Paul Davis, Director of Market Intelligence, Strategic Resource Management.
Financial institutions must prepare for a bevy of new regulations in 2024.
All major federal regulators (the Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, the Federal Reserve and Consumer Financial Protection Bureau) have issued multiple proposed rules in the second half of this year. These cover a wide swath of topics that include corporate governance, capital, liquidity and AI.
As we head into the final weeks of 2023, I thought this would be the ideal time to break down the looming changes and highlight key dates for comments or implementation.
What Do The Proposed Changes Cover?
The CFPB on Sept. 19 issued guidance to address AI-powered credit denials. The agency wants creditors to show the actual reason for denying credit, citing the increased use of advanced algorithms and personal consumer data by lenders during underwriting.
President Biden on Oct. 30 signed an executive order setting AI standards. It requires “developers of the most powerful AI systems” to provide the government with safety test results and other important data. It also pushes for standards, tools and tests to help ensure the safety and security of AI systems.
The Fed, OCC and FDIC are seeking comments for a plan to change the level of capital banks must hold, based on a bank’s risk profile. The requirements would apply to banks with at least $100 billion in assets. The agencies extended the deadline to Jan. 16 as they gather more data from banks that would be impacted by the proposal.
Community Reinvestment Act
The Fed, OCC and FDIC issued a final rule on Oct. 24 to overhaul the CRA. It would redefine the criteria for small (less than $600 million of assets), intermediate ($600 million to less than $2 billion) and large banks ($2 billion or more) and incentivize banks to pursue more community development. The update, which will go into effect on Jan. 1, 2026, will introduce evaluation tests based on loan activity rather than branch locations.
Contingency Funding Plans
The Fed, FDIC, OCC and National Credit Union Administration issued updated guidance on how depositories should “regularly evaluate and update their contingency funding plans.” It covers topics such as the Fed’s discount window and emergency borrowing.
Corporate Governance Updates
The FDIC on Oct. 3 issued proposed guidance directing big banks to create and promote corporate governance principles to ensure safe and sound operations and compliance with regulations and consumer protections. Comments are due by Dec. 11.
Debit Card Interchange
The Fed on Oct. 25 proposed lowering the cap on interchange fees for debit card transactions. The proposal would lower the fixed fee component from 21 cents to 14.4 cents and the variable component from 5 basis points of the transaction value to 4 basis points. There will be a 90-day comment period.
Consumer Data/Open Banking
The CFPB is giving banks and credit unions with more than $10 billion of assets until Feb. 1 to stop charging customers “unreasonable” fees for basic account data. An advisory opinion pointed to fees tied to consumer inquiries about deposit account balances and the amount needed to pay off loans, among other things.
Separately, the CFPB on Oct. 19 began seeking comments on a proposal that would require financial firms to share more data at a customer’s request—opening the door for open banking. Authorized third parties such as a competing financial institution could receive access to the data. The proposal would have certain obligations for those third parties, including privacy protections. Comments are due by Dec. 29.
The CFPB issued a proposal that would let it supervise larger nonbank companies that offer services such as digital wallets and payment apps. Under the proposal, companies that handle over 5 million transactions each year would be subject to the same rules as big banks, credit unions and other financial institutions the CFPB supervises. Comments are due by Jan. 8.
The FDIC’s proposed rule to update resolution plans would require banks with over $50 billion of assets to report certain data about their 100 biggest depositors, such as their names, business lines and geographic information.
What should you do if you think you’ll be impacted? It is important to provide the comment letters requested by regulators and work with your trade associations on a response. Make it clear how a proposed rule would impact your operations, influence the competitive landscape, etc. Be ready to provide data and any other supportive documents.
You should also prepare for a potential change. Evaluate any potentially impacted operations to determine what, if any, changes would be necessary to adjust and/or comply. Would you need to change policies or procedures? Hire additional talent? Find out now. Talk to your examiners to get a sense of anything else you should do to prepare. A proactive stance now could help you get your feet set when the sand shifts.
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