Government LendingRegulatory

Bank survey: Regulatory worries reach three-year high

Fair lending, CRA reform front of mind for 391 mortgage companies, banks and credit unions

Banks are increasingly looking over their shoulders as they cope with regulatory changes, worry about fines and manage business risk, according to a survey by Wolters Kluwer Compliance Solutions.

The Dec. 14 survey, collected responses from 391 mortgage companies, banks and credit unions from Aug. 4 to Sept. 6 on regulatory and compliance risk concerns, the impact of regulations on institutions and the sophistication of institutions’ risk management efforts.

The survey’s main indicator score reached 128, a 20-point increase from 2020 to 2021. But it’s not all due to Consumer Financial Protection Bureau Director Rohit Chopra’s emphasis on stronger enforcement: Increased regulatory concern has been building for some time. This marked the third straight year the survey’s main indicator increased.

“Relatively high levels of concern remain across a range of areas, reinforcing the fact that regulatory compliance and risk management issues continue to pose challenges for financial institutions,” said Timothy Burniston, senior advisor for regulatory strategy with Wolters Kluwer.

Despite the high levels of regulatory concern, respondents believe their organizations are rising to the challenge.

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“Respondents expressed their highest levels of confidence in the past four years regarding their organizations’ ability to track regulatory changes and document compliance with those requirements to regulators,” Burniston said.

Fair lending laws and regulations have 60% of respondents very or somewhat concerned.

It’s no mystery why. The CFPB has made it clear, already, that fair lending enforcement is a top priority. In October, the CFPB, the Office of the Comptroller of the Currency and the Department of Justice announced they would take on “modern-day redlining.” The trio of agencies also announced a settlement with a lender for redlining — the second in the span of two months — and warned that more are on the way.

The prospect of Community Reinvestment Act changes is somewhat or very concerning for 36% of respondents. CRA reform is a very real possibility, made more so by the recent rescission of the OCC’s previous attempt to overhaul the anti-redlining statute. There are also moves at the Federal Reserve to facilitate a multi-agency CRA reform process.

Federal Governor Lael Brainard, the nominee for vice chair of the central bank, has made updating the statute a top priority of hers. Brainard spearheaded a 2020 notice of advanced rulemaking that included an overt reference to racial equality. The statute, which was intended to combat redlining, never included language about race.

While trying to keep up with the fast pace of regulatory change, banks are also trying to modernize their compliance management efforts.

Almost two thirds of respondents anticipate at least some acceleration of their organization’s digital lending processes.

But there’s a long way to go toward that end.

The vast majority of respondents, 87%, still use manual processes or spreadsheets at least some of the time for their compliance management efforts. Few respondents anticipated much acceleration around artificial intelligence, robotics or automation of regulatory change management. 

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