Change is Coming – Even in the Area of Consumer Compliance! 

By James DeFrantz, BankVision  

One of the main themes of the current presidential race is “change.”  “We need change!”  yells one side, while the other trumpets the idea that “Change is coming!”. No matter which candidate you prefer, it is clear that in the banking industry, the result of the current economic crisis will be significant change! Even the consumer compliance area will not be spared from the rolling tide of change.    

Introduction 
The current economic crisis has most certainly been one of the most dramatic events in recent memory. There can be no doubt that economic concerns will have a profound impact on the upcoming presidential election, the overall structure of our economy and the way business is transacted in our nation. In the banking industry, there can be no doubt that the current regulatory scheme will see significant change over the next few years. In the immediate future, a great deal of attention by  the regulatory agencies will be focused on the safety and soundness area. However, it is likely that some of the significant changes that will occur will be in consumer compliance. This article will discuss the most likely regulatory changes in the consumer compliance area in the upcoming months. 

Consumer Regulation in the Eye of the Economic Storm
The growth and development of the sub-prime lending and securitization of these loans is often cited as one of the main causes of the current economic meltdown. Moreover, even though it is politically expedient to characterize concerns as a consumer problem, the truth is that consumer regulation had little to do with this mess! There is little evidence that the disclosures required by the alphabet soup of regulations that apply to consumer lending would have positively influenced the problem assuming every lending institution had perfect compliance!     

Ultimately, the attention of the public will be trained on the people who are most impacted by problems caused by sub-prime and predatory loans; the people who are losing their houses to foreclosure. This is the group of people that politicians call “ Main Street ”. It is comprised largely of low to moderate-income borrowers. Whether or not it is fair to characterize the problems of Main Street as consumer compliance problems, the fact of the matter is that consumer lending compliance will receive a thorough going-over in the coming months. There will be significant changes in the required disclosures and reporting requirements of consumer lenders in the short term and quite possibly in the long term.  

Recent Changes
Despite the perception to the contrary, several regulatory responses to sub-prime concerns already exist. Among these changes are the OCC’s guidelines to guard against Predatory and Abusive Loan Practices, Home Equity Line of Credit Account Management Guidance, Interagency Guidance on Non-traditional Mortgage Products and significant amendments to Regulation Z. These actions are focused specifically on sub prime loans. However, future regulatory changes will turn attention to the larger credit issues facing low to moderate-income borrowers.   

Likely Changes 
The credit issues of “main street” are generally those of low to moderate income borrowers. In the near future, it is likely that the consumer compliance areas that will receive the most attention from regulators will be Fair Lending and Consumer Compliance. Banking agencies are currently considering several ideas in this area including, increasing the amount of information required for HMDA reporting, mandatory fair lending assessments and the development of a new consumer compliance program rating system.      

Embracing Change 
Even though it can be daunting, the fact of the matter is that change is coming in the consumer compliance area. New regulations will require different and additional disclosures for consumer lenders. Moreover, there will be additional reporting requirements in the areas of HMDA and CRA. It is also very likely that the metrics for rating bank compliance programs will significantly change. 

Based upon this environment, the natural reaction of a Board may be to want to jettison consumer lending altogether. However, with every change comes the possibility for growth. With renewed attention on assessing the credit needs of a banks’ local community, and the development of credit programs that are aimed at meeting those needs, banks can embrace these changes and use them to great advantage.