A LOAN SERVICING COMPLIANCE GUIDE FOR CREDIT UNIONS

 

For some, the lending compliance process is stressful and overwhelming. There are so many regulatory details to manage at every stage of your operations, from member communications to payment processing. Credit unions are hit especially hard by the compliance review process.

However, credit unions don’t have to face this process on their own. Following a loan servicing compliance guide and relying on experts to guide you can help protect your credit union members. Just remember that you still have to go through the process of researching specific regulations for your state and industry to remain compliant.

 

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Loan Servicing Compliance Guidelines

Loan servicing is just one aspect of a credit union’s business operations, but it’s also a process that comes with a massive number of regulations and industry best practices. The loan servicing process involves managing a loan portfolio from disbursement to full repayment. It includes:

• Data collection and analytics;
• Payment processing;
• Borrower communications;
• Collections;
• Interest rate management;
• Payment scheduling;
• Delinquency tracking and resolution.

Every step of this process comes with its own set of regulations, which is why it can be so difficult to manage it all on your own.

Credit Union Loan Servicing Compliance Guidelines

• Loan application management
• Loan origination, interest rates, and fees
• Data collection and analytics
• Payment processing and disbursements
• Borrower communications
• Collections

By breaking the loan servicing compliance guide into individual categories, it’s much easier to see areas where you can improve.

The Six Essential Compliance Categories

It’s important to keep in mind that regulations are constantly changing. For this reason, the best loan servicing compliance guide isn’t necessarily one that details every single compliance standard in each category. If one is missing from the list or a new regulation was recently passed, you may falsely believe you’re compliant, which could open your credit union up to liability issues.

 

Instead, use a loan servicing compliance guide that you create for yourself and consult on a regular basis to keep your system up to date.

 

The loan servicing compliance guide below features six important steps you can take to assess and refine your loan servicing process:

 

Step 1: Loan Application Management	Research and outline processes for:   Following non-discrimination laws, including the Equal Credit Opportunity Act; Verifying borrower identity; and Making rules for loan decisioning.
Step 2: Loan Origination, Interest Rates, and Fees	Follow all compliance standards related to:   Loan and pricing structures; Interest rate hard caps; Usury laws; Maximum fees; Credit union licensing and charging of correct interest rates or fees based on this licensing; Unsecured loans, and whether or not you can offer them; and Clear protocols and rules about fees and rates that you communicate directly to borrowers.
Step 3: Data Collection and Analytics	When you collect any data on borrowers, make sure you:   Encrypt sensitive data; Store data on secure servers and limit access to it by your staff; Collect only the data you are legally allowed to use (being especially careful when collecting alternative credit data); and Securing data effectively that you use for analytics.
Step 4: Payment Processing and Disbursements	Ensure your payment processes are:   Secure (particularly if you allow online or mobile payments);  Verifiable to protect your credit union from fraud or liability related to money laundering;  Transferable across state and international borders, if necessary; Audited by a third-party payment processing compliance expert on a regular basis, as these regulations are particularly complex, vague, and difficult to follow.
Step 5: Borrower Communications	When you communicate with borrowers, ensure that your credit union:   Has explicit permission to contact the borrower using that particular communication method;  Has trained staff on what they can and cannot say to borrowers; Doesn’t give borrowers false, misleading, or incomplete information; Is consistent with both verbal and non-verbal communications.
Step 6: Collections	Research the latest regulations on what credit unions are and aren’t allowed to do when collecting delinquent payments from borrowers. Consider:   How long you must wait to send borrowers to collections; The statute of limitations;  Pre-collections protocols;  Communication methods; Communication frequency;  Automated call center regulations and laws governing robocalls; Collections agency training;  Post-collections protocols.

However, using this loan servicing compliance guide means doing most of the legwork yourself. For this reason, many credit unions are opting for an alternative to managing their own compliance systems.

An Easier Way to Maintain Compliance

In addition to researching compliance standards yourself, it may be easier to outsource your loan servicing. Many companies that provide loan servicing outsourcing include compliance updates as part of their service-level agreements. These companies create their own proprietary servicing platforms built around compliance and mange their own call centers, staff, and business operations. While it is still your responsibility to ensure these tasks are performed in a fair and lawful way, when you outsource, the experts are the ones communicating on your behalf with your borrowers and managing the payment process.

 

Trustworthy loan servicing companies take this responsibility very seriously. They hire experts on staff whose sole position is to stay up to date with the most recent regulations—and even anticipate future compliance issues and technology trends in the credit union industry. Staying ahead of these regulations not only shows your members that you care about their well-being and satisfaction, but it also takes some of the stress out of the compliance process. You can take your time to perfect your system and introduce changes slowly so that all of your staff are on the same page. If there is a sudden change, a loan servicing provider has the resources necessary to implement this change without significantly disrupting your loan servicing process. With their help, you can stay ahead, protect yourself from liability, and instill greater trust in your borrowers.