From CFPB to CRA: The regulatory battlegrounds shaping the future of banking

By Colin Barrett, President/CEO, Tennessee Bankers Association

It is often said that work in Washington halts during election years. While that has been the case in the past, the precedent shattering number of regulatory actions we have seen in DC the past two years will certainly continue throughout 2024.

At the CFPB, the rollout of the small business data collection rule (1071) continues to be a major concern for the industry. By June, the Supreme Court will rule on CFPB v Community Financial Services Association, which will determine whether the bureau’s funding structure is constitutional. If found unconstitutional, this could unwind the bureau’s 1071 rule, which has been delayed until the court’s decision on funding. Regardless of the court decision, the Association will continue to focus on eliminating or minimizing the impact on your banks and protecting the privacy of your small business customers.

Another focus for the industry will be the CFPB’s Section 1033 rule, which requires banks to provide consumers access to their financial information. While this concept is one the industry supports, the rule’s unintended consequences have the opportunity to put both customer data and banks at risk. Due to banks’ regulatory structure and governing laws, customer information is and will continue to be safest at banks. When unregulated or under-regulated entities have access to customer information, the question of liability comes into play when that data is breached. To prevent this, only entities with the strictest security standards should have access to that information.

At the FDIC, supervisory failures from the spring and a number of personnel concerns have done little to slow down the slew of new regulations. A recent proposal would require state-chartered banks to be subject to expanded corporate governance, including imposing onerous new duties on boards that would distract examiners from key risks while confusing bank management and director roles and responsibilities. Although Acting Comptroller Hsu voted in favor of these changes, they would not apply to national banks.

Speaking of the OCC, during the Washington Conference last May, Hsu spoke about the new Chief Technology Officer that would be transformational for the agency. Months later we learned that CTO Prashant Bhardwaj falsified his resume, including listing fabricated work experience at national banks that are regulated by the OCC. Simply adding up his years of “experience” would mean he started his career at the age of 16. The recent examples of the federal regulatory agencies’ inability to properly manage their own business erodes any confidence that the regulatory decisions they produce are competently evaluated.

Another regulatory area we will focus on is CRA. Last October the agencies released a 1,500-page proposal that would largely make CRA exams more mathematical and less subjective. The complexity of the guidance and increased difficulty in obtaining a “high satisfactory” or “outstanding” rating drew lawsuits from ABA, ICBA, U.S. Chamber and others similar to the ones around 1071 and representment from last year.

Meanwhile, the TBA continues to raise concerns around Basel III and heightened capital requirements. While Fed Vice Chair of Supervision Michael Barr made it clear that the failures of last spring were not caused by lack of capital, his decision to increase capital standards could mean the industry is not able to provide access to credit. And when an economic downturn occurs, the banks will be handcuffed when the economy needs them the most.

In addition to the regulatory onslaught coming from D.C., TBA will continue making our voice heard at the Federal Reserve and FDIC about recent exam issues. The agencies’ failure to regulate banks on the coasts should not result in increased scrutiny for the rest of America’s banks. The industry continues to be well-capitalized in light of regulatory pressures and shrinking margins.

If any of these issues resonate with you, I hope you will make your voice heard by joining us in Washington this May.

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