Change is a natural byproduct of a new political administration. Every time a new president takes office, the financial services industry prepares for these inevitable changes. In most cases, the changes occur at the government’s typical slow pace, and lenders and servicers have plenty of time to prepare. But something about the current administration had many believing that things would be different this time.
Part of that is due to the fact that President Donald Trump has fundamentally changed the way his office communicates with the American public. President Obama introduced social media to the White House and did an admirable job of maintaining open lines of communication with his constituents. President Trump has also embraced social media, particularly Twitter.
From the earliest days of his campaign, President Trump tweeted out his intentions to create massive change in federal government, especially as it pertains to regulatory oversight.
Naturally, many felt certain that rapid change would be the agenda for the president’s first 100 days. They were not disappointed when the President and his staff immediately turned their attention to the Affordable Care Act (ACA).
Unexpected roadblocks to change
Despite the fact that the Republican Party holds a majority in both houses of Congress, progress on reducing governmental regulatory oversight has been slower than many expected.
When ACA, also known as ObamaCare, came up for modification, the wheels of change ground completely to a halt. After news broke that the bill Republicans had drafted to overturn ACA would leave 24 million Americans without insurance, many Republicans withdrew their support and the effort died.
It’s not clear what the administration’s next step will be. At the end of March, House Republican whip Steve Scalise, R-La., told the New York Times, “Their celebration is premature. I think we’re closer today to repealing Obamacare than we’ve ever been before.”
If changing ACA has been difficult, many worry now that repealing Dodd-Frank will be even more so, yet that seems exactly what the president expects to do. In mid-April, just a few weeks ago, President Trump told a group of CEOs that a full repeal was possible.
“You can take a look at Dodd-Frank. For the bankers in the room, they'll be very happy because we're really doing a major streamlining and, perhaps, elimination, and replacing it with something else,” Trump said.
Presumably, this would mean the end of the Consumer Financial Protection Bureau, the bureau established by Dodd-Frank to create and enforce the new regulations.
Former Massachusetts Representative Barney Frank, one of the authors of Dodd-Frank, has already come out against the dismantling of what has become his legacy legislation. Frank told a New York radio audience in April that shutting down the CFPB would be “very unpopular.” He said that the bureau had already saved consumers money and suggested that if the Republican-controlled Congress shut it down consumers would not appreciate it.
The only plan for the financial services industry
There is enough reason to believe, given the events of the new president’s early days, that any change will require a hard fight.
Wholesale change has been difficult for this administration, which leaves the industry without a sense of what will come next. Without evidence of actual change, lenders and servicers can only continue to work for full compliance with existing regulations.
This leaves the industry with the promise of change but no evidence that it will be forthcoming. The CFPB has already demonstrated that it will prosecute aggressively should it find evidence of a pattern of noncompliance and so the industry must continue to operate as it has in the past in order to avoid this risk. In fact, we would argue that noncompliance risk is higher now than before as regulators may choose to audit more aggressively now in the fear that the bureau will be faced with reduced resources in the future.
Lenders and servicers are encouraged to maintain their relationships with their external compliance support vendors and to continue implementing technologies that will make it easier for them to originate and service loans in full compliance with existing regulations.
The critical role of technology
The newest buzzword making its way around the industry is regTech, which denotes technology specifically built for regulatory compliance. While the term may be new, the technology lenders and servicers are using today has been refined such that it now provides an effective shield against non-compliance.
Mortgage technologists have been working for years to help the industry move from manual to automated compliance. Initially, the tools were only capable of throwing up red flags to alert users of potential compliance problems. The industry has come a long way since then.
Today’s compliance automation is capable of much more, but it still requires expert support from a development team that understands the changing nature of the compliance situation. On the plus side, lenders and services can have confidence that if they stay the course their compliance systems will alert them should compliance requirements change.
Even if the current administration is successful in implementing change, it will take time to dismantle the regulatory infrastructure. It is unlikely that the government will make it clear early on exactly when the industry is free from regulatory liability. This means that financial services companies will have to carefully review the new rules and create new policies, which can be a time consuming process.
At least for the foreseeable future, the status quo is the only safe place for the lender or servicer to be. It’s rare for an external partner to warn the industry about change, as firms like ours benefit the most during times of rapid change, but that’s exactly what we’re advising our partners to do when it comes to their current policies on compliance. If they change at all, it should be to add additional compliance automation to make it easier to stay compliant now and to change quickly when change finally does occur.