MINNEAPOLIS — As U.S. financial organizations and dealers plot their course for 2009, many are waiting to see how the federal government will handle the current financial crisis under a new presidential administration.

Successful organizations will be those that are not only able to adjust to a changing regulatory landscape, but ones that can also demonstrate they are embracing the letter and the spirit of the law, according to experts at Wolters Kluwer Financial Services, a provider of compliance and operational risk management solutions to financial organizations.

"The country's financial and economic crisis is really prompting everyone to look at our current regulatory system and ask, ‘What can we do better?'" said David Thetford, securities compliance principal analyst at Wolters Kluwer Financial Services.

"The regulatory structure needs to be reviewed from the ground up. We need to identify the goals we are trying to achieve through regulation and what regulatory structure is best to achieve those goals," he added.

Thetford noted that this could encourage and promote a lean toward principles-based regulation, a model that has already received a lot of attention from the Securities and Exchange Commission and the Financial Industry Regulatory Authority.

Kathy Donovan, manager of government relations for Wolters Kluwer Financial Services' Insurance Compliance Solutions group, agrees the basic premise of principles-based regulation — doing right by the customer — will likely be paramount in the financial services industry entering 2009.

"There continues to be a growing interest in protecting consumers, particularly the senior population," said Donovan. "Within the insurance industry, we've seen many recent examples, including the National Association of Insurance Commissioners' new model law to prohibit the use of certain senior-specific designations for insurance agents and many state initiatives to place restrictions on Stranger Originated Life Insurance."

Donovan expects that as the 2009 legislative sessions begin in multiple states, insurers will see variations of the NAIC model law and STOLI restrictions, as well as other consumer-focused regulations, introduced.

The issue of state regulation versus federal regulation, and the potential for discrepancies between the two, will also be in focus in the banking industry in coming months.

"I don't think we'll see a lot of new regulations right away at the federal level, but I do think we will continue to see substantial change at the state level, given the recent subprime issues," explained Amy Downey, senior compliance consultant at Wolters Kluwer Financial Services.

"State banking regulators haven't traditionally waited for the federal banking regulators to take the initiative in protecting their citizens," she continued.

Downey indicated that many of the emerging regulations at the state level are fair and anti-predatory lending requirements. And while designed to protect the consumer, these regulations can also sometimes unintentionally inhibit lenders. The requirements can be so onerous that the secondary market will not purchase loans that cannot comply with them.

States may be eager to impose new regulations, but that is not always the solution, according to Edward Kramer, executive vice president for regulatory programs at Wolters Kluwer Financial Services.

"Everyone's instinct when something goes wrong in the financial services industry is to come up with a new regulation," said Kramer. "But oftentimes, it really is a matter of fixing what you already have."

Kramer added that mortgage lending has always been based on the ‘three Cs: credit, collateral and capacity to pay.

"We lost sight of these basic elements," he noted. "And as a result, many regulators are considering more aggressive postures when it comes to monitoring and enforcement practices."

Such heightened oversight will also apply to new requirements, such as the Fair and Accurate Credit Transactions Act's Red Flag Rules, that took effect on Nov. 1, said Kevin Byrne, senior compliance consultant for Wolters Kluwer Financial Services.

"Many institutions have taken a wait-and-see approach to compliance with a new requirement in the past," said Byrne. "They do the minimum work required to comply and wait to see what regulators will say they have to do additionally during an examination. But the Red Flag Rules are all about protecting consumers' identities. That's something near and dear to everyone's heart, a fact regulators will consider."

Ted Dreyer, senior attorney with Wolters Kluwer Financial Services, added that some institutions may indeed do the bare minimum to comply with the requirements since not all federal regulators have issued examination guidelines yet, and because the Federal Trade Commission pushed its enforcement deadline back six months. But Dreyer stresses that regulators will not accept the excuse that institutions did not fully understand how to comply with the rules.

"While there may not initially be any heavy penalties or large fines, the slaps on the wrists from regulators are going to be hard and hurt very much from a reputational standpoint with customers," added Dreyer "No institution wants to be known for failing to protect its customers from identity thieves."

It is also important to understand that the Red Flag Rules don't just apply to banks, said Kevin Kopp, director of Indirect Lending for Wolters Kluwer Financial Services.

"The Red Flag Rules have hands-down had the most significant impact on the auto finance industry this year in terms of compliance," Kopp said. "If identity theft and fraud prevention wasn't a lender or auto dealer's main focus this year, it should have been."

And while many institutions view the cost of putting compliance programs in place to address the Red Flag Rules and other requirements as a financial burden, they can often provide a significant return on investment, according to Byrne.

"Protecting your customers' identities not only benefits them, but it helps the institution avoid a whole host of fraudulent activities and the large monetary losses that accompany them," he indicated.

"And you can apply that concept to almost any rule or regulation in the financial services industry. The bottom line is that if you are proactively complying with the letter and spirit behind any law, you are protecting your institution from criminal and financial penalties, as well as enhancing your image in the communities you serve. And that's good for business across the board," Byrne stated.

Wolters Kluwer Pairs Solutions to Simplify Red Flag Compliance

In an effort to help auto dealers and lenders be prepared for the Red Flags regulations, the company recently announced that the AppOne platform is partnering its technology with Wiz Sentri: RiskID.

With a single sign-on, institutions can use Wiz Sentri: RiskID to perform a risk assessment, verify identities, research high-risk individuals and entities, and compare customer information to lists of known violators and various government lists.

When AppOne detects a discrepancy on an auto loan application, such as a Social Security number that has been used by other loan applicants, Wiz Sentri: RiskID will automatically provide further authentication with "out-of-wallet" questions.

The use of challenge questions to authenticate applicant and customer identity can enable a loan processor to complete an even deeper level of due diligence. This is done by requiring information beyond what would generally be available in someone's wallet or consumer report.

"Dealers serve as creditors for a brief moment in the auto finance process, which means they must meet Red Flag Rules, just as a lender is required to do so," explained Lee Domingue, chief executive officer of AppOne.

"AppOne and Wiz Sentri: RiskID not only help simplify the process and reduce the time it takes to set up new accounts, but they also help dealers build strong relationships with lenders. Lenders can find peace of mind knowing that the dealers they do business with have reliable systems in place to address Red Flag requirements," he continued.

Todd Cooper, vice president and general manager of Wolters Kluwer's Financial Intelligence Unit, added, "As creditors put more focus on risk scoring and implementing in-depth programs to prevent identify theft, the right technology is a critical component.

"We are continually looking for ways to pair our solutions for the benefit of our customers. The combination of Wiz Sentri: RiskID and AppOne is a perfect example of how our tools can help financial institutions successfully meet regulatory requirements and protect their customers," he concluded.

Texas Bankers Association Endorses Indirect Lending Solutions

The Texas Bankers Association, one of the largest and oldest state bankers associations in the nation, has expanded its endorsement of Wolters Kluwer Financial Services' banking compliance products to include the company's indirect lending solutions.  

Wolters Kluwer Financial Services offers many customizable tools that address the regulatory compliance requirements of professionals in the indirect lending market, including those at banks, finance companies and dealerships.

Its portfolio of indirect lending solutions includes motor vehicle retail sales installment contracts and motor vehicle lease agreements, as well as CompliSource, a Web-based tool that provides comprehensive, state-by-state information about indirect lending laws, and AppOne, an Internet-based risk mitigation service for banks, auto finance companies and dealers.

In partnering with Wolters Kluwer Financial Services, TBA will offer Wolters Kluwer Financial Services' indirect lending products to the community and regional banks, bank holding companies and savings institutions that make up its membership.

"TBA is focused on helping banking institutions find the best resources that can help them succeed in the challenging financial services environment," said Lenelle Freeman, executive vice president, TBA. "By connecting our members with Wolters Kluwer Financial Services, they are able to access a number of resources that ease the burden of addressing ongoing regulatory issues."

Kopp, director of Indirect Lending at Wolters Kluwer, added, "We are very pleased to expand our relationship with the TBA, which has built a strong reputation on keeping bankers educated and informed on the matters that affect their business. Through this partnership, we're focused on strengthening that commitment by helping more lenders successfully handle the growing demands of compliance."

Thrifty Car Sales Endorses RefundOne

Finally, Wolters Kluwer Financial Services recently announced that Thrifty Car Sales, a subsidiary of Dollar Thrifty Automotive Group, has endorsed its RefundOne solution, a patent-pending credit application and tax preparation service tailored to meet the needs of the dealership market.

This move builds on Thrifty Car Sales' existing relationship with AppOne, a part of Wolters Kluwer Financial Services, which provides the auto financing platform to Thrifty Car Sales' dealers.

RefundOne combines Wolters Kluwer Financial Services' AppOne auto dealership portal, along with compliance and risk management expertise with expert tax preparation and electronic filing software.

It can allow dealers to estimate a customer's pending tax refund, electronically originate their tax return and print their electronic refund check or refund anticipation loan check at a dealership.

"With tightening credit standards, it can be difficult for some customers to access the credit or cash they need for a down payment on a vehicle, which is why many rely on their tax-refund proceeds," said Domingue, of AppOne. "RefundOne provides auto dealers with an efficient and accurate solution so they can help their customers obtain their refund and secure dependable transportation faster."

Chiming in, Bill Gordon, senior director of Strategic Relations at Thrifty Car Sales, noted, "With tax season approaching, it is an ideal time for Thrifty Car Sales dealers to implement RefundOne at their dealerships. RefundOne provides our dealers with the opportunity to sell more cars during the tax season, reach new customers and build customer loyalty."