD Act rule effective date that provided little time to complete the required changes, including items such as: - Updates to lending policies, procedures, and practices, and ensuring systems were compliant as well. - Managing third-party providers to ensure they were also in compliance with regulatory changes, e.g., brokers and escrow companies. - Maintaining a positive and seamless member experience in the midst of multiple required changes in disclosures and notices. As the CFPB regulations take effect and credit unions ramp up to meet them, you should look for ways to generate business value from the investments you make in attaining compliance. The reality is that this recent wave of new compliance regulations is one of the most significant events to impact financial institutions in the last 10 years. It s requiring all affected institutions to spend substantial resources. Those credit unions that go above and beyond merely meeting the regulations can translate this situation into an ability to enhance their membership experience and improve their bottom-line performance. So, while you may be focused on compliance, it s critical to bring other parties to the table early in the effort to ensure that your organization is poised to take advantage of post-compliance opportunities. 4

5 Partnering with the CMO now, not later Compliance and marketing departments at credit unions typically do not form close partnerships on large projects. However, because this effort will require collecting and sifting through large amounts of member data, a natural opportunity will exist to bring marketing to the table as a key partner. That s why it s important to reach out to marketing before the compliance effort kicks off. You know what you need to find to meet the CFPB regulations, but you probably don t know exactly what information your chief marketing officer would find most valuable. By engaging with marketing early, you ll learn how you can best help them and your credit union before you start down the road to compliance. THREE QUESTIONS TO ASK YOUR CMO Getting your CMO involved early means framing the effort in a way that clearly conveys the marketing benefits. Here are three questions to ask your CMO to get the conversation started: 1. Would it be valuable to know what product features/enhancements are of greatest interest to our membership? 2. Would it be helpful to know if a specific segment of our membership is expressing a higher level of dissatisfaction than others (and why)? 3. Are there service improvement opportunities that would substantially enhance the brand/ image of our financial institution? Laying the groundwork As you determine your organization s approach to meeting the regulations, consider these three key steps: Collect, analyze, and leverage member response operational data from all channels to identify opportunities for continuous improvement of services to members. Automate key internal operational systems, particularly the intake and routing process, to effectively scale member response operations. Maintain a robust training and development program to support member response operations as volume and channel coverage increase. Your solution should start with an advanced text analysis and pattern recognition that identifies clustering and classification patterns that, in unstructured data, highlight potential themes. This will enable you to proactively identify member feedback trends, effectively escalate and resolve potential complaints, and establish strong root cause analysis capabilities as part of the complaint resolution process.an effective complaint management solution should include these four key components (Figure 1): 5

6 Content intake: A single tool that captures sentiment from all intake channels for example, social media, online/mobile banking, or call center/interactive Voice Response whether the interaction is in person or by telephone, , or letter. Data/text analysis engine: An analytical tool that can process large amounts of information and identify sentimentbased characteristics with regard to relationships with other data, origin, usage, and format. Reporting and alerting: This includes an executive dashboard, ad hoc reporting, and a compliance feedback tool a member relationship scorecard view and negative sentiment score help identify complaints and take action to resolve them. These business intelligence capabilities can also provide cross-channel analysis and identify trends. Workflow and activity management: Manage the member interaction process from receipt to resolution through CRM and/or other source system integration, data analysis, negative sentiment detection, action determination, and complaint action resolution. THREE QUESTIONS TO ASK YOUR CMO Content intake Data/text analysis engine Getting your CMO involved early means framing the effort in a way that clearly conveys the marketing benefits. Here are three questions to ask your CMO to get the conversation started: Reporting and alerting 1. Would it be valuable to know what product features/enhancements are of greatest Figure 1: Member feedback analysis approach These four components work together to analyze member communications from different sources, review and categorize them appropriately, and flag communications that require additional manual scrutiny all with a goal to demonstrate to the CFPB significantly reduced compliance issues. Your solution should able to review thousands of communications quickly and accurately, enabling the maximum amount of time for those that need to be reviewed manually. In addition, the solution should not only analyze keywords but also apply a negative competence, sentiment, and function filter to better understand the context of the communication. While the number of communications reviewed can be in the hundreds of thousands, an effective data analysis solution can often reduce the amount requiring a manual review to less than one percent. 6

7 Going beyond compliance to gain member insight Once your credit union has achieved compliance and fully satisfied CFPB regulations, you will have a large amount of member data some of which was used for compliance and some not. This presents an opportunity to more fully understand what members are saying when they interact with your institution. While these discussions may not be related to compliance, many are critical to understanding what is working and what isn t from a membership experience perspective. Being able to efficiently analyze all of these communications is the equivalent of listening to a focus group composed of every single member who is communicating with your credit union and taking away the most important feedback. With a strong keyword analysis and negative competence, sentiment, and function filter, an effective complaint management solution can detect seemingly unrelated trends and make a connection. These connections can benefit credit unions in a number of different ways and scenarios: 1. Improved positioning for evolving regulations: Given that the CFPB may evolve or expand its current regulations in the future, flexibility and adaptability should be built into the complaint management solution you decide to adopt today. For example, if the CFPB changes regulations around debit cards and requires new data and trend analysis, then you should be able to easily change the words and trends your solution searches for, so it can adapt quickly and efficiently. Furthermore, adopting an effective complaint management solution ensures that you are well prepared for your examination and can readily access the specific information you need, when you need it with the proverbial push of a button. Being prepared today also improves your ability to work with examiners in light of tomorrow s evolving regulations. 2. Identification of member trends: By detecting member communications trends around such subjects as interest rates, complaints (or compliments), or mortgages, your marketing department can help identify the most compelling opportunities for upcoming campaigns and help give members exactly what they re looking for. They can also detect potential issues with existing campaigns early in the process and make adjustments accordingly. Trend analysis would also include predictive capability to target at-risk member relationships as well as new product launch lessons learned for future implementations. 3. Operational efficiency: New products and services can cause a significant uptick in member communications both positive and negative. By detecting communication trends early on, your credit union can adjust service levels, equip representatives with vital information, and achieve maximum efficiency for your member service team. New regulations, new opportunities The CFPB regulations are creating both challenges and opportunities for credit unions. While some may strive only for compliance, those that go beyond mastering compliance to uncover new insights can build stronger member relationships. By taking the steps now to develop a strategic and effective complaint management solution that includes both the compliance and marketing departments, you can do more than simply ensure that your credit union is meeting CFPB regulations and ready for a potential review and be poised to tap into the opportunities and insights gleaned from member data. Leveraging your investment to achieve compliance can ultimately help you realize real business value and provide a better member experience. 7

8 About Slalom Consulting Slalom Consulting brings together business and technology expertise to help companies drive enterprise performance, accelerate innovation, enhance the customer experience, and increase employee productivity. The firm delivers award-winning solutions in areas such as organizational effectiveness, business intelligence, mobility, and cloud through a national network of local offices across 11 North American cities. Founded in 2001 and based in Seattle, WA, Slalom has rapidly grown to more than 2,000 consultants. The company has earned recognition from Microsoft as Partner of the Year five times, including 2012 Microsoft Office 365 Solution Partner of the Year, and has also been recognized as one of the Top 10 Best Firms to Work For by Consulting magazine. For more information, visit slalom.com. Contacts Denis Farmer National Managing Director Financial Services denisf@slalom.com Seattle Kevin Faulkner National Director Financial Services kevin.faulkner@slalom.com Los Angeles David Uhler National Managing Director Research & Development davidu@slalom.com Seattle 8