In our interactions with banking executives, it is evident that many of them do not realize what a far-reaching impact the Dodd-Frank Wall Street Reform and Consumer Protection Act will have on their businesses.
But the new law can be an opportunity: banks that address the regulatory changes related to consumer protection, while also establishing new value propositions for their products and services, could gain a competitive advantage.
For example, those that get out in front of consumer protection reform can establish themselves as being consumer-friendly, refine their services to make them more pro-consumer and help shape regulatory expectations for the industry. If regulatory reform is addressed proactively, banks will be able to force banking and nonbanking competitors alike to react and adjust.
One way to prepare for consumer protection changes and broader regulatory reform is to create a project management team and designate a senior leader to assess and identify affected business areas, key staff for implementation and critical timetables, and milestones to help achieve regulatory compliance. Some banks are already taking these steps.
Here are some things you can start focusing on today:
Rulemaking and enforcement preparedness: The new Consumer Financial Protection Bureau is expected to concentrate on clarity and simplicity of consumer disclosures, national mortgage underwriting standards, review of hidden fees, and enforcement of fair-lending rules.
Regulation impact and implementation: You will need to analyze interchange fee rules; incentive compensation rules; potentially lower thresholds that trigger the higher-cost loan definition; the requirements to provide additional and simplified disclosures; and marketing and advertising requirements.
Retail strategy and infrastructure: You will need to reassess your retail strategy and infrastructure to quantify potential revenue losses (for both deposit and lending products) and reassess business and product strategy. You also should consider competitive impacts and identify potential merger and acquisition activity, divestitures, shared-service models and third-party relationships.
Compliance and risk management transformation: Regulatory compliance will need to play a bigger role in changes to existing products or products in development, so that your bank can demonstrate that compliance implications were fully assessed before changes and deployment.
Put more energy into risk management controls — including ongoing assessments across risk disciplines and the reporting of current and emerging risks to the board and senior management.
There will be further rulemaking to clarify the legislation, and you will need to continue to assess these rules' impact.
There's a new consumer protection paradigm, one in which risk management, internal controls, documentation and transparency and consumer rights will be at the forefront. The time to take action is now.
