Consumer credit is a hot topic. With new credit products like Buy Now Pay Later (BNPL) hitting the market and the always-evolving impacts of credit reporting, banks need to expertly hone their underwriting to strike the optimal balance between profit and risk.

In this conversation, Aaron Rykowski, SVP, Chief Compliance Officer at WesBanco, and Jennifer Ruggiero, SVO - First Line Director at M&T Bank, examine the latest trends in consumer credit and what they mean for your financial institution.

Join us as we discuss:

• Risk and compliance management in today’s economy
• Trends in consumer credit, including new products and reporting
• Why you can’t afford to not invest in new technologies to facilitate compliance, risk mitigation and underwriting — and how to properly use your data to support these efforts

Risk and compliance management in today’s economy

The banking world feels the effects of changing political parties more than most industries. Especially after an election that moves from one end of the spectrum to the other, banks must master the art of the pivot. 

As financial establishments navigate mixed signals from the Bureau and prudential regulations, it’s a constant game of determining which path to take and what order trumps another if contradictory — where do they set their flag to create the best outcome for customers?

“As compliance officers, we've historically been very good at — whether we like it or not — ‘you tell us a rule, the standard, a timeline, we'll put it in place, and we'll do it,” Rykowski said. “But this mixed and inconsistent messaging is harder for us as bankers to deal with.” 

Leading teams to success in uncertain climates

The core focus is always doing the right thing for the customers, but that is not always clear when directives are scattered. Constantly pivoting to the next new direction can take a toll on team members, leaving them misaligned. 

Keeping team morale up is a chief concern of the CBA CFPB Committee, and part of those efforts means focusing on all the good coming to customers despite the chaos.

“We can't solve every problem at once, so let's tackle the big ones. Let's make an impact. Let's do the right thing,” Ruggiero said. “Keeping that message the team positive and focused is also really important in a dynamic regulatory environment.”

The other side of successful compliance management comes from operations — how do we deliver the information to the right leaders, at the right times, in the right manner?

“Having a strategy to get information across the organization into the right people's hands in a way meaningful way, in which an individual understands it, and — to the best of our ability — clarify what new regulatory expectations are is critical to navigating in this pace and style of change,” Rykowski said.

Trends in consumer credit, including new products and reporting

Some customers have reservations about credit — there is a stigma around debt that can drive people away from building their credit scores and developing healthy credit habits. However, when it comes time to make a sizable purchase, such as a car, consumers will need that history. 

Not all debt is bad debt.

Now, with the introduction of BNPL as a soft entrance to delayed payment, banks are still determining the required obligations and how to leverage the overall offerings. Where does BNPL fit into the credit narrative? 

“There's a lot of people that are blind to their credit line. They're not credit visible because they're financing through BNPL,” Rykowski said. “If they don't pay their BNPL, businesses won't hesitate to file a judgment — that will negatively impact their credit. If they can negatively impact credit, they should have to be able to report positively, as well.”

Time will tell how the BNPL offering affects credit scores and what that means for underwriting. 

Why you can’t afford to not invest in new technologies to facilitate compliance, risk-mitigation and underwriting

Financial institutions need a technology infrastructure that enables them to support new use cases and requirements moving forward. That means adopting modern technology designed for facilitating compliance, risk mitigation and underwriting before it’s a critical need.

“Focusing here on compliance and risk, as you're going through those projects, and partnering with folks — not only on the technical rules and what data we have to submit — but how can we leverage that data to help identify other risks?” Ruggiero said.

We must form an understanding of how to ask the right questions of the data; the right tools can assist in that endeavor.

The next few years in the finance space are looking to be a wild ride, and building solid, reliable systems — along with remembering to breathe — are top players for getting through to the other side.

Stay tuned for new episodes every week on the Leaders in Lending Podcast.