No sooner had President elect Trump’s win been announced that speculation began about the implications for bank regulations. “Trump Administration may upend banking industry,” proclaimed a headline in USA Today, while Yahoo News ran a story titled, “Regulation Slowdown Expected under Trump Administration,” Not to be outdone, Bloomberg News ran a story about “Trump’s ‘Epic’ Deregulation.”
Certainly, the advent of Donald Trump’s second administration holds the promise of a significant relaxation of bank regulations and perhaps a rollback of the 2023 CRA Rule and modification of the Section 1071 regulations. A Trump Administration also is likely to step back from the ultra-aggressive enforcement of fair-lending regulations, in particular the enforcement of redlining regulations as practiced under the “Combatting Redlining Initiative” announced by the Department of Justice during October 2021.
The banking industry’s opposition to the 2023 CRA rule approved by the FRB, FDIC and OCC and the Section 1071 regulations passed by the CFPB is no secret. Currently, the banking industry is suing to stop the 2023 CRA rule that dramatically changed the Community Reinvestment Act regulations. At the same time, the industry is litigating the Section 1071 regulations claiming the data collection mandate goes way beyond the intent of Congress.
I can’t predict the outcome of the various cases currently being litigated and I don’t foresee legislation that would necessitate a change to existing regulations. However, change to any regulations initiated by the regulators themselves is always a possibility and a much shorter process whose outcome is certain since the final decision is in the hands of the regulators themselves. All that is needed is a change in who heads the agencies.
But, while changing regulations may be easier (and more likely) than passing new laws or litigating the new rules, the drawback is those very same regulations would be subject to change by the Administration succeeding the Trump Administration. Indeed, the Biden Administration may have set a precedent for speed when it comes to eradicating newly changed regulations. In 2021, within 8 months of the new Biden Administration taking office, the OCC proposed rescinding the 2020 CRA rule approved by the Agency only the year before. And, in fact, before the end of 2021 the OCC 2020 CRA rule was rescinded.
Regulators changing regulations every time an Administration changes makes regulations extremely volatile. And a volatile regulatory climate is an unpredictable regulatory climate making regulatory compliance a very uncertain matter. So, changing regulators and changing regulations make consistent regulatory compliance difficult if not impossible. A short term victory may be a long term loss.
Enforcement is another area ripe for potential change. One of the most radical regulatory changes during the Biden Administration has been the extremely aggressive enforcement of anti-redlining regulations. Using a novel discrimination theory initiated under the Obama Administration (relying on statistical analysis rather than cases of overt discrimination), regulators, in collaboration with the Department of Justice, participated in the DOJ “Combatting Redlining Initiative.” The Attorney General in an October 2021 press release announcing the Combatting Redlining Initiative proclaimed, “We know well that redlining is not a problem from a bygone era but a practice that remains pervasive in the lending industry today.” As a result, within a year of the commencing the enforcement of the new “Initiative” Assistant Attorney General Kristen Clarke announced a record number of referrals for alleged redlining had been received by the DOJ. Within months, a record-breaking number of “anti-redlining settlements” were proclaimed by the DOJ.
Regarding changes in compliance regulations, there is the new Section 1071 Rule that finally was approved by the Consumer Financial Protection Bureau more than 10 years after the passage of Dodd Frank. The regulatory burden imposed by the Bureau’s prescribed data collection which requires more than 10 times the data specified in the statute has prompted a lawsuit contesting that the Bureau exceeded the statutory authority delegated to it by Dodd Frank.
Finally, on the political front, Congressman French Hill, who sits on the House Financial Services Committee where he holds the title of vice chair, is seeking the position of chair to replace the current chair, retiring Congressman Patrick McHenry. Congressman Hill has announced a plan to “Makle Community Banking Great Again”. Hill is a founder and former chair and CEO of a community bank. Whether he wins the role of Committee Chair or not, he is certain to have substantial influence on the Committee and certainly will be sympathetic to the interests of community banks.
The foregoing regulatory history sets the stage for a potential tumultuous regulatory landscape during 2025. Will new regulators rescind the new 2023 CRA rule and seek to modify the new Section 1071 rule? How will the ongoing litigation affect the new regulations? If new regulators propose rescission of the new rules will that affect the legal proceedings? The answers to these important questions await developments during 2025 which is shaping up to be a year of potentially monumental changes in bank regulations.
