April 16, 2025

Banking’s Next Act: Regulatory Shifts Ahead

Show Notes
Transcript

As regulatory and political landscapes shift, financial institutions must stay agile and innovative to navigate new challenges and opportunities. In this episode, host Lynn Sautter Beal is joined by David Pommerehn, General Counsel and Head of Regulatory Affairs at CBA, and Billy Rielly, Head of Public Affairs at CBA, to unpack how political shifts, state-level regulations and consumer protection mandates are reshaping the lending landscape. They also dive into the growing influence of AI and the potential for new legal frameworks around crypto and stablecoins.

Join us as we discuss:

The challenges of navigating regulatory uncertainty with a new administration
The growing influence of state-level regulations and consumer protection laws
The impact of late fees and overdraft fees on institutions and consumers
How AI is reshaping compliance and risk management

WEBVTT

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Hi everyone, and welcome to Leaders in Lending. This is

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Lynd Soderbiel. I'm happy to be joining you here today

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from CBA Live, and I have Dave Palmeran and Billy

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Riley joining me today, so thanks thanks for being here, gentlemen.

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I would appreciate it if both of you could just

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kind of introduce yourselves and what you do at CBA.

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Sure. Yeah, Hi everyone. David Palmer, I am a general

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counsel and head of Regulatory Affairs at CBA, so I

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deal a lot with the regulators in DC and of

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course with all the ongoing litigation around some of the

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former CFPB's rule bankings.

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And I'm Billy Riley, head of Public Affairs, so we

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handle messaging for the organization on behalf of our membership,

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work very closely with the regulatory and legislative teams in

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terms of policy communications, and also support broader corporate comms

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and executive comms, including helping to set up this conference

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and some of our other events like our Executive Banking School.

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Well great, thank you again, appreciate you taking the time

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to join us today. So i'd really just ask each

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of you to kind of give a brief overview obviously

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there's a lot of things changing in the market right

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now with the current regulatory and political environment, but just

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kind of a lay of the land, like where do

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you see things stand right now with the current environment

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out there, and how it's really impacting CBA members.

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Sure, yeah, I mean it's a very unique environment and

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it's changing by the minute. So any predictions we could

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give you probably are going to be wrong because they're

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going to change very rapidly right now. I mean, we're

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in this kind of limbo right where the new administram

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administration has come in a lot of executive orders, a

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lot of internal kind of rearranging of some of the agencies,

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and we're not quite sure where it's going to end

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up at this point. So we're working very diligently with

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the administration. We have new we have nominations for new director,

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we have nominations for a new comptroll or that are

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working their way through the Senate now, and so hopefully

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well once we get people in place in a permanent basis,

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there will be some think stability though that we can

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go and start talking to the individual agencies. We need

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the agencies to function, We need to know who we're

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dealing with right and the banks need to have certainty

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within the markets and the rules that they have to

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abide buying compliance issues. So there's a lot of question

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marks right now. There's a lot on people's minds, and

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so we're working through that and hopefully we'll again get

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to a better place in the near future.

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Yeah, I just add on that. I think the uncertainty

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is a big one, but it poses some we think positives,

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but also some potential headwinds. So obviously bankers know that

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the last four years in the prior administration in terms

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of some of the financial regulatory rules that came out,

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pos significant challenges for our members and kept us at

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CBA very busy. Obviously a lot of that is going away,

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or we think it is, and so in the sense

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and the positive sense, that may be a good thing.

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But we also have a political system right now with

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Republicans that may be a little bit more skeptical of

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large institutions, including large banks in particular with the rise

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of populism. So something else to keep an eye on,

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especially as it relates to Capitol Hill. But some of

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the proposals out there that maybe our banks won't be

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a supportive of.

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Sure, and I definitely hear you on the uncertainty. You know,

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we deal with We have over one hundred lenders of

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both banks and credit unions on our platform, and my

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team is actually supporting them through their regulatory exams and

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so that is a that and we deal with all

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of the regulators too, So certainty certainly helps us do

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a better job for our clients and helps our clients

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have a better understanding of what to expect. So, you know,

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with kind of the status of the CFPB right now,

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ongoing legislative debates, and and certainly states getting more active

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in the regulatory space, and potentially even more so if

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if the federal credential regulators kind of back off. You know,

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I think, how do you you know, how are banks

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adapting to these uncertainties and and what kind of advice

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are you giving your members on ways to stay kind

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of proactive and to at least navigate as smoothly as

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they can through this uncertainty.

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Yeah, I mean it's as Billy alluded to. I mean,

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a lot of the rules that they're currently gearing up

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for are you know, in limbo right now that could

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go away either through actions by Congress, actions by the

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agencies themselves or through litigation. Our banks are business as

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usual right now. I mean they're they're still beholden to

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the consumer protection laws and you know, and they're you know,

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complying with all of these things and regardless of whether

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or not the c FPB is and they're supervising them

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for any of these issues. Hopefully we'll get back to

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again a sense of stability on the supervisory side soon.

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The prudential banking regulators are supervisoring, supervising, holding, you know,

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examinations of those things, but a lot of the prep

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for things like ten seventy one small business data collection,

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this this is a huge poll for the industry, and

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they need to understand where that's going and what the

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bureau might do with it, what's going to be the

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outcome of the litigation, and so in large part, I think,

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you know, you have to plan for what we know now,

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and that's where they're going with this right now. But

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things could change on a dime and that cost compliance

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dollars obviously, which is not you know, ideal. But I mean,

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banks need to get back to what we're talking about,

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the certainty around some of the rule making, some of

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the compliance issues that they have right now in order

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to better function and quite honestly better serve the US public.

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Then sure, and I think you know we we certainly

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the clients that we work with are are many of

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them are not CB members. There are more, you know,

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regional community banks, and and the potential costs of uncertainty

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I think is hitting everyone hard, but certainly hitting them

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them hard as well. So I think one thing that

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that does stay in the spotlight, as you mentioned consumer

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protection and and how the you know, the banks are

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doing the things that they need to do to protect

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the consumer regardless of the rules, and the regulators are

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still doing their their regular exams, but late fees, overdraft

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fees certainly remain in the spotlight as well as SERIA

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modernization efforts and UH and lately some some UH I think,

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proposals to to get rid of CDFI as an organization.

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But you know, kind of with all of the different

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things happening, you know, what are some of the areas

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you think that that banks and financial institutions should really

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be paying special attentions to as it relates to some

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of those I think, particularly the consumer focus items like

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late FEZ rate caps, overdraft.

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I mean, these are all important issues. Clearly, this was

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part of the previous administration's junk fee campaign quote unquote

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junk fee campaign. I think it's been painted in a large,

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large part as a populist issue, and actually the cost

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benefit analysis wasn't really completed when it's when they were

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looking about how these rules actually could impact the US consumer.

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You know, what should our banks be looking for. I mean,

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as you know, with late fees and with overdraft fees,

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there's litigation in both those fronts. The overdraft fee rule

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is subject to a Congressional Review Act resolution currently in

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front of Congress, so you know how they are navigating again,

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it's you know, hope we have answers soon. I hope

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that we get back to a place where we have

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a durable, credible agency within the cfp B that's going

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to do cost benefit analysis rule making where there is

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a market failure. Right now, we're really just kind of

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combating all these rules that were more political in nature

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than really addressing a market failure. Some of our member institutions,

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for instance, an overdraft, they're the leaders and putting together

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mitigating ways for consumers to actually avoid overdraft fees. With

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buffer amounts, twenty four hour grace periods, things of that nature.

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Where was the market failure that you know, precipitated this

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this need for this kind of outlandish rule and so

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you know, that's what we're dealing with now. I am

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very hopeful that over the next year or so, we

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can see a lot of this litigation go away, get

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back to really appropriate rule making that's done within the

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confines of authority and not for political reasons.

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And just to add to that, so obviously David mentioned

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the Lafey and overdraft fees driven largely by the prior administration,

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and you also mentioned ratecaps, And we recently saw a

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proposal introduced in the House as a companion to a

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previous legislative proposal in the Senate, both of which had

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bipartisan support, seeking to limit bank in credit card issuer's

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ability to charge interest rates above ten percent, which is

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concerning for a lot of different reasons. And so that's

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something we're keeping our eye on because of the bipartisan

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nature of it, and one of the many ways that

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we're trying to push back on that here at CBA,

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whether in the media or through some of our blogs

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and op eds, is trying to show through data and

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research the impact that that would have on consumers and

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especially consumers at the margin and their access to credit,

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because a lot of times these legislative proposals make for

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good political headlines, but they have real world implications on

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the people we're working to serve.

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Yeah. Absolutely, and I think you both called it out

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that you know, doing a true data driven cost benefit analysis,

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what really will happen if you impact if you make

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changes like that, And the answer is that a lot

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of lenders simply won't be able to lend to, especially

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UH consumers. That I think when when we originally started

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our company, we're looking to expand access to credit and

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maybe identify what we saw as those hidden primes or

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near primes that the banks weren't reaching. And those folks

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are are easy to get kind of put out on

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the edges of the banking industry. Again, So what do

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you you know as you as you think about maybe

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the federal regulators being weakened a little bit, or being

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defunded or having less staff. Potentially, do you see a

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potential for individual states to create more kind of a

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patchwork of regulation that it makes it even harder for

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the Bank.

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It's a great point. Yeah, and we need a strong

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federal regulator to set you know, the kind of the

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path here. It's it's difficult for our member institutions to

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kind of piecemeal regulation and enforcement through different state actions.

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We're seeing a little bit of that now. I would

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imagine that you'll see more ramp up with the AGS,

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especially in blue states where if we don't have you know,

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proper supervision from the Bureau or from from the Prudentials. Again,

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we're really hopeful that the Bureau will start that process

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again and that we'll get back to a good place.

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There's also the private right of action for a lot

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of the enumerated statutes within Dodd Frank. So we are

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somewhat concerned that you could see an uptaken you know,

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lawsuits from the plane offs bar. But you know, that

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wouldn't be anything new. The planet bar is going to

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take advantage when it can take advantage of something. But

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I do think that we'll we'll probably get more action

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from the states as we move, you know, into the

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near future. But again, I don't think that was anything

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particularly new. We saw that ramp up even with the

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Biden administration. Yeah, so I think that we'll see a

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little bit more of it down.

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Yeah, and that's definitely something you know, we certainly track

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a lot with like the legislation in Colorado and different

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and did MACA opt outs as are of challenging to

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manage when you're a company that works across the across

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the country. So you know, as you think though about

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protecting consumers insurance competition, do you see any tension between

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kind of those two things, like how are your banks

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on bank members staying competitive and with each other when

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there's certainly a lot of I think in a regulator

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d certainty and they also have to think about consumer protection.

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I can start with them, and I mean we always

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talk about how the banking industry in America is among

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the most highly regulated, most competitive in the world. Right,

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and so that really does benefit consumers in the sense

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that because of the regulatory apparatus, they can have confidence

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that they are being protected, that their money is safe

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and secure. But also with that many banks and credit

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unions and also with the rise of fintech and tech

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companies that are increasingly offering financial services, consumers have amazing

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ability to choose financial products and tools that meet their

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unique needs, right and so I feel pretty confident, Dave.

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I think you would agree as well that this system

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really does provide so much flexibility and choice and access,

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and I think nowhere has that been more evident over

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the last decade than in overdraft. And you've seen so

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many of our members innovate on that product, offering financial

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flexibility and next day grace periods because you know, banks

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really want to meet consumers where they're at number one,

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but number two. The market is getting more competitive with

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other FinTechs and such that are offering are offering low

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or no cost overdraft services, and so that competition, I

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think is benefiting consumers, and consumers can have that comp

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finance when they meet their needs within the well regulated

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banking system, that they're also being protected.

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Yeah, I agree with all that, and I would add

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though that, you know, with the fintech industry or banking

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as a service as a model now becoming more and

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more popular, it's it's vital that our our member institutions,

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large regionals or national banks have the ability to innovate,

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aren't confined by the rules that are being written solely

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for them, right without having an equal playing you know,

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or a level playing field, for those those fintech companies

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and for you know innovators in that space. I mean,

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we're all for the innovation on either side, but we

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have to we have to be able to have the

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flexibility to do that as well. And I'll i add

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too though, this is another reason the CPP is very

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important because they have a supervisory theory over the non

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banks and that is going to be vitally important going

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into the next few years where we're having I think

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a larger up uptick in you know, banking as a

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service and FinTechs entering that space and partnerships.

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Sure, there's a there's a great story from the early

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days of Upstart, where you know, I was founded by

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ex Google executives primarily and people who had not worked

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in banking, and in their exuberants to be part of

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the industry and to be you know, friendly to regulators

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and to get in front of them, showed up at

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the OCC Office of Information in San Francisco and said, hey,

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we want to tell you about what we're doing, very excited,

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which was maybe the first time that that had happened

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at an OCC office. And so we do work very

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closely with the regulators, like we why we don't get examined,

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our clients do, uh, And so we spend a lot

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of time with the OCC and helping them understand and

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and the FDAC and helping them understand how we use

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AI and how we think about AI and how we

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work with our bank partners. You know, I think is

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that a space that you're particularly seeing probably more uncertainty

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and maybe less of an even playing field where the

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banks may be getting challenged harder on use of AI

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versus FinTechs and banking as as service providers can can

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move a little bit faster.

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Well, it definite can move faster. I mean there's a

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lot about it. Banks have to be very measured in

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their approach to any new technology, especially AI. I mean,

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it's it's highly scrutinized, right, I mean, it's a little scary,

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I mean to be honest with you, right, you know,

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and we do good regulation and sound law around the

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use of AI, or it could go it could run amok, right,

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And so but you have the FinTechs that are able

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to move a little faster, and that's not bad for

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the banking industry as a whole, you know, as long

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as we can partner and work with these these organizations.

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There's also third party risk management issues that you know

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are abundantly you know, our banks are abundantly you know,

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supervised and examined for and we encourage that innovation and

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we but we have to be able to implement and

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you know, partner or build that to be able to

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do that ourselves as well. In order to make sure

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that we're able to do that, we need to be

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very very measured in our approach to regulation. That only

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affects you know, the banking industry and depository industries federally

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ensured you know, FDIC positive industries, but the fintech industry

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plays a very important role in getting us to the

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next level. And so we not saying that they shouldn't

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be able to do that. We just need to have

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far absolutely.

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Yeah, and I think fair lending particularly is an area

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that comes up frequently that in a traditional underwriting model

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is logistic regression whatever your you know, even table driven models,

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or it is easier to explain or at least it's

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already documented with the regulators. How do you examine a

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bank that is using a model like this? How do

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you examine a bank that is partnering with the fintech

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that uses AI and their underwriting much less clear and

318
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kind of gets back to your certainty, like the rules

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of the road aren't as clear. I think there's certainly

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a challenge with individual examiners not necessarily having the know

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how to do it, and I think there's an education

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challenge there that we're trying to This is a.

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Challenge in the current environment now too. I mean, you're

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seeing a lot of the regulators leave the agencies. A

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lot of the folks that were embedded within some of

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these financial institutions knew them how to historical context of

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the of the institution, and now we're seeing fewer and fewer,

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you know, team staff at the regulatory agencies. The examiner,

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00:18:25.279 --> 00:18:27.519
the examiners are half of what they used to be.

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They have to be brought up to speed, and so

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it's important to have a really well educated, very informed

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regulatory exam staff in order to make sure that banks

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and FinTechs can get to these places and that they're

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not being halted on something that's misunderstood just because the

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regulator might not understand the process or the institution that's implementing.

336
00:18:49.759 --> 00:18:52.240
Absolutely, So, how do you know, as you think about

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your member banks, how do you advise kind of the

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business teams, the lending teams, the heads of innovation, the

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different different functional areas to work closely with their kind

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00:19:01.119 --> 00:19:04.200
of legal and public affairs team to navigate what's happening

341
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right now in the market.

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We provide no advice to anyone. No, I mean, I

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mean quite clearly, I mean we're not. We're you know,

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we try to shape the policy that best suits our

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industry right and so, and we work very closely with

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the policy folks within our member institutions, the legal teams.

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You know, as a lawyer, I can say the lawyers

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probably you know, hold up most of these things for

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very when they shouldn't be. But you know that's what

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lawyers do, and that's what we pay them to be careful.

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But we you know, obviously it takes it takes a village,

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you know, to kind of push you know, an organization forward.

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And I think that you know, working closely with the

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policy especially the folks in d C and now more

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importantly you know, the state you know, policy folks and

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the legal teams is vital to the survival of some

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of these institutions and.

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Just to add to that, I think over the last

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four years, as difficult as some of the rules and

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regulartions coming out of the prior administration were for the industry,

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for especially the largest institutions, when the business lines really

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got a sense of the financial impact that one specific

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00:20:12.319 --> 00:20:16.319
regulation among many would have on their ability to provide

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that product and innovate on that product at the level

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that their consumers expect, I think really heightened the pressure

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that corporate executives across the industry put on DC. And

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so you saw that Obviously government affairs and traditional lobbying

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was always a priority, but that really expanded to the

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public affairs ecosystem, and so you saw really historic levels

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of investment with digital advertising, grassroots coalitions, grasstops, which really

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means more paid stakeholder engagement. So identifying those small business

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owners or some of those think tanks that can speak

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on behalf of the industry. That really all revved up

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over the last four year years, and I think there's

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a perception that in many cases it was at least

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somewhat successful. And so I think that kind of atmosphere

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of the intersection between the business priorities outside of Washington,

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and the teams on the ground in terms of public

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affairs and government relations will continue regardless of who's in

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the White House.

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Great. Yeah, And I think we've certainly seen it on

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the fintech side of the world too. The American Fintech Council,

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which we're a founding member of we used to be

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00:21:25.680 --> 00:21:29.480
the Marketplace Lenders Association, were actively engaged there. I know

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We've got a lot of some similar organizations that are

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00:21:34.519 --> 00:21:38.720
doing similar work and partnering up on various initiatives. So

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I think it's it's definitely been a very very active

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few years and doesn't look like things are slowing down

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at all. So kind of last last thoughts are last

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question for the both of you. You know, any kind

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of bold or bold predictions, emerging issues, things that might

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surprise us for the year ahead, that that banks should

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be really preparing for, could both political and regulatory standpoint, like,

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is there you know, with the uncertainty, what could they

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prepare for to be ready for twenty twenty five?

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Banking’s Next Act: Regulatory Shifts Ahead

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