When Banks and SCRA Compliance Collide

March 27, 2017 Chris Clarke

In the financial industry, non-compliance means violating or not complying with legal regulations, prescribed industry practices, internal governance, or ethical standards. Non-compliant behavior can have a major impact on their constituents, and can result in expensive regulatory investigations and lawsuits, not to mention reputational damage.

Servicemember Civil Relief Act (SCRA) compliance is a priority example of federal regulations catching lenders by surprise. In 2015 and 2016 alone, investigation and enforcement of the SCRA resulted in fines and penalties in the hundreds of millions being assessed to lenders for non-compliance.

One of the best ways to stay in compliance and advance the everyday interests of its constituents is for companies to conduct highly efficient validation and look-back reviews using new big data analytics approaches to quickly identify the relevant documents and remain compliant.

Complying with SCRA

The SCRA is a federal law that financially protects members of the military on active duty, including bank and finance company lending. Although the law has been around in various forms since the 1940s, there is a new sense of urgency today.

Within the last several years, more service members have invoked the SCRA as they’ve received unexpected orders to active duty in war zones. Yet the onus for observing requirements is squarely on lending organizations, not the military member. Lenders are responsible for proactively identifying and contacting active duty service members and simplifying the application process. Otherwise, they are out of compliance, and a surprise investigation by a regulatory authority can be very costly.

A New Approach to SCRA Compliance

It is increasingly difficult for banks to keep up with SCRA compliance using the traditional approaches that require time-consuming and expensive keyword searches that return 99% false positives, or that require manual database comparisons.

A new approach to SCRA compliance is to conduct look-back analyses using advanced search and analytics toolsets. Not only is the process more accurate than manual techniques, it also takes a fraction of the time and cost of traditional review.

In partnership with service providers with expertise in big data analytics, financial subject matter, and eDiscovery, leading lenders are adopting the following new approach:

  • Centralizing loan documents into a big data platform, and analyzing the consolidated data at granular levels for high accuracy and relevance.
  • Keyword searches have their place, but firms are concentrating on advanced linguistics, sampling, and statistics to refine the scope of the search, then applying these algorithms and search filters to quickly identify potential SCRA violations. This process alone will accurately cull loan documents to a far more manageable data set.
  • Tapping attorneys and subject matter experts who specialize in compliance, mortgages, and financial services to review the responsive data set. The review stage yields a highly relevant, compact data set for final review and production.
  • Creating a repeatable process for staying ahead of SCRA regulations in the future.

Case in Point: A Major U.S. Bank and SCRA

Here’s one example. A regulatory agency issued a Matter Requiring Attention (MRA) to alert a major U.S. bank that some of the loans may have violated the rights of active duty service members. In order to respond, the bank needed to analyze all 1.5 million loans for SCRA protected accounts, and they needed to do it fast. The big problem was that the bank estimated it would take them more than 2 years to conduct the review and respond to the regulator’s request.

The bank adopted advanced search and big data analytics to cull over 120 million pages of loan documents to 8 million potentially relevant documents. From there, human experts armed with advanced eDiscovery tools took over. They quickly reduced the remaining data set to 2 million pages for further review and potential remediation.

The project easily made the regulator’s deadline – and cut the bank’s projected costs by 50%. The bank succeeded in protecting its military customers—and protecting itself against steep fines and high project costs.

Stay Ahead of the Game

Deliberate malfeasance aside, lenders conflict with the SCRA when they do not stay current on its requirements or the likelihood of investigations. Now you can cost-effectively prove compliance — or remediate non-compliance — while cutting your review time from over a year to a few weeks. You can also use the same tools to create proactive processes for ongoing SCRA compliance, and never be caught off-guard again.

About the Author

Chris is a Senior Director, Analytics Services at Conduent. He can be reached at info@conduent.com.

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