As regulations like HMDA, CRA, and the upcoming small business lending rule continue to expand, financial institutions are facing growing pressure to manage data accurately and efficiently with limited resources. To address these challenges, many banks are embracing automation and machine learning to streamline their compliance operations, allowing them to keep up without adding more manual labor.
Between the changing regulatory environment and unpredictable loan volumes banks are facing, automation is no longer a buzzword, it is a necessity. And it’s not just about cost savings—banks must maintain data integrity and accuracy while freeing their teams from the tedious manual processes that can lead to burnout and inefficiency.
Why are banks turning to automation?
First National Bank Texas is a prime example of a financial institution that struggled to keep up with compliance demands using manual processes. Scrubbing HMDA data involved 100% manual validation of every field, an enormous task for their compliance team, especially with thousands of loans to process annually.
“We were trying to find a solution for years because it was such a labor-intensive process,” says Sandy Knight, Director of Compliance and Fair and Responsible Banking at First National Bank of Texas. “When we found Encapture, we could automate our HMDA data collection and validation, allowing our compliance staff to focus on more strategic areas. It provided us with an internal succession plan and helped our compliance department grow without adding headcount.”
This change meant that staff previously bogged down by data validation could now dedicate time to refining compliance processes and proactively preparing for upcoming regulations like CRA and Dodd-Frank 1071. For the compliance team, automation wasn’t just a technological upgrade—it was a game-changer.
What are banks' biggest fears with expanding compliance regulations?
As new regulations emerge, banks are bracing for the increased burden of managing more data and meeting more stringent requirements. Many institutions are concerned about how to keep up with these demands without overwhelming their teams or compromising data accuracy.
Frandsen Bank and Trust faced similar challenges during the recent refinance boom. The surge in loan volumes led to a heavy workload, and their compliance staff experienced burnout trying to keep up with the manual HMDA validation process.
“During the refinance boom, our staff was burning out trying to keep up with manual HMDA validation,” explains Melany Wynn, Senior Vice President and Director of Regulatory Affairs at Frandsen Bank and Trust. “We needed a solution that would help us handle the workload without sacrificing data integrity.”
The introduction of Encapture’s automation solutions allowed Frandsen to reduce HMDA data validation time on task by over 80 hours each month. This improvement not only alleviated staff burnout but also positioned the bank to manage future regulatory changes without expanding their team.
What have been the risks and benefits of automation?
While automation offers clear benefits, banks like First National Bank Texas and Frandsen were initially cautious, like most financial institutions are with the discussion of AI. Integrating new technology into existing workflows can be intimidating, and there’s always a concern about potential disruptions.
“One of our main concerns was ensuring that automation would fit into our unique processes without creating new issues,” notes Wynn. Encapture provided the flexibility needed to implement the solution seamlessly, minimizing disruptions and delivering immediate efficiency gains.
Automation has enabled both banks to reallocate staff from repetitive compliance tasks to more strategic roles. This approach supports long-term compliance strategies and positions them to confidently handle future regulatory challenges.
How did regulators respond to automation?
Introducing automation in a regulated environment naturally raises questions from regulators. Financial institutions must demonstrate that automating compliance tasks enhances rather than compromises data integrity.
“We explained to regulators that automation actually improved our oversight and accuracy,” says Knight. “Encapture’s system allows us to validate 100% of our documents, reducing the chance of human error and ensuring that we have the controls in place to maintain data integrity.”
Frandsen adopted a similar approach, documenting their process to show how automation integrated into their existing quality controls and validation testing. This approach reassured regulators that automation made their processes more efficient without reducing their commitment to data integrity.
What role will automation play in banks' futures?
Looking ahead, automation and machine learning will remain key components of their compliance strategy. It’s not just about saving time—it’s about building scalable, efficient systems that can adapt to whatever regulations come next. By investing in automation, these banks are developing robust compliance frameworks that position them for long-term success and regulatory readiness.
