The word tsunami used to refer to a gigantic ocean wave resulting from an earthquake or volcanic eruption; increasingly, however, when bankers hear “tsunami” their minds turn toward the regulatory environment. A tsunami of new rules and regs are threatening to swamp an industry that is evolving with customer preferences, technology updates and growing security risks.
Asked to name the top issues faced by bankers, one industry expert answered “new and changing regulation.” Julie Gliha is vice president of compliance at the Iowa Bankers Association; she and her colleagues respond to roughly 8,000 phone inquiries per year from bankers with questions about everything from consumer lending laws to rules governing deposit products.
“It is difficult to focus on customers when the majority of their time is spent reviewing complex regulations, staying current on all the new regulatory interpretations of existing laws and regulations, and learning changes and new requirements, not to mention vendor oversight, testing, audit and exams,” Gliha said.
“The cost of compliance has dramatically increased since the Dodd-Frank Act was signed into law in 2010,” she summarized.
Gliha noted several significant pending rules that emerged in the past 12 months or so. “These include the Small Business Lending Data Reporting Rules (Section 1071 of the Dodd-Frank Act), the modernized Community Reinvestment Act, the FDIC Signage and Advertising Rule update, not to mention the requirement for certain business customers to report their beneficial ownership information to the Department of the Treasury under the FinCen rule.” Gliha said her department is offering training to help IBA member banks comply with these rules.
Reviewing the last 12 months, here are some of the major regulatory compliance developments affecting community bankers:
CRA: In fall of 2023, federal regulators issued a final rule updating the 1977 Community Reinvestment Act. It was set to take effect April 2024, requiring compliance by Jan. 1, 2026. The update includes a new retail lending test, applying to all banks with more than $600 million in assets.
Implementation of the updated CRA rules have been delayed, however, while the courts sort out a challenge from the ABA, ICBA and other plaintiffs, claiming the new rule exceeds the statutory authority of the Federal Reserve, FDIC and OCC. Plaintiffs are challenging the rule, in part, because it creates assessment areas unconnected to a bank’s physical deposit-taking presence and assesses bank products that are not credit-related.
Section 1071: In the summer of 2023, the Consumer Financial Protection Bureau finalized rules around small business lending recordkeeping. The rule requires banks to collect and report on their small business lending activities, including the demographics of applicants, to support fair lending practices. Banks will have to comply with Section 1071 of the Dodd-Frank Act if they originated at least 100 covered loans in each of the past two years.
This rule also has faced court challenges, which has delayed its implementation schedule. Banks that make more than 2,500 qualifying loans are currently scheduled to come under the rule in July, with the least active banks in small business lending subject to the rule beginning in October 2026.
Section 1033: The CFPB finalized rules in October implementing this provision of the Dodd-Frank Act. It attempts to facilitate “open banking” at banks and credit card companies. It requires financial institutions to share customer financial data with the customer and certain third parties (even those they compete with) free of charge. CFPB Director Rohit Chopra anticipates the rule will improve competition leading to lower prices for consumers, while bankers note the substantial security risk created by sharing data with less-regulated third parties. Industry groups have filed a legal challenge to the final rule.
FDIC signage rule: In December 2023, the FDIC adopted new rules regulating the way banks display the FDIC logo on bank signs and on digital channels. The original compliance deadline was Jan. 1, 2025, but trade groups lobbied for more time, and the FDIC moved the implementation date to May 1, 2025. Rules around presentation of the logo, which have been around since the 1930s, were last updated in 2006.
New bank merger policy: The FDIC and OCC adopted policies in September guiding how they review merger applications. The new policy allows regulators to consider additional factors regarding the transaction’s impact on competitiveness. Mergers involving very large institutions will also get more scrutiny and will require public hearings. The policy requires mergers to result in institutions that “better meet the convenience and needs of the community.” Regulator approval time of applications is generally increasing and the additional factors considered under the new policy are expected to add time to the process as well.
FDIC Financial Institutions Letter on check re-presentment practices: In 2022, the FDIC published FIL-40, which asks banks to revise their disclosure documents around item re-presentment and eliminate fees or not charge more than one fee per transaction. The Minnesota Bankers Association and Lake Central Bank of Annandale, Minn., challenged the FDIC in a lawsuit filed in July 2023.
The lawsuit asserts the FDIC lacked the authority to change existing bank disclosure requirements and challenged its authority to issue an Unfair and Deceptive Acts or Practices rule on NSF fees. The court dismissed the suit in April, but in the summer the plaintiffs appealed. ABA, the Missouri Bankers Association and Shazam all filed amicus briefs in support of the plaintiffs. As this issue goes to press, the judge is still considering the appeal.
The courts also are set to sort out issues surrounding the Illinois Interchange Fee Prohibition Act, a state law set to become effective in July. It requires debit and credit card issuers to exempt tax payments and tips from interchange fees. The Illinois Bankers Association, ABA and others have filed suit arguing the technology to operationalize such a demand cannot be implemented according to the law’s schedule. The OCC filed an amicus brief claiming preemption exempts national banks from the Illinois law.
Other recent regulatory actions bankers are watching include developing rules regarding the mission and operation of the Federal Home Loan Banks, FDIC rules regarding recordkeeping related to partnerships between banks and fintechs, call report changes and leadership at the FDIC. Following an independent investigation of the agency that showed a toxic culture of harassment, current FDIC Chair Martin Gruenberg announced May 20 he would step down. President Biden named Christy Goldsmith Romero to the post on June 13. She currently is a member of the Commodities Futures Trading Commission.
Election results could significantly affect the implementation of new bank regulations. President-elect Trump is likely to name his own leadership for several agencies, including the FDIC and the CFPB.