The transition from one administration to another always brings about change. How exactly will the transition to the new administration be? Since none of us has a crystal ball, we can only postulate what changes we may expect.
Banks and Credit Unions: It all hinges on the CFPB and its leadership
During the Trump administration, many believed the CFPB’s aim of serving consumers in a strong way was weakened. It would be anticipated that Biden will likely nominate a new CFPB director. In January, Kathy Kraninger stepped down as director of the CFPB at the request of President Biden. Dave Uejio is the current acting director while Biden’s nominee, Rohit Chopra, undergoes the nominee process.
With this new leadership, we can expect to see a return to a more hard-hitting approach. Perhaps we will see the CFPB be the consumer watchdog as was originally missioned to do. There is one thing to keep in mind: The Supreme Court’s Seila Law decision where the President has the power to dismiss the CFPB Director. It would make sense then that the CFPB would align closely to the current administration’s agenda. So, once confirmed, we may see a more brawny, powerful, and robust CFPB under Chopra.
So, what does this mean for the regulatory environment while under a new administration?
Take time to study Chopra and his work as the FTC Commissioner and how closely he worked with Senator Elizabeth Warren in getting the CFPB started.
Keep an eye if you’re a student loan servicer as we can anticipate increased transparency regarding student loan processes and a return to creating additional resources for borrowers. New regulations coming? Perhaps for more monitoring and oversight. Perhaps, based on Chopra’s previous experience, we may see an increase in enforcement actions against for-profit colleges.
We will likely see a more intense focus around fair lending. In the past, Chopra has advocated the use of disparate impact analysis to identify and remedy lending practices that are discriminatory. Anticipate increased data collection and agency action here. Discrimination prosecution may become easier as it’s possible the new administration will enact regulations to increase consumer protection. The new administration may enact regulations to increase consumer protection, allowing prosecution against discriminatory practices easier.
During his time at the FTC, Chopra embraced credit reporting protections and supported the role of the CFPB supervising credit reporting agencies. It would be unlikely that this area would escape his focus.
Regarding payday lending, we may see the return of the Small-Dollar Rule. While this rule is in litigation to be rescinded, it’s possible that this rescission may be challenged.
And CRA! The current administration may introduce changes that would include how fintech might be used to strengthen the CRA. Fintechs may give financial institutions the opportunity to expand access to more consumers by offering more financial services. Additionally, expanded oversight outside of financial institutions may come and could include non-bank lenders and insurance companies.
The key is to watch who is appointed and understand the experience this person brings, and the positions taken in the past.
Mortgage Lenders: A new administration with a different focus?
Two keywords we can all understand from 2020: Forbearance and refinance. No need to detail these words as we all have lived through 2020.
However, the key to the new administration is extensions on the moratoriums and interest rates.
FHFA forbearance plans originally set to expire December 31, 2020 have now been extended to June 30, 2021. With the new administration pushing the dates twice, will more extensions continue? Will COVID take a turn for the worse this year or dissipate? These extensions can’t produce long-term sustainability. Is another potential crisis looming for the mortgage industry? Unfortunately, there are more questions than answers at this time.
It’s anticipated that the economy will begin to recover from the pandemic this year. How will this recovery impact interest rates? How the new administration responds to the economy has an indirect influence on interest rates. Should we be concerned with inflation? We recently witnessed the passing of another stimulus bill, a $1.9 trillion stimulus package. We need to watch for inflation.
Should the new administration continue on the stimulus track, the refinance boom drops, and forbearance ends at some point, the recipe is one of a probable crisis where mortgage lenders need to be prepared.
The re-privatization of the GSEs is another area to watch. While the previous administration sought to increase capital reserves, the new administration has not yet addressed this area.
A new administration always brings about change. While it is too early to determine what changes the Biden administration plans to enact, as leaders in the financial industry, we all need to stay informed as developments occur.