Regulation Z, also known as the Truth in Lending Act, is intended to ensure credit terms are disclosed in a meaningful way so consumers can compare them more readily and knowledgeably.

Regulators have increasingly emphasized the importance of sound risk management processes and strong internal controls. Deficiencies have led to many significant enforcement actions, damaged reputations, and hits to the bottom line. There are countless aspects to financial institution compliance, but our focus here is Reg Z.

Reg Z Compliance

To comply with Reg Z, financial institution obligations include providing consumers with the following as applicable:

  • Minimum Payment Warning Calculations
  • Deferred Interest Balance
  • Total Deferred Interest
  • Deferred Interest Charge
  • APR Promo Expiration Date
  • Minimum Payment Due
  • Summary of Account Activity

Problem

Credit card companies can produce thousands of statements in any billing cycle. Card issuers generally rely on a manual statement validations as internal controls to detect errors. According to Debbie Winkleman, an employee who validated statements for a large card issuer, “We used Excel and each of us could validate as many as 100 statements a day. Well, even with the five of us, it was like looking for a needle in a haystack.”

In the industry today, a sample is not enough to maintain a strong compliance program. The risks for inaccurate calculations are too high and can include lawsuits, regulatory fines, and devastating negative news. It’s also possible for actions considered minor to have more far-reaching, unfortunate effects.

For example, a financial institution client made some IT changes that were thought to be insignificant. However, they actually caused the interest calculations to be incorrect on loan statements, creating numerous compliance issues, including restitution.

Solution

After the incident, the financial institution made the decision to seek out software that could provide automated testing and validation to enhance their overall risk program. They chose ORM, which did not necessitate system interfaces or other IT complexities that would delay implementation.

Within a few weeks, ORM was validating every statement in the billing cycle. It systematically audited everything from the APR, fees, ADB, and finance charge to penalty and promotional rates and expiration dates. ORM was so efficient and effective that defects were detected, corrected, and cycles re-run without customer impact.

Opportunity

The industry is told what needs to be achieved, but not how to do it. From the perspective of doing the right things for consumers, keeping compliance costs down, and meeting the regulatory mandates, automation is a must. Without automation, the work can be beyond labor intensive and not sustainable in the long term—when there is a solution to help you eliminate the sampling methodology and screen all statements to validate for accuracy and compliance. This can sound overwhelming, but with a partner in the industry and software designed to meet financial institutions’ needs, it is a logical and affordable option. ORM can be your compliance partner.

ORM has been successfully providing automated compliance solutions to clients for over 15 years. The focus has always been on doing the right things and achieving regulatory audit excellence. One of the many ways ORM can meet this objective is to partner with clients to automate compliance mandates such as statement validations, transaction monitoring, risk assessments, control mapping, and due diligence.

Here are a few ORM offerings and highlights:

  • It is intelligent and interactive. Customized questionnaires—based on the institution type and customer base—guide users in performing quality control and other review functions, with test attributes customized using the logic of subject matter experts.
  • Its artificial intelligence tools can independently perform audits, validations, and other internal control functions without human interaction.
  • Automation allows for fewer employees, fewer errors, fewer reimbursements to customers—not a random sample but all.
  • Its integrated Compliance Library, which includes banking laws, regulations, and industry standards like Nacha, is updated quarterly.
  • Mapping of risks to test attributes enables proactive, real-time risk management.
  • Examiner-ready risk assessment reports are generated in real time or on a designated schedule.

The ORM platform has proven to be a highly effective tool in achieving examiner expectations for risk assessments with a fully integrated internal control platform capable of satisfying your institution’s internal control and monitoring needs.

Interested in learning more about your options for automated controls and monitoring using artificial intelligence? Contact the experts at ORM to discuss your unique needs for an out of the box experience that is not out of the box!