Tuesday, January 13, 2015

Q&A with lending and compliance leader -- A lifetime of insight

Bill Klewin retired from CUNA Mutual Group on Friday, January 9. Recently, Bill sat down with Frank Diekmann, Cooperator-in-Chief at CUToday, and elaborated on his 28 years with CUNA Mutual, most recently as our lending product compliance leader, on lending, compliance and what's ahead. 

Here are the insights and knowledge that he's shared from the perspective of his life's work serving the credit union industry...

CUToday.info: Given the length of your career with CUNA Mutual, what strikes you most as you approach the last day on the job in contrast to what you encountered on your first day walking in the door?   

Klewin: The sophistication of the issues and the complexity of the credit union business is the greatest change. When I first started at CUNA Mutual, a large credit union was one greater than $10 million in assets. That meant that the kinds of products and services offered by credit unions weren’t anywhere near as diverse, sophisticated, or complicated as they are now. Few credit unions had first mortgage programs, and only a brave few had home equity lines of credit. Share drafts were relatively new products and still controversial in some leaders’ opinions. Most credit unions had only one or two branches and dealt with walk-in traffic, the phone, and the U.S. Postal Service as means of communications.   
From a consumer regulatory compliance standpoint, while the credit unions were subject to the rules, compliance was viewed in many circles as a nuisance. I remember one specific situation where a board actually voted that they didn’t need to comply with consumer regulations as they were “not necessary” to protect their members. 
CUToday.info: You have held a number of roles while at CUNA Mutual, including some time in the Office of General Counsel. Can you speak to the issue of some of the risks or vulnerabilities that you have seen?
Klewin: In credit unions, the biggest risk I see involves fair lending issues, both from the Equal Credit Opportunity Act and the Fair Housing Act. The ramifications of even an allegation of violations of fair lending laws can be existential. While the rules are slightly different, their purpose is similar. Their purpose is to promote the availability of credit by prohibiting discrimination in lending based on certain characteristics, such as race, gender, or marital status. Imagine the headline in your local paper-“The ABC Credit Union has been accused of discriminating against their members in their lending programs on a prohibited basis.” A credit union may not be able to survive such an allegation, let alone a determination it actually did discriminate on a prohibited basis.) 
I discuss the “disparate impact” test below and difficulties it creates in compliance.  Unfortunately, you don’t need to go so far as a “disparate impact” test case to find real problems in credit unions in fair lending.  For example, I am always concerned about and have written and taught extensively what I refer to as “happy talk” from credit union staff. 
“Happy talk” is the non-business related talk staff engages in with potential borrowers. It may appear as innocuous as a question about when two borrowers are getting married or when a pregnant woman is expecting her baby. Seems like chit-chat, but when that chit-chat is coupled with a denial of a loan, it can take on much more sinister overtones.  Imagine being sued for discrimination in denial of a loan based on child-bearing (a prohibited basis) and having your loan officer asked on the witness stand whether they asked the borrower about her baby.
The loan officer will have to testify he did ask the question, but it had nothing to do with the loan decision. Even if the jury decides it wasn’t used in determining the woman’s creditworthiness, the taint on the credit union’s reputation and the risk of future liability remains. 

These kinds of small interactions could have outsized ramifications, even to the continuing existence of the credit union. Fair lending, from a compliance standpoint, is THE “keep-me-awake-at-night” risk. A credit union can’t quantify it very well, and it can’t totally mitigate the risk at all. It’s a Sword of Damocles over their head.

CUToday.info: You have spent a considerable amount of time in credit union lending. How has that evolved from both the CU standpoint and the solutions that CUNA Mutual has sought to provide?  
Klewin: The biggest change has been the level of sophistication a credit union lender must have about so many issues in being a successful lender. In the past, a lender had a limited number of products available and a limited number of distribution channels for her products. 
For example, a lender back then may only have made auto secured loans and personal loans out of one branch office. In that case, she could focus on minutiae of underwriting and, if a loan was granted, completing the paperwork appropriately.  
As an aside, I saw many loan and deposit documents that were completed by hand, and used rate charts in determining the numerical disclosures.   For those who don’t remember, a rate chart was a pre-calculated chart that showed the loan officer what payments should be, given certain interest rate and loan term assumptions. After a factor was found, simple math was used to calculate the remainder of the disclosures.  Needless to say, there were many errors in such a manual approach. It led to what I referred to as the “Friday afternoon-Monday morning syndrome.” There was a demonstrable uptick in errors on Friday afternoons due to higher volume and on Monday morning due to, well, it being Monday morning. 
CUNA Mutual, from the very beginning of the technology revolution made solutions available as I note below. In the case of loan calculations, CUNA Mutual began with a device called “Loan Star” to help with these calculations and continues today to support a calculation engine used in many data processing systems. Now, a lender has a full array of products, credit cards, home equity lines of credit, first mortgages, business loans, heck, loans secured by ocean-going boats; you name it, likely a credit union lender needs to consider almost any type of loan. Additionally, those loans can come from multiple branches in multiple states, through the internet, the phone, mobile devices. 
The breadth, depth, and complexity of a lender’s job are the greatest challenges. CUNA Mutual has responded over the years with products and services to help credit unions with the lender’s challenge, including LOANLINER documents for almost any credit union lending need, loanliner.com, Smart Phone Loans, the Lender Development Program, and Loan Generation Marketing.  I’m proud that our products help thousands of credit unions meet their members’ needs.
CUToday.info: What have you found to be some of the lessons learned and best practices observed when it comes to the lending process? Are there certain places where some credit unions get tripped up?

Bill Klewin has recently retired from CUNA Mutual Group, well known to many following a long career that included being the primary architect behind the company’s LOANLINER solution and numerous appearances before credit union meetings. At the time of his retirement, Klewin was the lending product compliance leader. In that role he was responsible for issues involving regulatory compliance, lending and credit union operations. Klewin joined CUNA Mutual Group in 1986 as assistant counsel. After 10 years in the Legal division, he was named vice president and managing director of CUNA Mutual Group’s Lending Lab and product leader for LOANLINER and the Student Loan Network. He rejoined the Legal division in 2007 as associate general counsel.