I recently had the pleasure of attending a roundtable session with the Consumer Financial Protection Bureau staff as they seek input from the banking industry on the various final and pending rules and regulations.
During my time with the CFPB, there were two different banks CEO’s who made comments as they relate to compliance staff and their time spent trying to ensure the banks comply with all of the rules and regulations. One CEO mentioned that his bank recently underwent a compliance examination by the FDIC. His bank’s compliance team spent more than 400 hours preparing for, working through and following-up on the examination. That is more than 2.5 weeks per person for a team of four compliance professionals (100 hours per person working 40 hours per week). Another bank CEO mentioned that his bank, which has one compliance professional and two assistants, also spent a significant amount of time on regulatory compliance.
From a community bank perspective, I believe this is a lot of work and something has to give. On September 29, 2014, Citigroup, the third-biggest U.S. bank, said the finance industry could spend as much as $10 billion annually in coming years just to combat money laundering. That is just one aspect of the organization (http://www.bloomberg.com/news/2014-09-29/citigroup-sees-10-billion-in-annual-compliance-costs-for-banks.html). Could you imagine the cost estimate for regulatory compliance costs?
The CFPB staff spent much of their time discussing the pending rule associated with adding more reportable fields to the Home Mortgage Disclosure Act (HMDA) Loan Application Register (LAR). Though the CFPB staff was not permitted the legal capacity to “comment” on the pending rule change, they were open to discuss the reasoning behind the new rule. In summary, the CFPB states the expanded number of fields is necessary to ensure compliance with Fair Lending rules and regulations and should be information already collect during the origination of a mortgage loan. They even specifically referenced the Fannie Mae and Freddie Mac underwriting platforms as examples of systems providing the necessary information for banks to report.
Prior to its afternoon meeting with bankers, the agency held a Field Hearing on its intent to regulate the larger auto finance entities in the country. In preparation for the field hearing, the agency released three different documents; CFPBs Proposal for New Federal Oversight of Nonbank Auto Finance Companies, Supervisory Highlights that describes the Bureau’s fair lending supervisory activities in the indirect automobile lending market and finally the CFPBs proxy methodology for race and national origin.
So what point am I trying to make? Well, it appears to me that the CFPB is providing banks and those non-banks it regulates a choice here. You can either work with the CFPB to allow it the ability to collect more data, which I would consider to be FACT or they can come in and do their review utilizing the Proxy process, which I would consider FICTION. Though collecting the FACTs may take a little more time and effort throughout the data collection process, I believe it a more efficient and effective means of providing information than allowing the regulatory agencies using the proxy method to statistically take fictitious data to create FACTs. If we have it then technically, without this new rule, they have a right to the data. By providing the FACTs, we can live with what we have done, whether right or wrong. If we can provide a much data to the regulators in a usable format, such as the proposed HMDA LAR format, then can’t we save some time and effort collecting data for an examination?.