With new regulations on the horizon  — what do these changes mean for your institution?

Dan Smith, EVP, Head of Regulatory Affairs at the Consumer Bankers Association, has the answers in this rundown from the CBA LIVE conference.

The banking world runs on rulebooks, and with unprecedented events such as the failure of Silicon Valley Bank, additional chapters are in rapid development to get ahead of the Congressional Review Act in April/May of 2023.

Join us as we discuss:

• Section 1071 and its implications for small-business lending
• Section 1033 of the Dodd-Frank Act for consumer access to financial records
• The proposal for lowering credit card late fees

With these rules come new ways of operating and new requirements across every business size with unique challenges. 

Section 1071 and its implications for small-business lending

Section 1071 promises a sizable shift across small businesses with a challenging implementation timeline of 18 months, according to CBA Live coverage.

“Small business happens across the entire bank in different places,” Smith said. “They first have to align and communicate with their operating systems, and then standardize the definitions of the data they're going to collect.” 

Due to the extensive overhaul required, Smith and Co. are campaigning with the bureau to adjust the expected timeline to a more realistic window. Small businesses will need to rely on core processors and rebuild their systems while juggling updates to the Community Reinvestment Act.

“We hope the bureau — if they're going to stick with the 24, or the 18 months — that they stagger implementation,” Smith shared. “They've done this in the past where they said, ‘Big guys need to be ready in 18 months, middle guys get 36, and little guys get 48 months to be born.’ They can stagger the type of data or the disclosure of the data.”

There is optimism and hope that the bureau will consider the unique roadblocks of implementing 1071 while Smith and others continue to educate them on the challenges of this rule.

“1017 will shine a light on small business lending you've never seen before. That is the upside — we'll be able to see that data publicly disclosed. We can see where there are gaps that bring in regulatory risk and lending risk.”

Section 1033 of the Dodd-Frank Act for consumer access to financial records

Section 1033 of the Dodd-Frank Act is a page long, and from that page stems the rule — at a high level — campaigning to give consumers access to their financial records. This rule creates a more robust model of open banking, likened to European open banking, with a few undetermined differences as of this conversation.

“If it's going to be a true open-banking world, you shouldn't incorporate financial institutions' data of all kinds. Right now, the outline only covers bank transactions and credit card information.” Smith said.

There will be segments of the market that are not held accountable to this rule — such as a Captive Auto lender or Quicken Loans — because they sit outside of the bank or credit card company category.

This rule is a market-changer and is something to watch out for as more and more establishments adapt to open banking.  

The proposal for lowering credit card late fees

The Bureau proposed lowering the Safe Harbor regarding credit card fees from $31 to $8, a significant reduction that will have ripple effects across the credit card market and consumers.   

“We believe this should be a very thoughtful process, data-driven analysis,” Smith said. “We're not sure The Bureau has done a very effective job analyzing the data and accurately calculating the collection costs involved. We will be encouraging the bureau to take a closer look at how they're analyzing the impact on consumers.”

With so many variables in adjusting late fees, the risks are high. Many consumers do not recognize that if they let a payment lapse — even without incurring late fees — their credit score is still impacted and could harm their future ventures.

This rule may seem outwardly positive, but more time in development may be needed before hitting the market to avoid harmful ramifications.

“Regulators really shouldn't combine regulatory policy and politics. It gets messy,” Smith said. “We've seen in the past that when you do that, you can mess things up. One of the biggest risks with regulatory interventions is that they look at it from a political lens, rather than safety and soundness or consumer protection at large.”

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