There’s a game of regulator musical chairs going on lately – due to Dodd-Frank, of course. For “very large banks” (over $10 billion in assets), some relevant questions are: who will show up to conduct exams after July 21 and what will their business cards say? In many cases, the people may be the same but their employers may not, as some of the agencies are transferring personnel to the new Consumer Financial Protection Bureau (CFPB), which begins operating on July 21.
The regulations themselves seem to be in a game of 52-card pickup. Some stay with the agency that wrote them (e.g. safety and soundness rules such as Reg. O and BSA), some go to the CFPB (all consumer protection rules along the lines of Z, DD and RESPA), and still others are split between agencies (Reg. CC, Privacy and FCRA).
In the fair lending world, the results are mixed. ECOA (Reg. B) and HMDA go to the CFPB, while CRA and the Fair Housing Act (FHA) stay with their existing regulators. This will impact both exams and the rules themselves.
Two-Headed Exam Monster
So, who will conduct my bank’s fair lending exams? This is an issue only for “very large banks,” as the CFPB gains supervisory authority over only them. Banks under $10 billion will retain their existing prudential regulators; if you were examined by the Federal Deposit Insurance Corp. (or Federal Reserve or National Credit Union Administration) before, you won’t notice a difference after July 21. If you’re a small thrift, your Office of Thrift Supervision examiners’ business cards will now say Office of the Comptroller of the Currency, but they won’t say CFPB.
But what about larger banks? This sets up a two-headed fair lending exam monster, since the CFPB will examine for Reg. B and HMDA compliance (the “normal” fair lending topics), while the other regulators can examine for FHA (residential lending) and CRA. Since fair lending performance greatly impacts CRA ratings, it’s fair to say that large banks’ existing regulators cannot and will not wash their hands of fair lending scrutiny.
It’s been heard on the street that the existing regulators have been asking how this will work and whether the CFPB shouldn’t handle all fair lending issues. While that would certainly make life easier for fair lending officers nationwide, it’s hard to see the other agencies giving up supervisory authority on rules over which they clearly have authority.
And then there’s the question of who will interpret the rules. Maybe a more appropriate way to state this issue would be who will take thought leadership on fair lending issues? Everyone will have their hands in fair lending: the CFPB with ECOA, HUD with FHA, and the other agencies with CRA. Could competing standards result? It certainly seems possible, and fair lending is squarely in the crosshairs of regulatory scrutiny, with more Justice Department referrals promised.
But let’s hope not, since fair lending is complicated enough as it is. The signals coming from the CFPB are clear that consumer protection will rise above all other concerns. The other agencies may follow the Bureau’s lead, or they may sit tight. We’ll just have to wait and see how this issue unfolds in the years to come.
Mr. Pry is a senior vice president and compliance manager with Cleveland-based KeyCorp. He can be reached at Carl_G_Pry@KeyBank.com.
Stay connected to Expert Perspectives, Research and Intelligence — subscribe to BAI Banking Strategies now!