The past four years of the Trump administration has been relatively light on regulatory enforcement actions in the financial services area. Under Director Kathy Kraninger, the Consumer Financial Protection Bureau (CFPB) has embraced the role of consumer educator more than enforcer—as have the other federal financial regulatory agencies. The rate of regulatory change declined, with fewer financial laws and regulations implemented. Meanwhile, state oversight has ticked up in response in many places.
How might things change during the Biden administration? Insiders predict more aggressive rule writing and enforcement. Read on to find out what areas are likely to get prompt attention.
Biden’s CFPB Nominee Helped Create the Agency
Rohit Chopra, a commissioner on the Federal Trade Commission (FTC) and former CFPB Assistant Director and Student Loan Ombudsman under the Obama administration, has been nominated for director of the CFPB. During his time with the bureau, Chopra secured “hundreds of millions of dollars in refunds for borrowers victimized by unlawful conduct by loan servicers, debt collectors, and for-profit college chains,” says the press release announcing his appointment. During his time at the FTC, he has “worked to increase scrutiny of dominant technology firms that pose risks to privacy, national security, and fair competition.”
Chopra is not only a former CFPB executive, but he is also said to be an architect of the agency. He worked with Sen. Elizabeth Warren (D-Mass.) to help create it. He has a keen interest in the student lending space, technology firms, and has pushed for aggressive remedies against repeat offenders. There are also reports that one of Chopra’s first priorities may be restoring the agency’s focus on enforcing fair lending laws, cracking down on payday lenders, and building up robust case law on what counts as an “abusive act or practice” under the Dodd-Frank law.
This appointment signals that the Biden administration may be returning to a more aggressive regulatory regime. However, pulling back everything that Kraninger has done under the Trump administration may take a while. Chopra must be confirmed by the Senate, and it will take a while for the agency to shift gears.
Why is the appointment of a new director of the CFPB so important? For financial institutions that are over $10 billion in assets and mortgage companies, the CFPB is the primary regulator responsible for enforcing consumer protection regulations and laws. For those under $10 billion, the CFPB can also work with an institution’s primary regulator or other federal law enforcement like the Justice Department in pursuing enforcement actions against the financial institution.
As a side note, Biden’s ability to replace Kraniger at the CFPB is new, the result of a landmark case last year where the CFPB’s constitutionality was in question. The Supreme Court ruled the CFPB director can be removed by the president at will.
Fair Lending & Systemic Racism
Fair lending is expected to get even more attention under the Biden administration. The Biden administration says it will push for economic equity and an end to systemic racism with new rules and the enforcement of existing rules.
Community Reinvestment Act. Biden’s Build Back Better site shows that the new president has big plans for the Community Reinvestment Act (CRA). His goal is to “strengthen and expand” the law to cover mortgage and insurance companies and “reverse new rules that allow these institutions to avoid lending and investing in all of the communities they serve”—a callout to the Office of the Comptroller of the Currency’s new CRA rules, which have been criticized by community groups and Democrats.
HMDA for Small Business. In September, the CFPB announced it was in the process of finally writing rules to implement section 1071 of the Dodd-Frank Act, which amended the Equal Credit Opportunity Act (ECOA) to require new data collection requirements on loan applications for women-owned, minority-owned, and small businesses. You can think of it as the Home Mortgage Disclosure Act (HMDA) for small business lending. Once enacted, lenders will be required to collect similar data fields for small business loans as HMDA currently requires for mortgages.
The CFPB’s comment period on the proposals ended December 14, but it is unclear if the rulemaking will go forward as proposed or if the new administration will have a different approach.
Qualified Mortgage Rule. In December, the CFPB amended Qualified Mortgage (QM) Rule Z to provide lenders more flexibility. It replaced the 43 percent consumer debt-to-income (DTI) ratio with a limit based on the loan’s pricing. The other rule created a new category of QMs, called seasoned QMs. The rule changed displeased consumer groups who were concerned they would make it easier for lenders to make loans that consumers will have difficulty paying back. The QM rule is a legacy of Dodd-Frank and the mortgage crisis. Will the CFPB under the Biden administration revert to the old QM rules or will it allow the new rules to stand? It is too early to tell.
Payday lending rule. Under the Trump administration, the CFPB rolled back an Obama-era rule intended to ensure borrowers had the ability to repay high-interest unsecured loans before getting another payday loan. It is likely the Biden administration will press forward with the rule to eliminate the high-interest debt cycle that comes with payday lending.
Recognizing how new administrations bring change to regulatory focus, FIs need to remain diligent in their efforts to stay abreast of changes.
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