The Consumer Financial Protection Bureau’s (CFPB) ongoing regulatory updates has community banks and credit unions feeling apprehensive about how to continue providing loans while remaining within compliance.
According to Wolters Kluwer Financial Services’ Regulatory & Risk Management Indicator, financial institutions are experiencing mounting anxiety over the ability to comply with regulations. The 400 plus polled U.S. banks and credit unions began with a baseline score of 100 in January 2013.
When asked to provide feedback in April, the score increased to 136 with an emphasis on several factors, including:
- The number of new federal banking regulations
- The rising dollar amount of regulatory fines
- Increasing amount of resources required by banks and credit unions to meet regulatory demands
- How senior management will face and control risk
- How to comply with regulatory compliance and prove compliance to regulators
Over half (60%) of the surveyed financial institutions holding more than $7.5 billion in assets may have already prepared for new regulations, hiring additional staff members and compliance professionals. Larger institutions were also more concerned with Unfair Deceptive and Abusive Acts and Practices standards (55%) and managing general regulatory risks.
Overall, 59% of surveyed banks and credit unions expressed concern over the CFPB's newly combined RESPA/TILA disclosure, 53% were worried about recently issued mortgage servicing requirements and 51% were anxious about meeting the Qualified Residential Mortgage and Qualified Mortgage requirements.
In a statement, Timothy Burniston, vice president and senior director of Wolters Kluwer Financial Services' Risk & Compliance Consulting Practice said, "The Indicator, which is a combination of our industry data analysis and insight as well as bank and credit union input, provides a barometer around the current state of the overall regulatory and risk management environment within the financial services industry. It's apparent from this first reading that banks and credit unions are more increasingly concerned with managing the growing amount of regulatory change on the horizon. They're also looking to their executive teams and Boards to play a more significant role in helping to mitigate and control the many regulatory and operational risks they face on a daily basis."
Could a Two-Tiered System Ease Concerns?
In an effort to quell some fear over growing regulations, Sen. Elizabeth Warren (D-MA) proposed the creation of a two-tiered regulatory system that would apply different rules for large versus small financial institutions.
Earlier this month, Warren spoke to The Hill saying, “And so what I’m concerned about is that we now have a regulatory system for which many parts of it are neutral on its face, but the impact on smaller financial institutions that can’t afford to hire an army of lawyers to get and interpret these rules turns out to be crushing.”
Warren also expressed concern during a Senate Banking Committee saying that smaller financial institutions could be compromised by new Dodd-Frank regulations. Most recently, the credit union industry has shown support for Warren’s proposal, agreeing that a two-tiered system would be a logical approach.
“We would like to express our strong support for a two-tiered regulatory system that would take into account the unique structure, activities and mission of the nation’s not-for-profit credit unions,” National Association of Federal Credit Unions (NAFCU) President and CEO Fred Becker told The Hill. “This two-tiered structure should separate the nation’s credit unions from the regulatory scheme directed toward the large Wall Street Banks and other entities whose activities led to the financial crisis.”
“As we have discussed, while many financial institutions reduced their lending to even their most loyal and longtime customers during the Great Recession, credit unions stood at the forefront, maintaining their level of lending, most particularly to our nation’s small businesses,” Becker added. “Nevertheless, credit unions are facing a regulatory tidal wave. The plethora of regulations has, among other factors, resulted in the loss of over 700 credit unions in the past four years.”
Do you think regulators have gone too far or will the new rules provide added protections to both credit union lenders and borrowers?