By Bill Elliott, CRCM; Director of Compliance Education, Young & Associates
Over the last few years we have dealt with changes to regulation, followed by lawsuits, followed by resolution (in some cases).
The original intent of the CFPB was to have a governmental department that was independent of the rest of the federal government. The leader of the CFPB. would not be a political appointment. For good or ill, that has changed due to decisions by the Supreme Court. As a result, this agency has become part of each administration, and experiences changes in direction based on the results of elections.
Some of the discussion below includes other agencies, as they are part of the same trend.
CRA
The new CRA rule was published and was due to be implemented in part last year. However, there is a lawsuit pending, challenging the regulation. That lawsuit still has not reached the resolution stage, and all federal regulators have said publicly that they are going to follow the old CRA regulation until resolution occurs.
The intent of the new CRA regulation was to try to take as much examiner judgment out of the rating system as possible, with the result of fairer reviews for banks. While an excellent goal, I am not sure that the pending regulation accomplishes this. In any event, all banks and regulators will follow the existing regulation until the court battles have concluded. The CFPB is not part of the new CRA rule, just the primary regulators, but this is part of the same trend.
Beneficial Ownership
Congress passed the Corporate Transparency Act requiring that beneficial ownership information be collected by the federal government. That process began in 2024, and required your smaller commercial customers to share a lot of information with the federal government.
The federal government said that compliance was actually going well. But late in 2024, once again in response to a lawsuit, everything ground to a halt. Your customers who have not yet complied may have to comply at some point in the future, and are welcome to comply now, but currently do not have to comply.
The lawsuit generally is regarding the issue of whether a law such as this could be passed by Congress in the first place. We do not know where it will go from here, and because of the issue, we may have to wait for the Supreme Court to rule on it. Another example of the current environment.
1071
1071 (Regulation B, Subpart B) is perhaps the regulation that will create the greatest problems for banks and their customers. Although implementation is a year or more in the future for many banks, the current regulation will be considered invasive by your customers. Amongst other things, the regulation requires banks to ask small business owners their sexual preferences, orientations, etc. Many of your customers will consider this none of the government’s business. And this particular information is not required under the Dodd Frank Act.
While a small business owner could be discriminated because of their LGBTQ+ status, we would hope that that would not happen. This is a rule with good intentions, however, the approach in the regulation will create more difficulties for banks and their small commercial customers than we would like. We will see what happens with the change in administration and CFPB leadership.
Conclusion
There are other rules pending. For instance, privacy is becoming a bigger and bigger issue as we get more and more electronic. These sorts of regulations are probably going to be useful. but we will have to wait and see how the final regulations read, and then maybe wait through lawsuits once again.
A regulatory environment that was less chaotic would be better for all of us, but that does not appear to be something that we can count on. Enjoy the ride.
In this ever-changing environment, having a knowledgeable compliance partner is essential. At Young & Associates, we specialize in helping financial institutions interpret, implement, and manage compliance requirements with confidence. Whether you need regulatory guidance, risk assessments, or compliance program reviews, our team is here to support you.
