April 16, 2025 • 24 mins
As regulatory and political landscapes shift, financial institutions must stay agile and innovative to navigate new challenges and opportunities. In this episode, host Lynn Sautter Beal is joined by David Pommerehn, General Counsel and Head of Regulatory Affairs at CBA, and Billy Rielly, Head of Public Affairs at CBA, to unpack how political shifts, state-level regulations and consumer protection mandates are reshaping the lending landscape. They also dive into the growing influence of AI and the potential for new legal frameworks around crypto and stablecoins.
Join us as we discuss:
Join us as we discuss:
- The challenges of navigating regulatory uncertainty with a new administration
- The growing influence of state-level regulations and consumer protection laws
- The impact of late fees and overdraft fees on institutions and consumers
- How AI is reshaping compliance and risk management
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:04):
Hi everyone, and welcome to Leaders in Lending. This is
Lynd Soderbiel. I'm happy to be joining you here today
from CBA Live, and I have Dave Palmeran and Billy
Riley joining me today, so thanks thanks for being here, gentlemen.
I would appreciate it if both of you could just
kind of introduce yourselves and what you do at CBA.
Speaker 2 (00:23):
Sure. Yeah, Hi everyone. David Palmer, I am a general
counsel and head of Regulatory Affairs at CBA, so I
deal a lot with the regulators in DC and of
course with all the ongoing litigation around some of the
former CFPB's rule bankings.
Speaker 3 (00:39):
And I'm Billy Riley, head of Public Affairs, so we
handle messaging for the organization on behalf of our membership,
work very closely with the regulatory and legislative teams in
terms of policy communications, and also support broader corporate comms
and executive comms, including helping to set up this conference
and some of our other events like our Executive Banking School.
Speaker 1 (00:59):
Well great, thank you again, appreciate you taking the time
to join us today. So i'd really just ask each
of you to kind of give a brief overview obviously
there's a lot of things changing in the market right
now with the current regulatory and political environment, but just
kind of a lay of the land, like where do
you see things stand right now with the current environment
out there, and how it's really impacting CBA members.
Speaker 2 (01:21):
Sure, yeah, I mean it's a very unique environment and
it's changing by the minute. So any predictions we could
give you probably are going to be wrong because they're
going to change very rapidly right now. I mean, we're
in this kind of limbo right where the new administram
administration has come in a lot of executive orders, a
(01:42):
lot of internal kind of rearranging of some of the agencies,
and we're not quite sure where it's going to end
up at this point. So we're working very diligently with
the administration. We have new we have nominations for new director,
we have nominations for a new comptroll or that are
working their way through the Senate now, and so hopefully
(02:03):
well once we get people in place in a permanent basis,
there will be some think stability though that we can
go and start talking to the individual agencies. We need
the agencies to function, We need to know who we're
dealing with right and the banks need to have certainty
within the markets and the rules that they have to
(02:24):
abide buying compliance issues. So there's a lot of question
marks right now. There's a lot on people's minds, and
so we're working through that and hopefully we'll again get
to a better place in the near future.
Speaker 3 (02:35):
Yeah, I just add on that. I think the uncertainty
is a big one, but it poses some we think positives,
but also some potential headwinds. So obviously bankers know that
the last four years in the prior administration in terms
of some of the financial regulatory rules that came out,
pos significant challenges for our members and kept us at
(02:55):
CBA very busy. Obviously a lot of that is going away,
or we think it is, and so in the sense
and the positive sense, that may be a good thing.
But we also have a political system right now with
Republicans that may be a little bit more skeptical of
large institutions, including large banks in particular with the rise
(03:17):
of populism. So something else to keep an eye on,
especially as it relates to Capitol Hill. But some of
the proposals out there that maybe our banks won't be
a supportive of.
Speaker 1 (03:28):
Sure, and I definitely hear you on the uncertainty. You know,
we deal with We have over one hundred lenders of
both banks and credit unions on our platform, and my
team is actually supporting them through their regulatory exams and
so that is a that and we deal with all
of the regulators too, So certainty certainly helps us do
(03:48):
a better job for our clients and helps our clients
have a better understanding of what to expect. So, you know,
with kind of the status of the CFPB right now,
ongoing legislative debates, and and certainly states getting more active
in the regulatory space, and potentially even more so if
if the federal credential regulators kind of back off. You know,
(04:13):
I think, how do you you know, how are banks
adapting to these uncertainties and and what kind of advice
are you giving your members on ways to stay kind
of proactive and to at least navigate as smoothly as
they can through this uncertainty.
Speaker 2 (04:28):
Yeah, I mean it's as Billy alluded to. I mean,
a lot of the rules that they're currently gearing up
for are you know, in limbo right now that could
go away either through actions by Congress, actions by the
agencies themselves or through litigation. Our banks are business as
usual right now. I mean they're they're still beholden to
the consumer protection laws and you know, and they're you know,
(04:52):
complying with all of these things and regardless of whether
or not the c FPB is and they're supervising them
for any of these issues. Hopefully we'll get back to
again a sense of stability on the supervisory side soon.
The prudential banking regulators are supervisoring, supervising, holding, you know,
examinations of those things, but a lot of the prep
(05:16):
for things like ten seventy one small business data collection,
this this is a huge poll for the industry, and
they need to understand where that's going and what the
bureau might do with it, what's going to be the
outcome of the litigation, and so in large part, I think,
you know, you have to plan for what we know now,
(05:38):
and that's where they're going with this right now. But
things could change on a dime and that cost compliance
dollars obviously, which is not you know, ideal. But I mean,
banks need to get back to what we're talking about,
the certainty around some of the rule making, some of
the compliance issues that they have right now in order
to better function and quite honestly better serve the US public.
Speaker 1 (05:59):
Then sure, and I think you know we we certainly
the clients that we work with are are many of
them are not CB members. There are more, you know,
regional community banks, and and the potential costs of uncertainty
I think is hitting everyone hard, but certainly hitting them
them hard as well. So I think one thing that
that does stay in the spotlight, as you mentioned consumer
(06:20):
protection and and how the you know, the banks are
doing the things that they need to do to protect
the consumer regardless of the rules, and the regulators are
still doing their their regular exams, but late fees, overdraft
fees certainly remain in the spotlight as well as SERIA
modernization efforts and UH and lately some some UH I think,
(06:41):
proposals to to get rid of CDFI as an organization.
But you know, kind of with all of the different
things happening, you know, what are some of the areas
you think that that banks and financial institutions should really
be paying special attentions to as it relates to some
of those I think, particularly the consumer focus items like
(07:01):
late FEZ rate caps, overdraft.
Speaker 2 (07:04):
I mean, these are all important issues. Clearly, this was
part of the previous administration's junk fee campaign quote unquote
junk fee campaign. I think it's been painted in a large,
large part as a populist issue, and actually the cost
benefit analysis wasn't really completed when it's when they were
looking about how these rules actually could impact the US consumer.
(07:29):
You know, what should our banks be looking for. I mean,
as you know, with late fees and with overdraft fees,
there's litigation in both those fronts. The overdraft fee rule
is subject to a Congressional Review Act resolution currently in
front of Congress, so you know how they are navigating again,
it's you know, hope we have answers soon. I hope
(07:53):
that we get back to a place where we have
a durable, credible agency within the cfp B that's going
to do cost benefit analysis rule making where there is
a market failure. Right now, we're really just kind of
combating all these rules that were more political in nature
than really addressing a market failure. Some of our member institutions,
(08:14):
for instance, an overdraft, they're the leaders and putting together
mitigating ways for consumers to actually avoid overdraft fees. With
buffer amounts, twenty four hour grace periods, things of that nature.
Where was the market failure that you know, precipitated this
this need for this kind of outlandish rule and so
(08:39):
you know, that's what we're dealing with now. I am
very hopeful that over the next year or so, we
can see a lot of this litigation go away, get
back to really appropriate rule making that's done within the
confines of authority and not for political reasons.
Speaker 3 (08:56):
And just to add to that, so obviously David mentioned
the Lafey and overdraft fees driven largely by the prior administration,
and you also mentioned ratecaps, And we recently saw a
proposal introduced in the House as a companion to a
previous legislative proposal in the Senate, both of which had
bipartisan support, seeking to limit bank in credit card issuer's
(09:19):
ability to charge interest rates above ten percent, which is
concerning for a lot of different reasons. And so that's
something we're keeping our eye on because of the bipartisan
nature of it, and one of the many ways that
we're trying to push back on that here at CBA,
whether in the media or through some of our blogs
and op eds, is trying to show through data and
(09:40):
research the impact that that would have on consumers and
especially consumers at the margin and their access to credit,
because a lot of times these legislative proposals make for
good political headlines, but they have real world implications on
the people we're working to serve.
Speaker 1 (09:54):
Yeah. Absolutely, and I think you both called it out
that you know, doing a true data driven cost benefit analysis,
what really will happen if you impact if you make
changes like that, And the answer is that a lot
of lenders simply won't be able to lend to, especially
UH consumers. That I think when when we originally started
(10:14):
our company, we're looking to expand access to credit and
maybe identify what we saw as those hidden primes or
near primes that the banks weren't reaching. And those folks
are are easy to get kind of put out on
the edges of the banking industry. Again, So what do
you you know as you as you think about maybe
the federal regulators being weakened a little bit, or being
(10:36):
defunded or having less staff. Potentially, do you see a
potential for individual states to create more kind of a
patchwork of regulation that it makes it even harder for
the Bank.
Speaker 2 (10:50):
It's a great point. Yeah, and we need a strong
federal regulator to set you know, the kind of the
path here. It's it's difficult for our member institutions to
kind of piecemeal regulation and enforcement through different state actions.
We're seeing a little bit of that now. I would
imagine that you'll see more ramp up with the AGS,
(11:12):
especially in blue states where if we don't have you know,
proper supervision from the Bureau or from from the Prudentials. Again,
we're really hopeful that the Bureau will start that process
again and that we'll get back to a good place.
There's also the private right of action for a lot
of the enumerated statutes within Dodd Frank. So we are
(11:35):
somewhat concerned that you could see an uptaken you know,
lawsuits from the plane offs bar. But you know, that
wouldn't be anything new. The planet bar is going to
take advantage when it can take advantage of something. But
I do think that we'll we'll probably get more action
from the states as we move, you know, into the
near future. But again, I don't think that was anything
particularly new. We saw that ramp up even with the
(11:58):
Biden administration. Yeah, so I think that we'll see a
little bit more of it down.
Speaker 1 (12:02):
Yeah, and that's definitely something you know, we certainly track
a lot with like the legislation in Colorado and different
and did MACA opt outs as are of challenging to
manage when you're a company that works across the across
the country. So you know, as you think though about
protecting consumers insurance competition, do you see any tension between
(12:23):
kind of those two things, like how are your banks
on bank members staying competitive and with each other when
there's certainly a lot of I think in a regulator
d certainty and they also have to think about consumer protection.
Speaker 3 (12:40):
I can start with them, and I mean we always
talk about how the banking industry in America is among
the most highly regulated, most competitive in the world. Right,
and so that really does benefit consumers in the sense
that because of the regulatory apparatus, they can have confidence
that they are being protected, that their money is safe
and secure. But also with that many banks and credit
(13:02):
unions and also with the rise of fintech and tech
companies that are increasingly offering financial services, consumers have amazing
ability to choose financial products and tools that meet their
unique needs, right and so I feel pretty confident, Dave.
I think you would agree as well that this system
really does provide so much flexibility and choice and access,
(13:26):
and I think nowhere has that been more evident over
the last decade than in overdraft. And you've seen so
many of our members innovate on that product, offering financial
flexibility and next day grace periods because you know, banks
really want to meet consumers where they're at number one,
but number two. The market is getting more competitive with
(13:47):
other FinTechs and such that are offering are offering low
or no cost overdraft services, and so that competition, I
think is benefiting consumers, and consumers can have that comp
finance when they meet their needs within the well regulated
banking system, that they're also being protected.
Speaker 2 (14:04):
Yeah, I agree with all that, and I would add
though that, you know, with the fintech industry or banking
as a service as a model now becoming more and
more popular, it's it's vital that our our member institutions,
large regionals or national banks have the ability to innovate,
(14:25):
aren't confined by the rules that are being written solely
for them, right without having an equal playing you know,
or a level playing field, for those those fintech companies
and for you know innovators in that space. I mean,
we're all for the innovation on either side, but we
have to we have to be able to have the
flexibility to do that as well. And I'll i add
(14:45):
too though, this is another reason the CPP is very
important because they have a supervisory theory over the non
banks and that is going to be vitally important going
into the next few years where we're having I think
a larger up uptick in you know, banking as a
service and FinTechs entering that space and partnerships.
Speaker 1 (15:04):
Sure, there's a there's a great story from the early
days of Upstart, where you know, I was founded by
ex Google executives primarily and people who had not worked
in banking, and in their exuberants to be part of
the industry and to be you know, friendly to regulators
and to get in front of them, showed up at
(15:26):
the OCC Office of Information in San Francisco and said, hey,
we want to tell you about what we're doing, very excited,
which was maybe the first time that that had happened
at an OCC office. And so we do work very
closely with the regulators, like we why we don't get examined,
our clients do, uh, And so we spend a lot
of time with the OCC and helping them understand and
and the FDAC and helping them understand how we use
(15:47):
AI and how we think about AI and how we
work with our bank partners. You know, I think is
that a space that you're particularly seeing probably more uncertainty
and maybe less of an even playing field where the
banks may be getting challenged harder on use of AI
versus FinTechs and banking as as service providers can can
move a little bit faster.
Speaker 2 (16:08):
Well, it definite can move faster. I mean there's a
lot about it. Banks have to be very measured in
their approach to any new technology, especially AI. I mean,
it's it's highly scrutinized, right, I mean, it's a little scary,
I mean to be honest with you, right, you know,
and we do good regulation and sound law around the
use of AI, or it could go it could run amok, right,
And so but you have the FinTechs that are able
(16:30):
to move a little faster, and that's not bad for
the banking industry as a whole, you know, as long
as we can partner and work with these these organizations.
There's also third party risk management issues that you know
are abundantly you know, our banks are abundantly you know,
supervised and examined for and we encourage that innovation and
we but we have to be able to implement and
(16:52):
you know, partner or build that to be able to
do that ourselves as well. In order to make sure
that we're able to do that, we need to be
very very measured in our approach to regulation. That only
affects you know, the banking industry and depository industries federally
ensured you know, FDIC positive industries, but the fintech industry
(17:14):
plays a very important role in getting us to the
next level. And so we not saying that they shouldn't
be able to do that. We just need to have
far absolutely.
Speaker 1 (17:24):
Yeah, and I think fair lending particularly is an area
that comes up frequently that in a traditional underwriting model
is logistic regression whatever your you know, even table driven models,
or it is easier to explain or at least it's
already documented with the regulators. How do you examine a
bank that is using a model like this? How do
you examine a bank that is partnering with the fintech
(17:45):
that uses AI and their underwriting much less clear and
kind of gets back to your certainty, like the rules
of the road aren't as clear. I think there's certainly
a challenge with individual examiners not necessarily having the know
how to do it, and I think there's an education
challenge there that we're trying to This is a.
Speaker 2 (18:04):
Challenge in the current environment now too. I mean, you're
seeing a lot of the regulators leave the agencies. A
lot of the folks that were embedded within some of
these financial institutions knew them how to historical context of
the of the institution, and now we're seeing fewer and fewer,
you know, team staff at the regulatory agencies. The examiner,
(18:25):
the examiners are half of what they used to be.
They have to be brought up to speed, and so
it's important to have a really well educated, very informed
regulatory exam staff in order to make sure that banks
and FinTechs can get to these places and that they're
not being halted on something that's misunderstood just because the
regulator might not understand the process or the institution that's implementing.
Speaker 1 (18:49):
Absolutely, So, how do you know, as you think about
your member banks, how do you advise kind of the
business teams, the lending teams, the heads of innovation, the
different different functional areas to work closely with their kind
of legal and public affairs team to navigate what's happening
right now in the market.
Speaker 2 (19:05):
We provide no advice to anyone. No, I mean, I
mean quite clearly, I mean we're not. We're you know,
we try to shape the policy that best suits our
industry right and so, and we work very closely with
the policy folks within our member institutions, the legal teams.
You know, as a lawyer, I can say the lawyers
probably you know, hold up most of these things for
(19:26):
very when they shouldn't be. But you know that's what
lawyers do, and that's what we pay them to be careful.
But we you know, obviously it takes it takes a village,
you know, to kind of push you know, an organization forward.
And I think that you know, working closely with the
policy especially the folks in d C and now more
importantly you know, the state you know, policy folks and
(19:49):
the legal teams is vital to the survival of some
of these institutions and.
Speaker 3 (19:55):
Just to add to that, I think over the last
four years, as difficult as some of the rules and
regulartions coming out of the prior administration were for the industry,
for especially the largest institutions, when the business lines really
got a sense of the financial impact that one specific
regulation among many would have on their ability to provide
(20:16):
that product and innovate on that product at the level
that their consumers expect, I think really heightened the pressure
that corporate executives across the industry put on DC. And
so you saw that Obviously government affairs and traditional lobbying
was always a priority, but that really expanded to the
public affairs ecosystem, and so you saw really historic levels
(20:39):
of investment with digital advertising, grassroots coalitions, grasstops, which really
means more paid stakeholder engagement. So identifying those small business
owners or some of those think tanks that can speak
on behalf of the industry. That really all revved up
over the last four year years, and I think there's
(21:01):
a perception that in many cases it was at least
somewhat successful. And so I think that kind of atmosphere
of the intersection between the business priorities outside of Washington,
and the teams on the ground in terms of public
affairs and government relations will continue regardless of who's in
the White House.
Speaker 1 (21:18):
Great. Yeah, And I think we've certainly seen it on
the fintech side of the world too. The American Fintech Council,
which we're a founding member of we used to be
the Marketplace Lenders Association, were actively engaged there. I know
We've got a lot of some similar organizations that are
doing similar work and partnering up on various initiatives. So
(21:39):
I think it's it's definitely been a very very active
few years and doesn't look like things are slowing down
at all. So kind of last last thoughts are last
question for the both of you. You know, any kind
of bold or bold predictions, emerging issues, things that might
surprise us for the year ahead, that that banks should
be really preparing for, could both political and regulatory standpoint, like,
(22:03):
is there you know, with the uncertainty, what could they
prepare for to be ready for twenty twenty five?
Speaker 3 (22:08):
You want to start to sure, I'll take you.
Speaker 2 (22:13):
I'll take the Obviously, banks need to be able to
our member institutions need to be able to pivot quickly,
and I think us providing them with a little bit
of the kind of signals of where things are going
with some of the rulemakings and other things will be
helpful for them. But it's going it's it's just kind
of a new era. We're very dedicated to stopping that
(22:35):
pendulum swing between administrations. I think that we're going to
see a pretty big pendulum swing for the next two
years at least because Congress. They have majorities in Congress
and that might change in two years, and so they're
going to have a pretty healthy agenda going forward. So
it will be an interesting couple of years. I think
banks will enjoy some deregulation of in some wind back,
(22:58):
wind down of some of these more egregious rules that
we're quite honestly outside the authority of the regulators to
even promagate. But it's going to be We're going to
have to be very nimble right and be flexible about
our approach to how we're working with our regulars. But
I think we also need to advocate for what we
need the regulators for, and that is for to make
(23:19):
sure that the system is working, that we have level
playing fields, and that you know, quite honestly that you know,
we're proud of being the most regulated, are heavily regulated,
heavily supervised industry because you know, we were there for
the American public. It needs to be well regulated, well supervised,
and so hopefully we'll get back to some of that.
Speaker 3 (23:38):
Yeah, just to add to what Dave said, I think
a lot of institutions right now in the financial services
space are, especially for reputational risks, trying to stay a
little bit more in the background, which is obviously an
intentional choice. We'll see if they're able to continue to
do that, and a lot of that depends on the
political environment. From a policy perspective, I think banks and
(23:58):
credit unions and FinTechs need to be prepared for what
seems to be more likely instance or a more likely
instance of legal framework being put around crypto and stable coins. Peers.
There's bipartisan consensus in the House and Senate to advance that,
and obviously you saw in the President's campaign huge coalition
(24:21):
of crypto and stable coin influencers and leaders, and that
seems to be something that is going to make progress
in the months to come.
Speaker 1 (24:31):
Awesome. Well, thank you, thanks Dave, Thanks Billy, appreciate you
being on the podcast Today US
Hi everyone, and welcome to Leaders in Lending. This is
Lynd Soderbiel. I'm happy to be joining you here today
from CBA Live, and I have Dave Palmeran and Billy
Riley joining me today, so thanks thanks for being here, gentlemen.
I would appreciate it if both of you could just
kind of introduce yourselves and what you do at CBA.
Speaker 2 (00:23):
Sure. Yeah, Hi everyone. David Palmer, I am a general
counsel and head of Regulatory Affairs at CBA, so I
deal a lot with the regulators in DC and of
course with all the ongoing litigation around some of the
former CFPB's rule bankings.
Speaker 3 (00:39):
And I'm Billy Riley, head of Public Affairs, so we
handle messaging for the organization on behalf of our membership,
work very closely with the regulatory and legislative teams in
terms of policy communications, and also support broader corporate comms
and executive comms, including helping to set up this conference
and some of our other events like our Executive Banking School.
Speaker 1 (00:59):
Well great, thank you again, appreciate you taking the time
to join us today. So i'd really just ask each
of you to kind of give a brief overview obviously
there's a lot of things changing in the market right
now with the current regulatory and political environment, but just
kind of a lay of the land, like where do
you see things stand right now with the current environment
out there, and how it's really impacting CBA members.
Speaker 2 (01:21):
Sure, yeah, I mean it's a very unique environment and
it's changing by the minute. So any predictions we could
give you probably are going to be wrong because they're
going to change very rapidly right now. I mean, we're
in this kind of limbo right where the new administram
administration has come in a lot of executive orders, a
(01:42):
lot of internal kind of rearranging of some of the agencies,
and we're not quite sure where it's going to end
up at this point. So we're working very diligently with
the administration. We have new we have nominations for new director,
we have nominations for a new comptroll or that are
working their way through the Senate now, and so hopefully
(02:03):
well once we get people in place in a permanent basis,
there will be some think stability though that we can
go and start talking to the individual agencies. We need
the agencies to function, We need to know who we're
dealing with right and the banks need to have certainty
within the markets and the rules that they have to
(02:24):
abide buying compliance issues. So there's a lot of question
marks right now. There's a lot on people's minds, and
so we're working through that and hopefully we'll again get
to a better place in the near future.
Speaker 3 (02:35):
Yeah, I just add on that. I think the uncertainty
is a big one, but it poses some we think positives,
but also some potential headwinds. So obviously bankers know that
the last four years in the prior administration in terms
of some of the financial regulatory rules that came out,
pos significant challenges for our members and kept us at
(02:55):
CBA very busy. Obviously a lot of that is going away,
or we think it is, and so in the sense
and the positive sense, that may be a good thing.
But we also have a political system right now with
Republicans that may be a little bit more skeptical of
large institutions, including large banks in particular with the rise
(03:17):
of populism. So something else to keep an eye on,
especially as it relates to Capitol Hill. But some of
the proposals out there that maybe our banks won't be
a supportive of.
Speaker 1 (03:28):
Sure, and I definitely hear you on the uncertainty. You know,
we deal with We have over one hundred lenders of
both banks and credit unions on our platform, and my
team is actually supporting them through their regulatory exams and
so that is a that and we deal with all
of the regulators too, So certainty certainly helps us do
(03:48):
a better job for our clients and helps our clients
have a better understanding of what to expect. So, you know,
with kind of the status of the CFPB right now,
ongoing legislative debates, and and certainly states getting more active
in the regulatory space, and potentially even more so if
if the federal credential regulators kind of back off. You know,
(04:13):
I think, how do you you know, how are banks
adapting to these uncertainties and and what kind of advice
are you giving your members on ways to stay kind
of proactive and to at least navigate as smoothly as
they can through this uncertainty.
Speaker 2 (04:28):
Yeah, I mean it's as Billy alluded to. I mean,
a lot of the rules that they're currently gearing up
for are you know, in limbo right now that could
go away either through actions by Congress, actions by the
agencies themselves or through litigation. Our banks are business as
usual right now. I mean they're they're still beholden to
the consumer protection laws and you know, and they're you know,
(04:52):
complying with all of these things and regardless of whether
or not the c FPB is and they're supervising them
for any of these issues. Hopefully we'll get back to
again a sense of stability on the supervisory side soon.
The prudential banking regulators are supervisoring, supervising, holding, you know,
examinations of those things, but a lot of the prep
(05:16):
for things like ten seventy one small business data collection,
this this is a huge poll for the industry, and
they need to understand where that's going and what the
bureau might do with it, what's going to be the
outcome of the litigation, and so in large part, I think,
you know, you have to plan for what we know now,
(05:38):
and that's where they're going with this right now. But
things could change on a dime and that cost compliance
dollars obviously, which is not you know, ideal. But I mean,
banks need to get back to what we're talking about,
the certainty around some of the rule making, some of
the compliance issues that they have right now in order
to better function and quite honestly better serve the US public.
Speaker 1 (05:59):
Then sure, and I think you know we we certainly
the clients that we work with are are many of
them are not CB members. There are more, you know,
regional community banks, and and the potential costs of uncertainty
I think is hitting everyone hard, but certainly hitting them
them hard as well. So I think one thing that
that does stay in the spotlight, as you mentioned consumer
(06:20):
protection and and how the you know, the banks are
doing the things that they need to do to protect
the consumer regardless of the rules, and the regulators are
still doing their their regular exams, but late fees, overdraft
fees certainly remain in the spotlight as well as SERIA
modernization efforts and UH and lately some some UH I think,
(06:41):
proposals to to get rid of CDFI as an organization.
But you know, kind of with all of the different
things happening, you know, what are some of the areas
you think that that banks and financial institutions should really
be paying special attentions to as it relates to some
of those I think, particularly the consumer focus items like
(07:01):
late FEZ rate caps, overdraft.
Speaker 2 (07:04):
I mean, these are all important issues. Clearly, this was
part of the previous administration's junk fee campaign quote unquote
junk fee campaign. I think it's been painted in a large,
large part as a populist issue, and actually the cost
benefit analysis wasn't really completed when it's when they were
looking about how these rules actually could impact the US consumer.
(07:29):
You know, what should our banks be looking for. I mean,
as you know, with late fees and with overdraft fees,
there's litigation in both those fronts. The overdraft fee rule
is subject to a Congressional Review Act resolution currently in
front of Congress, so you know how they are navigating again,
it's you know, hope we have answers soon. I hope
(07:53):
that we get back to a place where we have
a durable, credible agency within the cfp B that's going
to do cost benefit analysis rule making where there is
a market failure. Right now, we're really just kind of
combating all these rules that were more political in nature
than really addressing a market failure. Some of our member institutions,
(08:14):
for instance, an overdraft, they're the leaders and putting together
mitigating ways for consumers to actually avoid overdraft fees. With
buffer amounts, twenty four hour grace periods, things of that nature.
Where was the market failure that you know, precipitated this
this need for this kind of outlandish rule and so
(08:39):
you know, that's what we're dealing with now. I am
very hopeful that over the next year or so, we
can see a lot of this litigation go away, get
back to really appropriate rule making that's done within the
confines of authority and not for political reasons.
Speaker 3 (08:56):
And just to add to that, so obviously David mentioned
the Lafey and overdraft fees driven largely by the prior administration,
and you also mentioned ratecaps, And we recently saw a
proposal introduced in the House as a companion to a
previous legislative proposal in the Senate, both of which had
bipartisan support, seeking to limit bank in credit card issuer's
(09:19):
ability to charge interest rates above ten percent, which is
concerning for a lot of different reasons. And so that's
something we're keeping our eye on because of the bipartisan
nature of it, and one of the many ways that
we're trying to push back on that here at CBA,
whether in the media or through some of our blogs
and op eds, is trying to show through data and
(09:40):
research the impact that that would have on consumers and
especially consumers at the margin and their access to credit,
because a lot of times these legislative proposals make for
good political headlines, but they have real world implications on
the people we're working to serve.
Speaker 1 (09:54):
Yeah. Absolutely, and I think you both called it out
that you know, doing a true data driven cost benefit analysis,
what really will happen if you impact if you make
changes like that, And the answer is that a lot
of lenders simply won't be able to lend to, especially
UH consumers. That I think when when we originally started
(10:14):
our company, we're looking to expand access to credit and
maybe identify what we saw as those hidden primes or
near primes that the banks weren't reaching. And those folks
are are easy to get kind of put out on
the edges of the banking industry. Again, So what do
you you know as you as you think about maybe
the federal regulators being weakened a little bit, or being
(10:36):
defunded or having less staff. Potentially, do you see a
potential for individual states to create more kind of a
patchwork of regulation that it makes it even harder for
the Bank.
Speaker 2 (10:50):
It's a great point. Yeah, and we need a strong
federal regulator to set you know, the kind of the
path here. It's it's difficult for our member institutions to
kind of piecemeal regulation and enforcement through different state actions.
We're seeing a little bit of that now. I would
imagine that you'll see more ramp up with the AGS,
(11:12):
especially in blue states where if we don't have you know,
proper supervision from the Bureau or from from the Prudentials. Again,
we're really hopeful that the Bureau will start that process
again and that we'll get back to a good place.
There's also the private right of action for a lot
of the enumerated statutes within Dodd Frank. So we are
(11:35):
somewhat concerned that you could see an uptaken you know,
lawsuits from the plane offs bar. But you know, that
wouldn't be anything new. The planet bar is going to
take advantage when it can take advantage of something. But
I do think that we'll we'll probably get more action
from the states as we move, you know, into the
near future. But again, I don't think that was anything
particularly new. We saw that ramp up even with the
(11:58):
Biden administration. Yeah, so I think that we'll see a
little bit more of it down.
Speaker 1 (12:02):
Yeah, and that's definitely something you know, we certainly track
a lot with like the legislation in Colorado and different
and did MACA opt outs as are of challenging to
manage when you're a company that works across the across
the country. So you know, as you think though about
protecting consumers insurance competition, do you see any tension between
(12:23):
kind of those two things, like how are your banks
on bank members staying competitive and with each other when
there's certainly a lot of I think in a regulator
d certainty and they also have to think about consumer protection.
Speaker 3 (12:40):
I can start with them, and I mean we always
talk about how the banking industry in America is among
the most highly regulated, most competitive in the world. Right,
and so that really does benefit consumers in the sense
that because of the regulatory apparatus, they can have confidence
that they are being protected, that their money is safe
and secure. But also with that many banks and credit
(13:02):
unions and also with the rise of fintech and tech
companies that are increasingly offering financial services, consumers have amazing
ability to choose financial products and tools that meet their
unique needs, right and so I feel pretty confident, Dave.
I think you would agree as well that this system
really does provide so much flexibility and choice and access,
(13:26):
and I think nowhere has that been more evident over
the last decade than in overdraft. And you've seen so
many of our members innovate on that product, offering financial
flexibility and next day grace periods because you know, banks
really want to meet consumers where they're at number one,
but number two. The market is getting more competitive with
(13:47):
other FinTechs and such that are offering are offering low
or no cost overdraft services, and so that competition, I
think is benefiting consumers, and consumers can have that comp
finance when they meet their needs within the well regulated
banking system, that they're also being protected.
Speaker 2 (14:04):
Yeah, I agree with all that, and I would add
though that, you know, with the fintech industry or banking
as a service as a model now becoming more and
more popular, it's it's vital that our our member institutions,
large regionals or national banks have the ability to innovate,
(14:25):
aren't confined by the rules that are being written solely
for them, right without having an equal playing you know,
or a level playing field, for those those fintech companies
and for you know innovators in that space. I mean,
we're all for the innovation on either side, but we
have to we have to be able to have the
flexibility to do that as well. And I'll i add
(14:45):
too though, this is another reason the CPP is very
important because they have a supervisory theory over the non
banks and that is going to be vitally important going
into the next few years where we're having I think
a larger up uptick in you know, banking as a
service and FinTechs entering that space and partnerships.
Speaker 1 (15:04):
Sure, there's a there's a great story from the early
days of Upstart, where you know, I was founded by
ex Google executives primarily and people who had not worked
in banking, and in their exuberants to be part of
the industry and to be you know, friendly to regulators
and to get in front of them, showed up at
(15:26):
the OCC Office of Information in San Francisco and said, hey,
we want to tell you about what we're doing, very excited,
which was maybe the first time that that had happened
at an OCC office. And so we do work very
closely with the regulators, like we why we don't get examined,
our clients do, uh, And so we spend a lot
of time with the OCC and helping them understand and
and the FDAC and helping them understand how we use
(15:47):
AI and how we think about AI and how we
work with our bank partners. You know, I think is
that a space that you're particularly seeing probably more uncertainty
and maybe less of an even playing field where the
banks may be getting challenged harder on use of AI
versus FinTechs and banking as as service providers can can
move a little bit faster.
Speaker 2 (16:08):
Well, it definite can move faster. I mean there's a
lot about it. Banks have to be very measured in
their approach to any new technology, especially AI. I mean,
it's it's highly scrutinized, right, I mean, it's a little scary,
I mean to be honest with you, right, you know,
and we do good regulation and sound law around the
use of AI, or it could go it could run amok, right,
And so but you have the FinTechs that are able
(16:30):
to move a little faster, and that's not bad for
the banking industry as a whole, you know, as long
as we can partner and work with these these organizations.
There's also third party risk management issues that you know
are abundantly you know, our banks are abundantly you know,
supervised and examined for and we encourage that innovation and
we but we have to be able to implement and
(16:52):
you know, partner or build that to be able to
do that ourselves as well. In order to make sure
that we're able to do that, we need to be
very very measured in our approach to regulation. That only
affects you know, the banking industry and depository industries federally
ensured you know, FDIC positive industries, but the fintech industry
(17:14):
plays a very important role in getting us to the
next level. And so we not saying that they shouldn't
be able to do that. We just need to have
far absolutely.
Speaker 1 (17:24):
Yeah, and I think fair lending particularly is an area
that comes up frequently that in a traditional underwriting model
is logistic regression whatever your you know, even table driven models,
or it is easier to explain or at least it's
already documented with the regulators. How do you examine a
bank that is using a model like this? How do
you examine a bank that is partnering with the fintech
(17:45):
that uses AI and their underwriting much less clear and
kind of gets back to your certainty, like the rules
of the road aren't as clear. I think there's certainly
a challenge with individual examiners not necessarily having the know
how to do it, and I think there's an education
challenge there that we're trying to This is a.
Speaker 2 (18:04):
Challenge in the current environment now too. I mean, you're
seeing a lot of the regulators leave the agencies. A
lot of the folks that were embedded within some of
these financial institutions knew them how to historical context of
the of the institution, and now we're seeing fewer and fewer,
you know, team staff at the regulatory agencies. The examiner,
(18:25):
the examiners are half of what they used to be.
They have to be brought up to speed, and so
it's important to have a really well educated, very informed
regulatory exam staff in order to make sure that banks
and FinTechs can get to these places and that they're
not being halted on something that's misunderstood just because the
regulator might not understand the process or the institution that's implementing.
Speaker 1 (18:49):
Absolutely, So, how do you know, as you think about
your member banks, how do you advise kind of the
business teams, the lending teams, the heads of innovation, the
different different functional areas to work closely with their kind
of legal and public affairs team to navigate what's happening
right now in the market.
Speaker 2 (19:05):
We provide no advice to anyone. No, I mean, I
mean quite clearly, I mean we're not. We're you know,
we try to shape the policy that best suits our
industry right and so, and we work very closely with
the policy folks within our member institutions, the legal teams.
You know, as a lawyer, I can say the lawyers
probably you know, hold up most of these things for
(19:26):
very when they shouldn't be. But you know that's what
lawyers do, and that's what we pay them to be careful.
But we you know, obviously it takes it takes a village,
you know, to kind of push you know, an organization forward.
And I think that you know, working closely with the
policy especially the folks in d C and now more
importantly you know, the state you know, policy folks and
(19:49):
the legal teams is vital to the survival of some
of these institutions and.
Speaker 3 (19:55):
Just to add to that, I think over the last
four years, as difficult as some of the rules and
regulartions coming out of the prior administration were for the industry,
for especially the largest institutions, when the business lines really
got a sense of the financial impact that one specific
regulation among many would have on their ability to provide
(20:16):
that product and innovate on that product at the level
that their consumers expect, I think really heightened the pressure
that corporate executives across the industry put on DC. And
so you saw that Obviously government affairs and traditional lobbying
was always a priority, but that really expanded to the
public affairs ecosystem, and so you saw really historic levels
(20:39):
of investment with digital advertising, grassroots coalitions, grasstops, which really
means more paid stakeholder engagement. So identifying those small business
owners or some of those think tanks that can speak
on behalf of the industry. That really all revved up
over the last four year years, and I think there's
(21:01):
a perception that in many cases it was at least
somewhat successful. And so I think that kind of atmosphere
of the intersection between the business priorities outside of Washington,
and the teams on the ground in terms of public
affairs and government relations will continue regardless of who's in
the White House.
Speaker 1 (21:18):
Great. Yeah, And I think we've certainly seen it on
the fintech side of the world too. The American Fintech Council,
which we're a founding member of we used to be
the Marketplace Lenders Association, were actively engaged there. I know
We've got a lot of some similar organizations that are
doing similar work and partnering up on various initiatives. So
(21:39):
I think it's it's definitely been a very very active
few years and doesn't look like things are slowing down
at all. So kind of last last thoughts are last
question for the both of you. You know, any kind
of bold or bold predictions, emerging issues, things that might
surprise us for the year ahead, that that banks should
be really preparing for, could both political and regulatory standpoint, like,
(22:03):
is there you know, with the uncertainty, what could they
prepare for to be ready for twenty twenty five?
Speaker 3 (22:08):
You want to start to sure, I'll take you.
Speaker 2 (22:13):
I'll take the Obviously, banks need to be able to
our member institutions need to be able to pivot quickly,
and I think us providing them with a little bit
of the kind of signals of where things are going
with some of the rulemakings and other things will be
helpful for them. But it's going it's it's just kind
of a new era. We're very dedicated to stopping that
(22:35):
pendulum swing between administrations. I think that we're going to
see a pretty big pendulum swing for the next two
years at least because Congress. They have majorities in Congress
and that might change in two years, and so they're
going to have a pretty healthy agenda going forward. So
it will be an interesting couple of years. I think
banks will enjoy some deregulation of in some wind back,
(22:58):
wind down of some of these more egregious rules that
we're quite honestly outside the authority of the regulators to
even promagate. But it's going to be We're going to
have to be very nimble right and be flexible about
our approach to how we're working with our regulars. But
I think we also need to advocate for what we
need the regulators for, and that is for to make
(23:19):
sure that the system is working, that we have level
playing fields, and that you know, quite honestly that you know,
we're proud of being the most regulated, are heavily regulated,
heavily supervised industry because you know, we were there for
the American public. It needs to be well regulated, well supervised,
and so hopefully we'll get back to some of that.
Speaker 3 (23:38):
Yeah, just to add to what Dave said, I think
a lot of institutions right now in the financial services
space are, especially for reputational risks, trying to stay a
little bit more in the background, which is obviously an
intentional choice. We'll see if they're able to continue to
do that, and a lot of that depends on the
political environment. From a policy perspective, I think banks and
(23:58):
credit unions and FinTechs need to be prepared for what
seems to be more likely instance or a more likely
instance of legal framework being put around crypto and stable coins. Peers.
There's bipartisan consensus in the House and Senate to advance that,
and obviously you saw in the President's campaign huge coalition
(24:21):
of crypto and stable coin influencers and leaders, and that
seems to be something that is going to make progress
in the months to come.
Speaker 1 (24:31):
Awesome. Well, thank you, thanks Dave, Thanks Billy, appreciate you
being on the podcast Today US
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