I frequently hear people say that the costs of noncompliance are greater than remaining in compliance. While this is true, it is surprising how many executives do not realize the true liability associated with clear compliance violations. Indeed, it is the indirect costs of compliance violations that are most crippling and can easily exceed the statutory liabilities.
For instance, consider the direct and indirect liabilities associated with paying illegal bonuses to loan officers based upon the profitability of originated loans. The direct liability for a lender as provided by statute is extreme: repayment of all finance charges and fees. Worse, such claims can be brought without regard to the threee year statute of limitations as a counterclaim or set-off to a foreclosure action. Of course, borrowers are also entitled to all attorneys fees associated with such actions.
As bad as this sounds, the indirect costs of non-compliance are far worse. For instance, in the example of improper compensation, the associated TILA violations would almost certainly trigger substantial repurchase claims from investors. In addition the CFPB could/would likely issue significant fines, which can exceed 1 million dollars per day for willful violations.
There is more. Now, it appears the Department of Justice is utilizing the FIRREA (Financial Reform Recovery and Enforcement Act) to impose personal liability against federally insured bank officers and directors, who cause losses to a bank as a result of gross negligence. In turn, this will lead to additional claims against bank officers and directors by shareholders, claiming such officers and directors breached their fiduciary duty.
In sum, from a single (albeit serious) violation a bank can legitimately be facing extinction level damages with officers and directors subject to significant personal liabilities. It can therefore truly be said that the risks and costs of non-compliance far exceed whatever it costs to remain in compliance.