‘Fairness’ can help guide bank compliance risk management, OCC leader contends, using overdraft programs as example

Using fairness as an “input” to help guide banks’ compliance risk management programs was advocated by the regulator of national banks in a speech Monday.

Speaking to the Consumer Bankers Association in Washington, Acting Comptroller of the Currency Michael Hsu said that banks, by elevating fairness in their compliance programs, can improve their ability to anticipate and adapt to emerging compliance risk issues.

“The stronger a bank’s ability to do that, the less it will need to look over its shoulder at its regulators and the more degrees of freedom it will have to innovate and create banking products ‘for the people,’” Hsu said.

Hsu contended that regulatory compliance has generally been viewed as a means to an end. He said that, in that context, banks have believed that through compliance with laws and regulations, the goal of fairness in banking can be achieved. “Through this lens, the applicable laws and regulations set the bar for fairness in the banking system,” Hsu said. “If banks comply, fairness should follow. Fairness, in other words, is both the goal and an output.”

Hsu contended that a “well-developed sense of fairness” can help banks navigate a complicated risk-management landscape.

“For instance, most would agree that a financial product that is predatory and entices vulnerable populations into high-cost debt traps for non-essential purchases is not consistent with the notion of fairness,” he said. “The product may be legal, as constructed and marketed. It may technically comply with regulations as they have been understood and applied to date. But the product is not fair when over-used by certain consumers.”

Using overdraft protection as an example – which, he noted, began as an accommodation in the 1990s and developed into a profit center by 2015, and masked “concerning practices” – Hsu said having a clear sense of where this fairness line is prior to the development and launch of such a product “can help a bank avoid compliance risk issues down the road, when the product has grown and consumer harms are more apparent.”

Acting Comptroller Discusses Fairness and Compliance Risk Management

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