is Coming – Even in the Area of Consumer Compliance!
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.
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.
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 “
”. It is comprised largely of low to moderate-income borrowers. Whether or
not it is fair to characterize the problems of
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
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.
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
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.