One of the biggest stories in the banking and compliance industry over the last few months and arguably over the last couple of years was TRUPOINT’s introduction of its Branch Strategy Solutions...just kidding!
Jokes aside, on May 24th of this year, President Donald Trump signed into law bill S. 2155, commonly known as “Economic Growth, Regulatory Relief and Consumer Protection Act.” This law will roll back certain portions of the Dodd-Frank Act, which was passed earlier this decade. This is important because the new law is NOT an entire repeal, and in fact, has sparked a couple of myths that we'll be busting here.
At the ABA's Regulatory Compliance Conference earlier this week, we attended a lot of different sessions about Dodd-Frank and the potential for other regulatory changes, as well as what the recent "Economic Growth, Regulatory Relief and Consumer Protection Act" means for banks around America.
In this piece, we’ll take a look at five “myths” about the so-called HMDA rollback that we’ve heard circulating amongst our friends, colleagues, customers, and in the community to see if there is any truth to the buzz.
Put on your hardhats; it’s time to bust some myths!
Myth 1: Every Bank Will Be Deregulated
One common misconception that seems to be permeating conversations in the banking world is that every bank under the American sun will be deregulated. It isn’t hard to see why a number of banks collectively exhaled, a sonorous sigh of relief. “Gone are the days spent toiling away on compliance and governance,” the voices seemed to say.
But is this a fair assessment? Will the rollback really affect all banks?
Upon closer inspection, we find that certain asset size thresholds are changing, but for community banks, compliance reporting and regulation will probably stay much the same. According to reported details on the law, regulations will only be eased for banks between $50B and $250B in assets. This is different to the previous standards as before, the threshold was $50B; whereas now, the stress test is rolled back to $250B.
By looking at those numbers, it’s easy to see that a majority of community banks will still fall under the new regulatory threshold. Therefore we can safely say…
Myth 2: You Can Now Stop Collecting Extra HMDA Data Fields
If you think you can hit the kill switch on your institution's duties to collect the extended HMDA data (sometimes called HMDA Plus), you might need to reassess your game plan.
According to the Independent Community Bankers of America, “lenders of all asset sizes with a ‘satisfactory’ CRA rating and that originate fewer than 500 closed-end mortgage loans or fewer than 500 open-end lines of credit will be exempt from the new Dodd-Frank fields.”
Even if you have fewer than 500 applications, you still have to submit your HMDA LAR, just without the extra fields.
However, “even if you are exempt from the new data collection fields, you will still be required to collect data as you did before Dodd-Frank and the new HMDA rule.” This means that you may have a little more flexibility in the HMDA data you choose to collect, which may be a relief.
Even though you now might not have to report extra 2018 data fields for HMDA, it is still a good idea to collect it to help tell your story using data analytics. We've seen on CBANC and in other conversations that many banks that are exempt are still opting to collect the additional data, just to be on the safe side. So, to this we say…
MYTH (kinda) BUSTED!
Myth 3: Regulating Agencies Will Be More Relaxed Towards Compliance
It’s logical to make the connection that less federal regulation would signal a more relaxed attitude, in general, towards compliance. “If they’re rolling back the law, maybe they are focusing their attention on other areas they think are more important,” a tiny voice seems to say.
As we discussed at the top of this blog, deregulation will only apply to banks in the $50B-$250B asset band while “exempting some small and regional banks from the most stringent regulations.”
According to the Washington Post, “the legislation would exempt banks with less than $10 billion in assets from the 'Volcker rule,' which bars banks from making certain risky wagers with their own money. Small banks will also be exempted from a Dodd-Frank requirement that they report more detailed data on borrowers.” According to a report by CNBC, the law would also “add some safeguards for student loan borrowers and also require credit reporting companies to provide free credit monitoring services.”
As you can tell, this isn’t quite the “gutting” of Dodd-Frank that was expected by some, but it does provide some important relief. In contrast, some experts have indicated this deregulation may open the floor to other federal agencies to “flex their muscles” in order to prove their worth. Furthermore, state regulatory agencies as well as consumer advocacy groups are expected to pick up the slack and occupy the regulatory vacuum created by federal deregulation.
So, if you rest on your laurels, you could be in for some regulatory quarrels! Consider this…
Myth 4: The Dodd-Frank Rollback Curtails the CFPB's Power
Throughout the compliance and banking community, this has been a topic that has sparked a number or discussions and sometime arguments. Voices were raised. Things got heated. Some relationships might not ever be the same.
Okay, well maybe it wasn’t that dramatic, but it would still do a lot of good to dispel the rumors that somehow the rollback of the Dodd-Frank directly impacted the CFPB.
To set the record straight, the rollback didn’t touch anything that deals with the CFPB.
However, there are a few other things that are taking place that are and will significantly affect the CFPB and how it operates. It’s just that these things don’t have anything to do with the law that was passed. Currently the state of affairs is that the interim chair Mick Mulvaney will be replaced. Donald Trump has nominated budget aide Kathy Kraninger to replace him. If confirmed, she will step in as the new head of the CFPB. As it's name evolves (it's technically referred to as the Bureau of Consumer Financial Protection now) and their regulatory focus changes, we will keep an eye on what is happening at the Bureau.
So, now that this has been cleared up, we can confidently say…
Myth 5: Bank Mergers & Acquisitions Will Rise
One fact has been a mainstay in any reports of the Dodd-Frank rollback, and that’s the increase asset size that an institution can grow to without have to deal with the stress test, i.e. the threshold moving from $50B to $250B.
Some of the keener minds throughout the industry have picked up on the fact that this could pave the way for more community banks to initiate more merger and acquisition activity. And they’re right.
Our experts have seen a noticeable increase in banks looking to optimize their branch network and take command of their markets. It’s very likely that this activity will continue to rise. If this sounds like something that your bank is doing, it might be in your best interest to schedule a demo to see how our Analytics call support your M&A activity through data-driven branch network optimization, due diligence and other measures.
TRUPOINT Viewpoint: So, in conclusion, it’s plain to see that there are a number of misconceptions floating around the compliance-space in wake of the Dodd-Frank rollback.
It’s important to remember that compliance is embedded in the banking and regulatory landscape now and in the future, regardless of which party is in power. Bankers take their responsibility and commitment to their community seriously; at its best, compliance and regulations help support those efforts.