Refurbished Community Reinvestment Act, new small business loan data collection rules loom
While the introduction of new, major federal banking compliance legislation doesn’t appear likely on this year’s Congressional agenda, finalization of several significant rules around small business lending data collection—along with modernization of the Community Reinvestment Act regulations—will present substantial operational, analytical and resource challenges for banks as the year unfolds.
That’s according to a senior regulatory compliance expert for Wolters Kluwer Compliance Solutions.
Commenting on anticipated developments for 2023, Tim Burniston, Senior Advisor, Regulatory Strategy for Wolters Kluwer Compliance Solutions, says that “legislatively, I don’t think we’re going to see very much” in the way of new compliance and consumer protection laws and, he adds, if there are calls for new legislation, “getting it passed by both the House and Senate will be a challenge.” His insights are featured in the article, “Industry Experts Anticipate Less Legislation, More Regulation for 2023,” as part of October Research’s annual State of the Industry Report.
Instead, he notes that banks’ focus in 2023 will be on the expected finalization of modernized rules that implement the longstanding Community Reinvestment Act, which went into effect in 1977 to address inequities in access to credit for low- and moderate-income individuals and communities. The CRA regulations have since undergone a range of proposed changes by federal regulators to better reflect major technological and operational changes in banking in recent years.
In addition, 2023 will mark the release of a final rule by the Consumer Financial Protection Bureau in accordance with a requirement contained in the Dodd Frank Act. Section 1071 of the Dodd-Frank Act amended the Equal Credit Opportunity Act (ECOA) to require financial institutions to compile, maintain, and submit to the Bureau certain data on applications for credit for women-owned, minority-owned, and small businesses. The Consumer Financial Protection Bureau (CFPB) is expected to issue a final rule by no later than March 31 that will impose a new set of data collection requirements for commercial loans.
“I think we’re going to continue to see a reinvigoration of the CFPB,” Burniston said. “We’ll see that the CFPB’s actions will drive a lot of regulatory change, and when the CFPB does something, we’ll watch to see whether the prudential regulators will similarly respond.”
Burniston anticipates the possible confluence of both major rules coming into play during 2023, which makes advance planning and preparation for implementing the new rules all the more critical to financial institutions’ ultimate success.
“We could see modernized CRA regulations be released in close proximity to the Section 1071 regulations,” he said. “That would present a difficult challenge for the industry to manage the implementation of both of those, which are synced together. To some extent regulators will be using some of the [Section 1071] small-business lending data for CRA purposes as well.”
For more than two decades, Wolters Kluwer has offered its CRA Wiz® software to help lenders monitor, track and report to regulators on their lending activities in compliance with the CRA regulations.