The purpose of this series of articles will be to highlight regulatory information that is important to banks and credit unions, and the importance of having a robust artificial intelligence platform that identifies applicable regulations to keep an organization up to date and in compliance with regulators. After working for the FDIC Office of Inspector General investigating violations committed against banks throughout the United States, I am able to continue strengthening my partnership with financial institutions in their endeavor to stay in compliance with regulators through Regology. Regology makes staying in compliance with regulators easy through an artificial intelligence platform that actively tracks and monitors regulatory updates.
Regulatory agencies may have shown some leniency towards financial institutions in 2020 and probably 2021 due to the impact COVID-19 had on businesses, but in the coming years there may be more oversight as federal regulators increase their partnership with state regulators and most important key figures are appointed.
Director Rohit Chopra
Let us begin with the confirmation of Rohit Chopra (Chopra) in September 2021 as the new director of the Consumer Financial Protection Bureau (CFPB) and the fair lending practices under the Equal Credit Opportunity Act (12 CFR Part 1002). Chopra started his new role in October 2021. Chopra was formerly CFPB’s assistant director between 2010 and 2015 and served as a commissioner of the Federal Trade Commission (FTC) from 2018 through October 2021. As a commissioner with the FTC, Chopra was an advocate of more aggressive enforcement actions, especially against repeat offenders. During Chopra’s nomination hearing with the Senate Banking Committee in March 2021, he answered questions on fair lending practices, financial technology and big data, credit bureaus, consumer reporting laws, student loans, and the housing market. We can speculate that in the years to come Chopra will focus on those regulations as the director of the CFPB.
12 CFR Part 1002 (Regulation B), in summary, prohibits discrimination in any aspect of a credit transaction, including the extension of credit. It basically promotes the availability of credit to all creditworthy applicants without regard to race, color, religion, national origin, sex, marital status, or age. The regulation requires creditors to notify the applicant or applicants of the action taken, report credit history, retain records, and to collect information about the applicant or applicants’ race, among other things. Failure to comply may result in fines and penalties, to include the negative impact on the organization’s reputation.
During CFPB’s examinations in the first half of 2021, it found legal violations in the area of fair lending, among other areas, by mortgage lenders. According to the examination, “…examiners found lenders lacked oversight and control over mortgage loan officers…Examiners identified lenders with statistically significant disparities…CFPB examiners also found that lenders improperly considered small business applicants’ religion in their credit decision.” For example, in October 2021, a bank in Mississippi was ordered to invest $3.85 million in a loan subsidy program to offer qualified applicants’ credit, and take other remedial steps to improve its fair lending compliance. The order also required the bank to pay a civil money penalty in the amount of $5 million.
In today’s digital world, regulatory compliance is continuously more complex. Financial institutions are struggling to keep pace with new regulations. Given the fines associated with non-compliance, it is imperative for an organization to have a solid regulatory and compliance platform to assist them along the way. Poor data quality can be seen as inadequate controls which may carry a fine by the regulators. Artificial intelligence is increasingly becoming pertinent in regulatory compliance because it addresses common operations challenges and systematic issues that organizations face every day. Financial regulators require compliance officers to track, manage and analyze detailed data, the volume increases the chances for confusion and human error. These are some of the reasons why having a company with a proven track record to assist with regulatory compliance is invaluable.