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How Exceptions Impact Compliance

By Alan Wooldridge

Document tracking may not be the first thing you think of when considering your institution’s compliance priorities. Overlooking a single document, however, could have significantly negative consequences for your bank. Here are a few examples of how your bank’s exception management can impact compliance.

Example 1: Flood Insurance Tracking

Let’s start with a very simple example: flood insurance.

Most experienced lenders are familiar with the regulations relating to loans made on property in flood zones. Borrowers are required to maintain flood insurance for the entire term of the loan. If a customer forgets to renew his policy and the institution takes no action, it could create trouble for both parties.

To avoid this situation, banks have traditionally relied on tickler systems to help organize their actions. Ticklers can be particularly helpful for remembering which customers need to be contacted next. For example, a bank may send out a letter before the policy comes due. This type of letter simply reminds the customer to pay his or her premium and send proof once paid. If no response is received, the tickler could then prompt the institution to generate a second series of letters, notifying the customer of the requirement to renew their policy. Once the document arrives, the institution will archive the file for safekeeping and manually clear the exception in its tickler.

Some banks take this process a step further by combining document and exception management into a single system. Instead of relying on a separate tickler, an integrated system does the thinking for you by automatically generating notice letters. When the customer submits his proof of insurance, staff capture the document to the correct account. This action automatically satisfies the exception, saving time and reducing oversight.

Example 2: Loan Policy Exceptions

Every bank has a loan policy that provides guidance in relation to its lending practices. There are times, however, when exceptions to the bank’s loan policy can be made based on mitigating factors.

For banks with multiple branches and dozens (or hundreds) of lenders, keeping track of exceptions made to loan policy and their mitigating factors can be challenging. This information is often maintained in a central location through a manual tracking process, such as a spreadsheet. Because of the manual nature, information can be incomplete and not easily accessible to all parties. In addition, producing a meaningful report for examiners and auditors can be cumbersome.

There are systems that integrate to the core and present loan policy exceptions in a more digestible format. For example, some systems allow you to define policy exceptions and then track customers and loans outside of your policy. When regulators, auditors, or your senior management ask for a list of policy exceptions, the information can be easily provided on request, or on a recurring schedule, if desired.

By organizing your policy exceptions in a structured hierarchy, your team can spend more time making quality lending decisions (instead of chasing down information).

Example 3: Managing Disclosures

Early disclosures, TRID disclosures, appraisal disclosures, closing disclosures…the list seems endless. Your institution is required to provide customers with a variety of information based on the specific situation. Failure to do so can create serious problems with examiners.

Some banks develop internal checklists or use spreadsheets to ensure each customer has received the correct disclosure. As with any other document, spreadsheets create bottlenecks and are also prone to human error. Desktop tickler systems can provide some remedy; however, information is usually stored on the user’s hard drive, making it inaccessible to management or other stakeholders.

Banks that use an automated system take a slightly different approach. Administrators are able to configure disclosure workflows, consisting of tasks and task groups. When new customers or accounts are created in the system, workflow templates can be enabled. Instead of remembering which steps to include, the system applies the workflow template based on the loan type or account. During the approval process, lenders are then prompted to distribute disclosures at the exact right time. Once distributed, the lender completes the task, creating a digital record of dissemination.

In summary, document exceptions can have an impact on your bank’s compliance initiatives. By leveraging best-in-class document tracking systems and customizing your workflow, you’ll be one step closer to a more compliant exception management process.


 Alan Wooldridge is co-president of AccuSystems.

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