Reimagining regulations

Banks and credit unions in Virginia are celebrating some early victories as President Donald Trump’s new administration has begun rolling back regulations and reconsidering the future of finance.

“Under the new administration, there is a relook at a number of these policies that were objected to by the industry,” explains Atlantic Union Bankshares CEO John Asbury, who also chairs the American Bankers Association, the Washington, D.C.-based trade group. Thus far, he says, the new administration’s focus has mostly been reversing “this tsunami of regulation which has been swamping the industry.”

While such changes are welcomed, there are reasons to be optimistic about a more “pragmatic” approach to regulation to come, adds Asbury.

Industry experts had a better sense of what to expect in Trump’s second administration, though there was also “a very clear signal” things would be different this time around, says Samantha Beeler, president of the League of Credit Unions & Affiliates, the regional trade association representing nearly 400 credit unions in Alabama, Florida, Georgia and Virginia.

The league’s first meeting with the new administration came in February, and Beeler says it offered positive indications for the future. “We were excited to hear that they know that the financial environment is changing rapidly and that the government can’t just catch up with that, that they have to help us pioneer it safely for consumers.”

Overdrafts overruled

One early change came in March, when Trump nominated Michelle Bowman as vice chair for supervision at the Federal Reserve following a stint as a central bank governor. As a former community banker, Bowman understands why tailoring is so important — that regulations should be attuned to the complexity and the size of banks, Asbury says.

During her first speech after starting her new role in June, Bowman outlined the principles that will guide her approach to supervision and the bank regulatory framework, saying she intends to “pursue sensible and pragmatic reforms.”

It was heartening for people in the industry to hear Bowman echo their concerns about tailoring banking regulations in lieu of a one-size-fits-all approach, says Matthew Bruning, executive vice president of government and member relations for the Virginia Bankers Association in Glen Allen. “That is a positive because we’re seeing some industry messaging line up with what’s happening on the agency side.”

Tailored regulation is likewise an important theme in the community banking world because these institutions have a fundamentally different model than too-big-to-fail banks, credit unions, or fintech players, notes Corey Connors, president and CEO of the Virginia Association of Community Banks. “We need regulation that understands who we are — not just how big we are.”

The administration got a faster start out of the gates because it had a “clearer plan” for action than during Trump’s first term, Bruning notes. And that plan has already facilitated some wins for the industry.

The White House and congressional Republicans have deployed a previously little-used tool to overturn rules issued by federal agencies — and particularly any pushed through toward the end of President Biden’s term. In May, Trump signed a Congressional Review Act resolution that nullified a rule that had not yet taken effect that would have limited overdraft fees to $5  for financial institutions with more than $10 million in assets.

The banking industry had opposed this rule from the Consumer Financial Protection Bureau, Asbury says, arguing that it would cost banks more for overdrafts than it would be permitted to charge
and was an example of regulatory overreach.

Changes at CFPB

While the topic of much news and legal wrangling, the CFPB still exists, and its future policy agenda will look much different than in the recent past.

A realignment at the agency is good, says Beeler, because it might not have been most effectively championing consumer protections. “We’re pretty optimistic about changes that are being made at the CFPB, as that agency had grown outside of its original intentions.”

In May, the CFPB indicated in a court filing that it planned to rescind Section 1033 of the Dodd-Frank Act, which would have mandated that banks make personal financial data available to consumers.

While this rule had an assets threshold of $850 million, thereby exempting most members of the Virginia Association of Community Banks, Connors says, the costs would have been considerable for smaller banks, while there were also concerns about consumer privacy, liability and third-party information breaches.

In June, the CFPB also announced that it pushed back compliance deadlines and will revisit its Section 1071 rule of the Dodd-Frank Act. This rule would have required financial institutions to compile, maintain, and submit a whole host of different data about credit applications by small businesses.

The rule delays and reconsiderations are positive developments for community banks as this would have created undue burdens, along with privacy concerns, Connors says. What’s more, the information banks would have been required to collect was “really intrusive” for small business owners and could have put banks in a “terrible position,” adds Asbury.

Crypto considerations

Beyond regulatory reform, there are positive developments brewing elsewhere that have implications for banks and credit unions. Take, for example, cryptocurrencies. Both chambers of Congress have worked on legislation this year that’s focused on establishing federal regulations for U.S. dollar-pegged stablecoins.

It’s encouraging that Congress is considering the future of currency, particularly as we’re headed toward an almost completely digital economy, Beeler says. “It’s smart of the government to be thinking about these digital currencies,” she says. “We as credit unions want to help custody those funds to help consumers keep them safe but also look at the future of transactions.”

The banking industry is also keeping tabs on these developments. While supportive of the innovation around cryptocurrencies and ensuring there’s a role for cryptocurrencies in the economy, both Bruning and Asbury note that regulatory oversight is necessary.

“What we don’t want to see is for this to essentially become some sort of loosely regulated alternative to bank accounts,” Asbury says. “If we were to see a big movement toward that, then what’s going to happen is that there’ll be less capital available to finance people in business, which will be bad for the American economy.”

But for an industry that favors consistency, the changes thus far in Trump’s second term, while mostly expected, still amounted to “a bit of whiplash,” Bruning says, adding that a flurry of activity at the tail end of the Biden administration was also a factor.

Looking ahead, the industry’s goal is to promote more stability with future regulations.

“We are not antiregulation; we are pro-balanced regulation,” Bruning says. And Connors adds that “good, smart, targeted reforms” are necessary to help community banks do what they do best — serve their communities: “We’re really interested in working with our partners at the federal level on smart reform — not reform for reform’s sake.”

While so much has already been accomplished, advocates have some other items on their wish lists.

Asbury, for his part, wants the government to look at what he terms “super” credit unions. The banking industry, he says, believes these types of credit unions are going “way beyond” what they were legally commissioned to do and operate almost like regional banks — but without the same regulatory oversight or tax requirements.

“We have no issue with small, traditional credit unions that are doing what they’re supposed to be doing: meeting the needs of people of modest means,” he says. But “act like a bank? Be regulated like a bank, be taxed like a bank, so that you have a level playing field.”

Meanwhile, Beeler says, the credit union industry is also open to further change, including the opportunity to modernize its federal charter. It’s important, she adds, for credit unions to be adaptable in an industry that’s rapidly evolving.

“The administration has pretty clearly signaled that they do want to evolve, rein in and change the regulatory landscape in D.C.,” Beeler says. Such changes shouldn’t be perceived as a “doomsday” for credit unions if they eventually happens, she says, because for issues like cybersecurity, credit unions need to be just as safe as the biggest banks. “There are some shared resources that we all shouldn’t balk at.”