April 19, 2023
The Regulatory Outlook at CBA Live
With new regulations on the horizon — what do these changes mean for your institution? https://www.linkedin.com/in/dan-smith-31abaa10/, EVP, Head of Regulatory Affairs at the https://www.consumerbankers.com/, has the answers in this rundown from the...
With new regulations on the horizon — what do these changes mean for your institution?
Dan Smith, EVP, Head of Regulatory Affairs at the Consumer Bankers Association, has the answers in this rundown from the CBA LIVE conference.
The banking world runs on rulebooks, and with unprecedented events such as the failure of Silicon Valley Bank, additional chapters are in rapid development to get ahead of the Congressional Review Act in April/May of 2023.
Join us as we discuss:
- Section 1071 and its implications for small-business lending
- Section 1033 of the Dodd-Frank Act for consumer access to financial records
- The proposal for lowering credit card late fees
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You're listening to leaders and lending from
Upstart, a podcast dedicated to helping consumer
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lenders grow their programs and improve their
product offerings. Each week, here decision
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makers in the finance industry offer insights
into the future of the lending industry,
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best practices around digital transformation, and
more. Let's get into the show.
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Welcome to the podcast. I'm joined
today by Dan Smith the Consumer Bankers Association.
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Dan, thanks for making the time
and joining us today. Thanks for
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having me. Yeah, we're here
at the CBA Live conference. Thank you
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for osen us. This has been
fabulous. Tell me a little bit about
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the conference, the goals, how
it's going so far this year. It's
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been fantastic. Gets our second one
s COVID. We're north of sixteen hundred
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attendees, over seven hundred bankers.
It's such a great opportunity to sit down
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and talk and meet with people,
allow them to network and learn from each
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other. We have some great sponsors
and vendors. Your every day you see
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the conversations going on where people are
learning from each other, sharing information.
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It's such a great opportunity to freew
people together and talk about banking, talking
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about financial services, the industry,
what are the challenges they face. So
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we're really excited it's going. Well, I'm getting a little tired already,
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but you know, about a couple
more days. But it's got a lot
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of images. Yeah, it's felt
as I've talked to bankers who are here
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and others in the industry exceptionally timely
this year given the disruptions in the market
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both I mean, got interest rate
issues, You've got the collapse of Silicon
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Valley Bank. It's like everybody's trying
to figure out is there contagion? Is
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there not? What do I do? What's the is there a recession on
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the Jurado I logged on my balance
sheet? What am I doing about to
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pot? I mean, it's like
a moment when people really need the community
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and to talk through some of the
pretty substantial issues facing facing the space.
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Yeah, we've had to pivot a
little bit of change our agenda on the
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fly a couple of times to make
sure we address those things as best week
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can and to provide the opportunity for
conversation around these really important issues for thank
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you and our customers. Yeah,
I don't even think it's the agenda.
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So much is just people sitting in
the room, whether it's in the committee
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meetings or in the hallways between going
hey, wait, what are you guys
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seeing? I was having a fascinating
discussion with some of the folks from the
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small business can be talking about the
risks of fraud with the number of inflows
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and outflows of deposits as people try
and find what they think of as to
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save haven and they go last like
a moment when but now I'm worried about
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FLAUD because I've got so much more
activity in the space than it can be
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easier to get for fraud and activity
to get lost or for people to find
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it's time to take advantage. So
it's I think it's a fascinating time to
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have those conversations happening. Yeah,
when we started that first weekend, we're
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trying to figure out how does CBA
a value to its members and it's it's
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collaboration, it's convening. And the
thing we were hearing was brought and it
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wasn't actually happening. It was a
risk of it, right, and so
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we're trying to make sure that we
hear what's going on, work with our
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regulators, try to stay on the
forefront of rising issues, potential problems.
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Yeah, yeah, that's great.
So I want to talk a little about
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legislative priorities and what you mean you
kind of work with legislative affairs the US
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government. There's a lot of questions
around the future of regulation after SPB,
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but I feel like that's maybe an
overdone topic in a little too recent to
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really know where the t leaves are
going to settle on that. Lots of
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people suggesting things are going to happen, but I'm not sure that we know
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what to expect yet. Well,
it's early. There's a lot of conversations
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in Washington around remedies. What was
the cause? Right, the root cause
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of a problem? Yep? Is
it isolated? We're gonna have a lot
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of pugressional hearings. Yeah, I
think regulators are going to do some horizontal
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reviews particular segments of the market,
some self evaluation regulatory agencies, Yeah,
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trying to figure out is this an
issue that is systemic which we don't believe
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at all, is the as how
do we look at this this was unique?
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And how do we look at our
risk management as institute? She's but
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also regulators to account for these type
of things and the run on the bank
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how fast? Yeah, twenty five
percent there deposits in one day. I
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mean that's a that's a liquidity event
that almost no bank is really expecting her
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trying to prepare. And that's not
in the range of like things that might
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happen, that's not really on my
risk management less things to be prepared for.
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And she's a very difficult situation.
Banks have you know, a game
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plan a book like if this happens, open up the book. Well,
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we have created a new book now, or at least at a new chapter.
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That's right. When somebody tweets what
do we do? So the whole
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New world interested, But there is
I mean maybe the agency that has the
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most going on in terms of rulemaking
and to the regulators already changes is the
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CFPB. So talk a little about
what the priorities you see coming out of
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the cfpbum from real hid show bro, Like, what do you expect to
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see and I know their specific legislation. We should dive into our rulemaking things
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that are going on. So just
gimerally, what do you see as the
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priority is to starting to people dive
into some specifics. So what I like
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to tell people is think about the
clock and the calendar, and we have
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an election in the follows coming up. It's coming up now that the director
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it can be fired at will.
It sort of changes how that director looks
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at their time there, and so
that the clock starts ticking and they start
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working their way backwards to when what's
known as the Congressional Review Acts. There's
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a period of time then in Congress
as his ability to review final rules,
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and it's roughly sixty legislative days after
publishing in the Federal Register. Okay,
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so everybody's guessing what is that date, So it's roughly April and May of
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twenty four that a rule has to
be fine by that point to clear the
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urdle of the Congressional Review Apps.
So when Donald Trunk came in, they
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repealed the use of Congressional Review Act
to repeal several rules, right, and
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so they want to make sure that
whatever they're working on now is final by
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let's say March or April, so
they avoid the Congressional review. A clock
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is ticking, clock is ticking.
So you got three rules that are in
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in a final stage or in close
enough to make this shot. Get the
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shot up where the clock runs out
that's right, and it's a race to
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that clock. Right, So we
have ten seventy one small business data collection.
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It's going to drop in the next
couple of days. It has to
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because of the court case in California, and they set a date. Court
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did by March thirty first, so
we'll have ten seventy one final. The
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Bureau is clearly indicated ten thirty three
the consumer access to final records that we
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will see a proposal in the fall, with a final rule likely in January
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February, giving him enough time before
the deadline perceived it. And then the
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credit card late b proposal that the
NPRM noticed. The proposal will make is
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out that a comment period on that
will end roughly end of April. We
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are anticipating probably a final rule in
the fall. The director has been pretty
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clear in its timing up things,
which I'll give me credit. That's not
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a typical thing of the agency.
You don't know when a rule is going
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to be final or where their attent
is. Yep, he's been pretty clear
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about that. He talks about being
transparent. We may not agree with some
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of the things he decides, what
he's pretty transparent on what he's thinking on
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what he's thinking in the time he
plants execute things. Well, gotta appreciate
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that. Yeah, I guess.
I guess if I have to appreciate that,
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I'll take that one. Yeah.
That's it's saying. You know,
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well, let's dive into these let's
talk about ten seventy one. What do
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you what do you expect the outcome
of that to be, and what do
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you think the impact for the industry
is going to be. It's gonna be
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an interesting shift, enormous. It's
an enormous undertaking that every institution, not
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just banks, are going to go
for it, and they do any small
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business to game changer. We're expecting
the rule, as I said, to
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come out very soon, where we
anticipate not too many changes from the post.
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I think it's gonna be pretty much
the same. We have some serious
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concerns, but I think the biggest
challenge will be the implementation timeline. So
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in the proposal they were going to
give eighteen months. That will be nearly
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impossible, and we've been telling the
Bureau of that. You think about small
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business lending, it's not like mortgage, where a bank will have a mortgage
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operation viewing it and all of the
mortgages are run through that small business happens
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across the entire bank in different places. Yeah, So they first have to
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align and communicate their operating systems,
and then they have to standardize the definitions
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of the data they're going to collect. So it's a data collection like HOMDA
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for borkages, and so they have
to standardize how it's all defined. They
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have to change all their systems.
They got to collect all that data,
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and then the heart part starts because
then they start evaluating the data for what
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it means in terms of fair lending
or in fair banking. That brings in
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a whole nother discussion, but that's
post operational challenges. So I think that
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that's the big thing. You're going
to rely upon your core processors. You're
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going to have to make an enormous
amount of changes to your systems. And
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by the way, there's probably going
to be a CRA updates to the Reinvestment
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Act at the same time, which
is an enormous undertaking. Another type another
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large technology and data undertaking in itself, the small business data collection is enormous,
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and we are working really hard to
help the bureau understand those challenges.
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How do you think eighteen months is
just not enough time for a lot of
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these institutions. What do you think
the right timeline it like, how long
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will literally take banks to be ready, minimum twenty four months, but even
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then you're going to have pieces that
aren't going to work great. You're going
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to have data collection errors and problems
until you What we hope the Bureau does
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is if they're going to stick with
the twenty four or the eighteen months,
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that they stagger implementation. Right.
They've done this in the past where they
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said, Okay, the big guys
you need to be ready in eighteen months,
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and then the middle guys you got
thirty six and the little guys you
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got forty eight months to be or
they can stagger the type of data or
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the disclosure of a data. So
we're optimistic can hopefully they will consider this
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and we will continue to educate them
on the challenges. They know. It's
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hard. Yep, there's that clock
ticky. Yeah. Yeah. The other
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thing that I'm always curious about is
what comes next in terms of to so
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many. One is kind of about
the collection and the reporting of this data,
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but then there's the like, now, are we happy with what it
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says, if not, what do
we do? What are the standards that
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apply to what we expect? What
is the fair lending standard? Once we
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have this data, how do we
know if we're in a good place or
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a bad place? Even sense of
what's going to happen on that front.
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That feels like the real changes we
theoretically want to make come from knowing the
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data, not from just collecting it. It's like that kind of starts the
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real process of because there are changes
to the industry we need to make.
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It will shine a light on small
business lending that we've never seen before,
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and so that's probably the upsiders we'll
be able to see that data will all
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be able to see. It's publicly
disclosed. Yep, we can see where
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there's gaps that brings in regulatory risk
their lending risk, for sure. But
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at least we know what it is, where are there gaps and how and
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we facilitate better lending in communities that
need it the most. Are there clear
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standards on what the fair lending expectations
will be, like how we're going to
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measure what's good what's bad on the
space hide I mean, they're always actually
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to me on the consumer side.
But I would say you have to look
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at the hum to rule. You
just figure humed is the same thing small
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bits. It ras election for mortgages. This is data collection for small business
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offices. So that's how you should
look at it. Now, it may
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not be apples to apples, but
it's a really good comparison for an institution.
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All right, ten to seventy one, that's going to be interesting times.
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Next one you meant ten thirty three, I gotta like, I don't
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have all the numbers the back.
I got a certain numbers in the back
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of my head and I don't have
them all. But this data aggregation concept.
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Talk to me about what this rule
is. First for the audience members
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that may not be as familiar,
and then where it's at sure, so
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section ten thirty three of the Dodd
Frank GAC that's that's where the number comes
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from. It's a page wall,
it's a readable, there's a readable.
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Five is now writing a rule that
will probably be north of a thousand pages
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based on the one page is going
to be a lot of fun, But
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only a filmal regulator to do that. It basically says the consumers ship should
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have access to their financial records.
That makes sense, that's it. The
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rules will be much different than now
because there are new entities in the market,
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data aggregators such as BLAD for example. Yeah, who can gather the
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information from the bank, from the
credit card company, from the holder of
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that information, take it and provide
it to third parties. And then there's
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the third party and that could be
anybody that has the consumer's permission, So
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it's all consumer permission down missions information. It will change the way the market
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operates because it's in the concept of
open banking. It's not true open banking
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as in Europe, but it has
a lot of characteristics. What are the
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differences for me? I mean,
I'm very familiar, not very plied,
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but the concept of open banking in
Europe where I really have to provide the
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data in a machine readable format for
interoperability, that's a really interesting idea.
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What's the difference between what's being proposed
in ten thirty three and so the people
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what's in your out so you don't
know and she got it doesn't spell it
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out like they do in Europe.
Right, it's as I said, access
199
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to financial records and what the bureau
does, how they expand that is going
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to be very interesting. Uh,
you know they're they're talking about establishment of
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epis rather than screen scraping. Yeah, so it's going to change the market
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in many aspects. We're concerned that
the uh data that's being moved around needs
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to be very secure for sure.
The players in that ecosystem need to have
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the same standards of security and oversight, which they don't have. Uh.
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Uh. Data they're sending is very
sensitive. Um. And if it's going
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to be a true open banking world, it really shouldn't incorporate financially institutions data
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of all kinds. Right now,
the outline only covers bank transaction information and
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credit card information. So if you
get your auto loan from a captive auto
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lender, let's say VW Right whoever, they are not going to have to
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comply with this. Interesting, So
you're gonna have segments of the market that
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don't aren't held accountable as the banks
and credit card companies quicken loans. There
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are non banks, this will not
apply to them. A lot of mortgage
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has gone through and so the non
bank lendingsumer is going to assume that they're
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getting all that their information. They're
not, So it's a complex, really
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market shifting um rule, and there's
a lot of challenges to it and risks
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associated with it as well. I
imagine too there's the question of like how
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good is the compliance and security on
the receiving side. Mean, just because
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the consumer says I want you to
share my with this party does not mean
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the consumers done full diligence. Because
I've been screaming about that for a while.
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How do we know that X fintech
company has the systems in place to
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secure that data? We don't.
And there's no federal agency with oversight that
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can go in and look. The
CFBB can't go knock on the door and
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say, show me how you're complying
with this rule. They can do an
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enforcement investigation, but they can't examine
active basis. So we're we've been pushing
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the bureau to look at that.
We think it's a system that they need
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to think about that. Plus liability
also the shift in if there's a breach,
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So if the bank's holding all this
sense of infigation and somebody acts the
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bank, there's a liability there.
If that same data goes to a data
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aggregator or to a third party,
and there's a breach. Where's the consumer
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going to turn? Are they going
to go to the data aggregator or we
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go to the bank exactly. Yeah, so we don't think that's the right
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approach to either. If you have
the data all the day, help we
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should be responsible. We would halt
accountable for Yeah, it just seems interesting
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to me because it's reminds me of
you know, when that I want to
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go back to the clops BESTVB.
But there was a threat of conversation that
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was following this. So, well, depositors deserve what they got because it
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was their job to look into the
proper asset management of their bank, Like
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like the depositors were looking at the
quarterly filings to figure out what kind of
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assets the banks have bought they were
the safety and soundness oversight was going to
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come from depositors looking at them.
So that's kind of ridiculous. And here
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you kind of going, well,
the consumer will look in. They won't
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ask the bank to transfer their data
to an unsafe party. It's the consumers
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responsibility. Will maybe the consumers it's
not owning that responsibility the same way we
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might think is critical and the context
of this kind of information, the same
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way the bank would be held accountable
to a regulator to do. I think
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that's if we think the consumer is
going to be the oversight line of defense
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for their data not ending up in
unsafe places. That's probably a bit like
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asking your depositors to make sure that
your bank is making sound risk management dicisiences.
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It's really not the right oversight mechanism
in place. Yes, where who?
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We hope that the Bureau will factor
that into their rule. I guess
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we'll find out over the next few
months. Your other area was the overdraft
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credit card late fees overdraft fees section
of role machias. Talk a little bit
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about what's going on in that space. Sure, So the Bureau has proposed
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a rule to lower the safe harbor
on credit card lea. So the Febble
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Reserve about a decade ago said,
if you're going to charge safe harb a
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late Yep, We're going to establish
a safe harbor that says, if you
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charge x amount, no matter what
you do, there is no risk of
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being sued on that. We've we've
created the safe harb. The Bureau has
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decided to take a fresh look at
it and decided at the moment proposed to
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lower the safe harbor from currently a
thirty one dollars down to eight dollars.
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Wow, so dramatic reduction and big
reduction. It will have a significant impact
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on the market credit card market,
for sure. We believe it will have
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ramifications for some consumers. Certain segments
of the market will be impacted more than
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others. They Bureau does not really
address the deterrent factor of a late,
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so you run the risk of consumers
failing to pay their monthly payment, which
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more commonly because they why should I
have two bills do and one's got a
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penalty and the other doesn't. I'm
gonna pay the late, But as you
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wait for thirty plus days, you're
delinquent and you're gonna get recorded to your
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credit bureau, so your credit score
is going to go down. But I'm
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not sure every consumer understands that.
I'm sure they don't. At least some
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number of them do, right,
So we believe that, you know,
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this should be a very thoughtful process, data driven analysis, or we're not
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sure the Bureau has done a very
effective job at analyzing the data and accurately
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calculating the collection costs involved. And
so we will be encouraging the bureau to
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take a closer look at how they're
analyzing the impact on consumers. There's also,
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in my mind always this question of
kind of second order impacts, like
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what happens to the approval rates,
who gets access to credit cards or the
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lines of credit that are issued when
when these things change, it's not just
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like well, it's kind of like
I want to get too politically here,
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but I guess I'm talking about leegedly, but like you see rank control,
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Like there's the impact that the people
who are paying rent, and there's the
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impact on building housing, the amount
of stock that becomes available because of the
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prices that can be charged. In
an analogy, and that's tough. The
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balloon, when you squeeze it all
one side, it's got it's gotta go
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out there other So what will happen? There's a lot of possible things.
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There could be increase in the interest
rate over charge to sure right, there
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would be a clow scene of dormant
accounts. So if you havn't used your
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account and shut that, shut it
down, shut it down. You could
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decide and likely opping is you won't
decide who you're going to actually extend credit
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to the reduced number of people you're
doing credit and how much right, and
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if you think that group is a
riskier and may not either bills may not
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extended them credit. Yeah. So
it's a fascinating time in the credit cards
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Mose. Yeah. Yeah, it
feels to be like so much government policy
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ends up not understanding the second order
effects and optimizing for a first order of
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fact and occasionally not calculating the second
order the law of unattended consequences or whatever
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it may be. I think regulators
really shouldn't do is um combine regulatory policy
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and politics. It gets messy.
We've seated in the penest that when you
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do that can really mess things up. Yeah, so that is one of
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the biggest risks with regulatory interventions that
day they look at it from a political
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as rather than a safety and sound
and sewer protection at large. Yeah.
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So if you're talking to members bankers
who are then saying, hey, there's
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a lot of stuff up in the
end, there's a lot I'm moving parts.
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What should they be doing to prepare
to think about how do I,
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you know, get ready for what
may be coming down the pipe and the
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changes that are that are you know, possible coming both technologically business wise.
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What do we what do we do
to adapt? I start out with,
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you have a rule that's going to
be final. You're going to have to
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put significant resources on the ten seventy
one small houses did. But then I
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also be quickly to overdraft. It
is a major issue or the current administration
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or the current director. We believe
that it was in the Unified Agenda that
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they're adding overdraft. It is a
significant and auduct of almost every bank in
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the country, for sure, and
you have to look at the risk of
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that either being highly regulated or going
away in some form regulation. And how
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do you how do you manage that
risk, not just for that product,
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but you are you know your revenue
side, and every institution is different.
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And you can see that many CPA
members have pivoted on their overdraft programs in
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the last year or so, pivoted. How how do you see em pivoting?
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What's the So A lot of them
have changed their under overdraft practices.
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Some have lowered the overdraft fee,
some have put a diminimus so if you
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overdraft by fifty dollars or less,
they won't charge, and there's no fee
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to have Some of them have a
twenty four hour ruling off period that if
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you overdraft, but you cure it
within twenty four hours, there's no Some
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have eliminated it all together, many
of eliminating the non sufficient funds charge.
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But that is many CBA members,
but that's not the entire banking ecosystems.
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Many banks that happen to changes.
We will see what the Bureau decides terms
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a rule a rule and how restrictive
or what kind of approach they have.
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You seen motion among the members to
find a more traditional lending alternative. A
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lot of times it's overdraft these it's
like a small dollar loan in disguise slip
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and we're really excited about it.
When I was at the CFBB, we
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00:24:47.319 --> 00:24:51.359
a lot of work urged backs with
it. Two of small dollar products.
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Yeah, it's really challenging. It's
very hard to operationalize that with losing your
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00:24:56.839 --> 00:25:03.359
shirt and to at least make back
your Yeah. And so we've seen at
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least five major banks in the last
six to eight months introduce small dollar loans
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and so far, so good.
They see it as a product to help
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00:25:18.920 --> 00:25:25.160
their customers so that they're not leaving
the banking system rather than looking at it
336
00:25:25.200 --> 00:25:29.160
as a revenue center as much.
Yep. It's it's okay to use this
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00:25:29.319 --> 00:25:33.160
product to help your customers stay in
the bank rather than go outside. So
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00:25:33.680 --> 00:25:40.000
we're continuing to have conversations with regulators
to encourage them to encourage our banks to
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00:25:40.039 --> 00:25:42.240
do it. You think it's needed. There is a clear need for short
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00:25:42.319 --> 00:25:45.599
term liquidity, yep. And if
you're going to regulate overdraft, it's like
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00:25:45.640 --> 00:25:48.200
the balloon they're gonna have to go. So we need the money, they
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00:25:48.319 --> 00:25:51.599
need the money, they're gonna have
to get it. So where they're gonna
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00:25:51.599 --> 00:25:56.240
go payday loan is worse, eighty
days worse. We would prefer that they
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stay in the banking system. Yeah, yeah, but it is to your
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00:25:59.079 --> 00:26:03.400
point. Are to operationalize a small
dollar loan at a cost that is recouvable
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00:26:03.720 --> 00:26:07.079
on that duration in dollar amount.
I mean, it's just even at any
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reasonable industrate, there's not a lot
of money in that. And so the
348
00:26:10.400 --> 00:26:15.720
handard across his hard board of a
bank to support a program going into it
349
00:26:15.880 --> 00:26:18.599
knowing it's tend to lose money.
We're not in the business of losing money.
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00:26:18.839 --> 00:26:22.240
No businesses are. Let's spend x
amount of money knowing that when we
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00:26:22.279 --> 00:26:26.559
actually roll the product out, it's
coles after the vestment. Hitles just lose
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00:26:26.559 --> 00:26:32.240
money for it's not a good look. So I'm very investment the banks that
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have done it, Yep, they
understand the need. They're evaluating what the
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00:26:37.240 --> 00:26:44.240
true potential boss is versus maybe they'll
make a profit in the long run.
355
00:26:44.599 --> 00:26:47.200
They look at it a little differently. It's sort of like overdraft. They're
356
00:26:47.200 --> 00:26:52.559
looking at it from a different lens. Retain our customers and what's the value
357
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of that versus just your revenue on
this product, on overdraft and on small
358
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dollar to changing how banks are looking
at it, there's more competition, so
359
00:27:03.000 --> 00:27:07.759
you sort of look at how do
we maximize our ability to keep our bustomers
360
00:27:08.359 --> 00:27:14.759
and help them become the better buster. Yeah yeah. Let me ask you
361
00:27:15.039 --> 00:27:18.279
one last thing, which is what
do you think separates institutions end up with
362
00:27:18.519 --> 00:27:22.559
good relationships with their regulators from those
that strong I mean, I've seen it's
363
00:27:22.559 --> 00:27:25.480
really funny. Is it worked with
a lot of banks. I'm sure you
364
00:27:25.559 --> 00:27:30.079
seen this. I had two banks
who gave a totally polar opposite answers about
365
00:27:30.079 --> 00:27:32.680
how they wanted to work with their
regulators, and I thought that they had
366
00:27:32.680 --> 00:27:36.319
the same ic, not just the
same just the same regulator with the same
367
00:27:36.400 --> 00:27:38.200
guy walking on the doors. I
don't know if you knew this. When
368
00:27:38.200 --> 00:27:41.920
I worked at FEAR, I managed
the relationship we industry in bureau, I
369
00:27:42.000 --> 00:27:45.240
did not know that. So so
I dealt with all of the banks,
370
00:27:45.440 --> 00:27:51.480
all of the financial institutions and help
them navigate how do you interact with your
371
00:27:51.480 --> 00:27:56.839
regulator the bureau Later and the positive
part of Valley speaking a positive impact and
372
00:27:56.920 --> 00:28:02.000
the value of having include having a
yeah. And there were a couple of
373
00:28:02.720 --> 00:28:06.359
banks, for instance, that were
rock stars at it, and I wouldn't
374
00:28:06.359 --> 00:28:08.680
tell them, like, you guys
have the huge advantage of your better because
375
00:28:10.279 --> 00:28:15.160
strong relationships, you've become a trusted
entity. When you speak, the Bureau
376
00:28:15.200 --> 00:28:18.359
listens to you, right. And
then there's those that just sort of dodge
377
00:28:18.359 --> 00:28:21.440
it because they're afraid of They may
say something where if I go talk to
378
00:28:21.480 --> 00:28:26.079
this person, it may refers to
dig the enforcement side, which never happened
379
00:28:26.160 --> 00:28:30.559
when I was there six years.
I never saw like somebody talk to the
380
00:28:30.640 --> 00:28:36.359
markets teams, they get up call
the enforcement here that the Bureau when your
381
00:28:36.519 --> 00:28:41.400
career step like that's your job and
if you ruin that relationship. You're done,
382
00:28:41.599 --> 00:28:44.960
like nobody's gonna talk to you.
So and plus people don't come in
383
00:28:44.960 --> 00:28:51.160
and disclose things that are illegal.
That's not not These are conversations about markets,
384
00:28:51.599 --> 00:28:56.599
what they're seeing, What can we
as a bank do better. I
385
00:28:56.720 --> 00:29:02.839
saw a lot of banks who prove
of the years and their relationships. They
386
00:29:02.920 --> 00:29:10.279
should feel comforted talking to their regulators. It's important so that they understand how
387
00:29:10.319 --> 00:29:15.279
you operate because every institution is a
little bit different and they don't understand all
388
00:29:15.319 --> 00:29:18.240
those dynamics. So the more you
share with them, the different pressures you're
389
00:29:18.279 --> 00:29:25.400
feeling, the different dynamics within your
market, it's it's critical that they understand
390
00:29:25.480 --> 00:29:30.039
them. Interesting so early often communication
on broad topics. Yeah, it's it's
391
00:29:30.039 --> 00:29:33.279
just been fascinating to watch how those
you kind of as an outside somebody,
392
00:29:33.400 --> 00:29:37.240
came from a different issue. It
should just be like a consistent approach,
393
00:29:37.279 --> 00:29:40.160
and it feels like it's a very
different sid relationships. It's fascinating to see
394
00:29:40.160 --> 00:29:42.119
how some navigate that to their advantage
of others, to their detriment. When
395
00:29:42.240 --> 00:29:45.079
I was at the Bureau, I
was starting thirteen in this role. I
396
00:29:45.119 --> 00:29:49.680
started the office and I could not
get one of the top four banks to
397
00:29:49.759 --> 00:29:55.440
engage with us for nine months at
all at all. That's crazy. I
398
00:29:55.440 --> 00:30:00.880
don't know if it was just they
were just not well connected and couldn't figure
399
00:30:00.920 --> 00:30:06.359
it out. But the second we
actually were able to sit down, got
400
00:30:06.359 --> 00:30:10.759
them in front of the director,
had a great conversation. They instantly saw
401
00:30:10.839 --> 00:30:14.119
the value and quickly turned one the
best. They would come in on a
402
00:30:14.200 --> 00:30:18.200
quarterly basis. They bring in different
people in the institution, from the CEO
403
00:30:18.440 --> 00:30:23.079
to the head of consumer lending.
We had banks come in and get the
404
00:30:23.319 --> 00:30:26.720
fraud people would come come in and
scare the heck out of us, but
405
00:30:26.799 --> 00:30:30.839
it really showed how smart they are. Yeah. Yeah, there's some of
406
00:30:30.839 --> 00:30:34.240
the large banks and they bring in
the cybersecurity people and they scare the heck
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00:30:34.240 --> 00:30:37.519
out of the bureau. But it
actually shows like this is what we're doing
408
00:30:37.519 --> 00:30:41.559
to protect our It reminds me of
this. There's a saying it silk in
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00:30:41.640 --> 00:30:45.119
value when they whenever you come upon
a seeminglarly stupid decision or you ask how
410
00:30:45.119 --> 00:30:48.960
did this decision get made? It's
usually a thoughtful person making a thoughtful trade
411
00:30:48.960 --> 00:30:52.720
off that you haven't yet contemplated,
which is like usually these things that seem
412
00:30:53.119 --> 00:30:56.119
not to make sense to you.
Are there because of some other trade off,
413
00:30:56.160 --> 00:31:00.480
some other considerations you you couldn't even
think about yet this I'm smart,
414
00:31:00.519 --> 00:31:03.640
thoughtful, well meeting person made.
And the more you can make people aware
415
00:31:03.680 --> 00:31:06.680
of what those trade offs are,
what we're seeing, why maybe we've got
416
00:31:06.720 --> 00:31:08.440
these extra rules in place to open
a well, we're seeing a huge ticketup
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00:31:08.440 --> 00:31:11.640
in fraud. Show you some examples
of what fraud looks like. Oh my
418
00:31:11.720 --> 00:31:14.920
god, that's terrifying. Yeah,
and that's why we're Be's why we're doing
419
00:31:14.920 --> 00:31:17.759
these things. I think the better
off you are to help people understand where
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00:31:17.759 --> 00:31:19.799
you're coming from. Excellent, Dan, I really appreciate you for making the
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00:31:19.799 --> 00:31:22.720
time to come by and talk to
us. This was fascinating. I learn
422
00:31:22.759 --> 00:31:25.480
a whole bunch of new numbers I'm
gonna have to try and memorize in my
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00:31:25.519 --> 00:31:29.440
head. But thanks for taking the
time. Thanks for having me. Upstart
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00:31:29.480 --> 00:31:33.200
partners with banks and credit unions to
help grow their consumer loan portfolios and deliver
425
00:31:33.279 --> 00:31:40.000
a modern all digital lending experiments.
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426
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427
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traditional credit models. With fraud rates
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manual processing for banks and offers a
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you're looking to grow and enhance your
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that can help you find more credit
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credit decisioning process, and growing your
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dash banks. That's upstart dot com
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Thanks for listening. Until next time.
1
00:00:02.879 --> 00:00:07.799
You're listening to leaders and lending from
Upstart, a podcast dedicated to helping consumer
2
00:00:07.879 --> 00:00:13.519
lenders grow their programs and improve their
product offerings. Each week, here decision
3
00:00:13.519 --> 00:00:17.600
makers in the finance industry offer insights
into the future of the lending industry,
4
00:00:18.039 --> 00:00:22.839
best practices around digital transformation, and
more. Let's get into the show.
5
00:00:23.440 --> 00:00:27.960
Welcome to the podcast. I'm joined
today by Dan Smith the Consumer Bankers Association.
6
00:00:28.039 --> 00:00:30.120
Dan, thanks for making the time
and joining us today. Thanks for
7
00:00:30.160 --> 00:00:33.759
having me. Yeah, we're here
at the CBA Live conference. Thank you
8
00:00:33.799 --> 00:00:36.320
for osen us. This has been
fabulous. Tell me a little bit about
9
00:00:36.359 --> 00:00:39.399
the conference, the goals, how
it's going so far this year. It's
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00:00:39.439 --> 00:00:45.399
been fantastic. Gets our second one
s COVID. We're north of sixteen hundred
11
00:00:45.359 --> 00:00:52.079
attendees, over seven hundred bankers.
It's such a great opportunity to sit down
12
00:00:52.640 --> 00:00:56.960
and talk and meet with people,
allow them to network and learn from each
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00:00:56.960 --> 00:01:00.880
other. We have some great sponsors
and vendors. Your every day you see
14
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the conversations going on where people are
learning from each other, sharing information.
15
00:01:06.439 --> 00:01:11.560
It's such a great opportunity to freew
people together and talk about banking, talking
16
00:01:11.599 --> 00:01:15.760
about financial services, the industry,
what are the challenges they face. So
17
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we're really excited it's going. Well, I'm getting a little tired already,
18
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but you know, about a couple
more days. But it's got a lot
19
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of images. Yeah, it's felt
as I've talked to bankers who are here
20
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and others in the industry exceptionally timely
this year given the disruptions in the market
21
00:01:34.079 --> 00:01:38.560
both I mean, got interest rate
issues, You've got the collapse of Silicon
22
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Valley Bank. It's like everybody's trying
to figure out is there contagion? Is
23
00:01:41.959 --> 00:01:44.599
there not? What do I do? What's the is there a recession on
24
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the Jurado I logged on my balance
sheet? What am I doing about to
25
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pot? I mean, it's like
a moment when people really need the community
26
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and to talk through some of the
pretty substantial issues facing facing the space.
27
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Yeah, we've had to pivot a
little bit of change our agenda on the
28
00:01:56.840 --> 00:02:00.680
fly a couple of times to make
sure we address those things as best week
29
00:02:00.680 --> 00:02:05.840
can and to provide the opportunity for
conversation around these really important issues for thank
30
00:02:05.879 --> 00:02:08.000
you and our customers. Yeah,
I don't even think it's the agenda.
31
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So much is just people sitting in
the room, whether it's in the committee
32
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meetings or in the hallways between going
hey, wait, what are you guys
33
00:02:13.800 --> 00:02:15.879
seeing? I was having a fascinating
discussion with some of the folks from the
34
00:02:15.879 --> 00:02:20.599
small business can be talking about the
risks of fraud with the number of inflows
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and outflows of deposits as people try
and find what they think of as to
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00:02:23.439 --> 00:02:27.120
save haven and they go last like
a moment when but now I'm worried about
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FLAUD because I've got so much more
activity in the space than it can be
38
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easier to get for fraud and activity
to get lost or for people to find
39
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it's time to take advantage. So
it's I think it's a fascinating time to
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have those conversations happening. Yeah,
when we started that first weekend, we're
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trying to figure out how does CBA
a value to its members and it's it's
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collaboration, it's convening. And the
thing we were hearing was brought and it
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wasn't actually happening. It was a
risk of it, right, and so
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we're trying to make sure that we
hear what's going on, work with our
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regulators, try to stay on the
forefront of rising issues, potential problems.
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Yeah, yeah, that's great.
So I want to talk a little about
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legislative priorities and what you mean you
kind of work with legislative affairs the US
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government. There's a lot of questions
around the future of regulation after SPB,
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but I feel like that's maybe an
overdone topic in a little too recent to
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really know where the t leaves are
going to settle on that. Lots of
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people suggesting things are going to happen, but I'm not sure that we know
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what to expect yet. Well,
it's early. There's a lot of conversations
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in Washington around remedies. What was
the cause? Right, the root cause
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of a problem? Yep? Is
it isolated? We're gonna have a lot
55
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of pugressional hearings. Yeah, I
think regulators are going to do some horizontal
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reviews particular segments of the market,
some self evaluation regulatory agencies, Yeah,
57
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trying to figure out is this an
issue that is systemic which we don't believe
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at all, is the as how
do we look at this this was unique?
59
00:04:04.639 --> 00:04:10.599
And how do we look at our
risk management as institute? She's but
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also regulators to account for these type
of things and the run on the bank
61
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how fast? Yeah, twenty five
percent there deposits in one day. I
62
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mean that's a that's a liquidity event
that almost no bank is really expecting her
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trying to prepare. And that's not
in the range of like things that might
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happen, that's not really on my
risk management less things to be prepared for.
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And she's a very difficult situation.
Banks have you know, a game
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plan a book like if this happens, open up the book. Well,
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we have created a new book now, or at least at a new chapter.
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That's right. When somebody tweets what
do we do? So the whole
69
00:04:45.360 --> 00:04:49.079
New world interested, But there is
I mean maybe the agency that has the
70
00:04:49.079 --> 00:04:53.680
most going on in terms of rulemaking
and to the regulators already changes is the
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00:04:53.720 --> 00:04:57.240
CFPB. So talk a little about
what the priorities you see coming out of
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00:04:57.560 --> 00:05:00.240
the cfpbum from real hid show bro, Like, what do you expect to
73
00:05:00.240 --> 00:05:03.920
see and I know their specific legislation. We should dive into our rulemaking things
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00:05:03.920 --> 00:05:05.879
that are going on. So just
gimerally, what do you see as the
75
00:05:05.879 --> 00:05:09.519
priority is to starting to people dive
into some specifics. So what I like
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00:05:09.639 --> 00:05:15.399
to tell people is think about the
clock and the calendar, and we have
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an election in the follows coming up. It's coming up now that the director
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00:05:21.560 --> 00:05:27.680
it can be fired at will.
It sort of changes how that director looks
79
00:05:27.720 --> 00:05:32.000
at their time there, and so
that the clock starts ticking and they start
80
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working their way backwards to when what's
known as the Congressional Review Acts. There's
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00:05:38.079 --> 00:05:42.639
a period of time then in Congress
as his ability to review final rules,
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and it's roughly sixty legislative days after
publishing in the Federal Register. Okay,
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00:05:48.959 --> 00:05:54.240
so everybody's guessing what is that date, So it's roughly April and May of
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00:05:54.360 --> 00:05:59.480
twenty four that a rule has to
be fine by that point to clear the
85
00:05:59.639 --> 00:06:03.680
urdle of the Congressional Review Apps.
So when Donald Trunk came in, they
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00:06:03.959 --> 00:06:10.079
repealed the use of Congressional Review Act
to repeal several rules, right, and
87
00:06:10.160 --> 00:06:14.839
so they want to make sure that
whatever they're working on now is final by
88
00:06:15.040 --> 00:06:18.439
let's say March or April, so
they avoid the Congressional review. A clock
89
00:06:18.560 --> 00:06:24.600
is ticking, clock is ticking.
So you got three rules that are in
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in a final stage or in close
enough to make this shot. Get the
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shot up where the clock runs out
that's right, and it's a race to
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that clock. Right, So we
have ten seventy one small business data collection.
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It's going to drop in the next
couple of days. It has to
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because of the court case in California, and they set a date. Court
95
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did by March thirty first, so
we'll have ten seventy one final. The
96
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Bureau is clearly indicated ten thirty three
the consumer access to final records that we
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00:06:59.360 --> 00:07:04.000
will see a proposal in the fall, with a final rule likely in January
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00:07:04.160 --> 00:07:10.879
February, giving him enough time before
the deadline perceived it. And then the
99
00:07:10.920 --> 00:07:15.160
credit card late b proposal that the
NPRM noticed. The proposal will make is
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00:07:15.199 --> 00:07:24.079
out that a comment period on that
will end roughly end of April. We
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00:07:24.199 --> 00:07:29.959
are anticipating probably a final rule in
the fall. The director has been pretty
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00:07:30.000 --> 00:07:33.040
clear in its timing up things,
which I'll give me credit. That's not
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00:07:33.120 --> 00:07:36.879
a typical thing of the agency.
You don't know when a rule is going
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00:07:36.920 --> 00:07:41.160
to be final or where their attent
is. Yep, he's been pretty clear
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about that. He talks about being
transparent. We may not agree with some
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00:07:45.000 --> 00:07:47.000
of the things he decides, what
he's pretty transparent on what he's thinking on
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00:07:47.079 --> 00:07:51.279
what he's thinking in the time he
plants execute things. Well, gotta appreciate
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00:07:51.319 --> 00:07:57.279
that. Yeah, I guess.
I guess if I have to appreciate that,
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00:07:57.439 --> 00:07:59.759
I'll take that one. Yeah.
That's it's saying. You know,
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00:08:00.399 --> 00:08:01.879
well, let's dive into these let's
talk about ten seventy one. What do
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00:08:01.920 --> 00:08:05.160
you what do you expect the outcome
of that to be, and what do
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00:08:05.160 --> 00:08:07.240
you think the impact for the industry
is going to be. It's gonna be
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00:08:07.279 --> 00:08:11.240
an interesting shift, enormous. It's
an enormous undertaking that every institution, not
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00:08:11.360 --> 00:08:13.959
just banks, are going to go
for it, and they do any small
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00:08:15.000 --> 00:08:18.839
business to game changer. We're expecting
the rule, as I said, to
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00:08:18.839 --> 00:08:24.920
come out very soon, where we
anticipate not too many changes from the post.
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00:08:26.360 --> 00:08:31.679
I think it's gonna be pretty much
the same. We have some serious
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00:08:31.720 --> 00:08:37.960
concerns, but I think the biggest
challenge will be the implementation timeline. So
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00:08:37.039 --> 00:08:41.879
in the proposal they were going to
give eighteen months. That will be nearly
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00:08:41.960 --> 00:08:46.840
impossible, and we've been telling the
Bureau of that. You think about small
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business lending, it's not like mortgage, where a bank will have a mortgage
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operation viewing it and all of the
mortgages are run through that small business happens
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across the entire bank in different places. Yeah, So they first have to
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align and communicate their operating systems,
and then they have to standardize the definitions
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of the data they're going to collect. So it's a data collection like HOMDA
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00:09:09.600 --> 00:09:15.720
for borkages, and so they have
to standardize how it's all defined. They
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00:09:15.720 --> 00:09:18.840
have to change all their systems.
They got to collect all that data,
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00:09:18.919 --> 00:09:22.200
and then the heart part starts because
then they start evaluating the data for what
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00:09:22.240 --> 00:09:26.799
it means in terms of fair lending
or in fair banking. That brings in
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00:09:26.840 --> 00:09:31.840
a whole nother discussion, but that's
post operational challenges. So I think that
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00:09:31.840 --> 00:09:35.559
that's the big thing. You're going
to rely upon your core processors. You're
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00:09:35.559 --> 00:09:39.240
going to have to make an enormous
amount of changes to your systems. And
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00:09:39.320 --> 00:09:46.000
by the way, there's probably going
to be a CRA updates to the Reinvestment
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00:09:46.039 --> 00:09:50.159
Act at the same time, which
is an enormous undertaking. Another type another
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00:09:50.240 --> 00:09:56.200
large technology and data undertaking in itself, the small business data collection is enormous,
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00:09:56.279 --> 00:10:01.320
and we are working really hard to
help the bureau understand those challenges.
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00:10:01.919 --> 00:10:03.600
How do you think eighteen months is
just not enough time for a lot of
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00:10:03.600 --> 00:10:07.000
these institutions. What do you think
the right timeline it like, how long
139
00:10:07.039 --> 00:10:11.440
will literally take banks to be ready, minimum twenty four months, but even
140
00:10:11.559 --> 00:10:15.600
then you're going to have pieces that
aren't going to work great. You're going
141
00:10:15.639 --> 00:10:22.519
to have data collection errors and problems
until you What we hope the Bureau does
142
00:10:22.600 --> 00:10:26.879
is if they're going to stick with
the twenty four or the eighteen months,
143
00:10:26.879 --> 00:10:31.240
that they stagger implementation. Right.
They've done this in the past where they
144
00:10:31.240 --> 00:10:33.360
said, Okay, the big guys
you need to be ready in eighteen months,
145
00:10:33.639 --> 00:10:37.600
and then the middle guys you got
thirty six and the little guys you
146
00:10:37.679 --> 00:10:41.200
got forty eight months to be or
they can stagger the type of data or
147
00:10:41.240 --> 00:10:48.240
the disclosure of a data. So
we're optimistic can hopefully they will consider this
148
00:10:48.279 --> 00:10:52.879
and we will continue to educate them
on the challenges. They know. It's
149
00:10:52.919 --> 00:10:56.240
hard. Yep, there's that clock
ticky. Yeah. Yeah. The other
150
00:10:56.279 --> 00:11:01.919
thing that I'm always curious about is
what comes next in terms of to so
151
00:11:01.000 --> 00:11:05.519
many. One is kind of about
the collection and the reporting of this data,
152
00:11:05.600 --> 00:11:07.039
but then there's the like, now, are we happy with what it
153
00:11:07.080 --> 00:11:09.840
says, if not, what do
we do? What are the standards that
154
00:11:09.879 --> 00:11:13.279
apply to what we expect? What
is the fair lending standard? Once we
155
00:11:13.320 --> 00:11:16.360
have this data, how do we
know if we're in a good place or
156
00:11:16.360 --> 00:11:18.000
a bad place? Even sense of
what's going to happen on that front.
157
00:11:18.080 --> 00:11:22.799
That feels like the real changes we
theoretically want to make come from knowing the
158
00:11:22.840 --> 00:11:26.360
data, not from just collecting it. It's like that kind of starts the
159
00:11:26.799 --> 00:11:28.360
real process of because there are changes
to the industry we need to make.
160
00:11:30.000 --> 00:11:33.080
It will shine a light on small
business lending that we've never seen before,
161
00:11:33.720 --> 00:11:37.720
and so that's probably the upsiders we'll
be able to see that data will all
162
00:11:37.759 --> 00:11:39.799
be able to see. It's publicly
disclosed. Yep, we can see where
163
00:11:39.840 --> 00:11:45.799
there's gaps that brings in regulatory risk
their lending risk, for sure. But
164
00:11:45.840 --> 00:11:48.279
at least we know what it is, where are there gaps and how and
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we facilitate better lending in communities that
need it the most. Are there clear
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standards on what the fair lending expectations
will be, like how we're going to
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measure what's good what's bad on the
space hide I mean, they're always actually
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to me on the consumer side.
But I would say you have to look
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at the hum to rule. You
just figure humed is the same thing small
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bits. It ras election for mortgages. This is data collection for small business
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offices. So that's how you should
look at it. Now, it may
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not be apples to apples, but
it's a really good comparison for an institution.
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All right, ten to seventy one, that's going to be interesting times.
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Next one you meant ten thirty three, I gotta like, I don't
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have all the numbers the back.
I got a certain numbers in the back
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of my head and I don't have
them all. But this data aggregation concept.
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Talk to me about what this rule
is. First for the audience members
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that may not be as familiar,
and then where it's at sure, so
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section ten thirty three of the Dodd
Frank GAC that's that's where the number comes
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from. It's a page wall,
it's a readable, there's a readable.
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Five is now writing a rule that
will probably be north of a thousand pages
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based on the one page is going
to be a lot of fun, But
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only a filmal regulator to do that. It basically says the consumers ship should
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have access to their financial records.
That makes sense, that's it. The
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rules will be much different than now
because there are new entities in the market,
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data aggregators such as BLAD for example. Yeah, who can gather the
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information from the bank, from the
credit card company, from the holder of
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that information, take it and provide
it to third parties. And then there's
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the third party and that could be
anybody that has the consumer's permission, So
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it's all consumer permission down missions information. It will change the way the market
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operates because it's in the concept of
open banking. It's not true open banking
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as in Europe, but it has
a lot of characteristics. What are the
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differences for me? I mean,
I'm very familiar, not very plied,
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but the concept of open banking in
Europe where I really have to provide the
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data in a machine readable format for
interoperability, that's a really interesting idea.
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What's the difference between what's being proposed
in ten thirty three and so the people
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what's in your out so you don't
know and she got it doesn't spell it
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out like they do in Europe.
Right, it's as I said, access
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to financial records and what the bureau
does, how they expand that is going
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to be very interesting. Uh,
you know they're they're talking about establishment of
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epis rather than screen scraping. Yeah, so it's going to change the market
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in many aspects. We're concerned that
the uh data that's being moved around needs
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to be very secure for sure.
The players in that ecosystem need to have
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the same standards of security and oversight, which they don't have. Uh.
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Uh. Data they're sending is very
sensitive. Um. And if it's going
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to be a true open banking world, it really shouldn't incorporate financially institutions data
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of all kinds. Right now,
the outline only covers bank transaction information and
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credit card information. So if you
get your auto loan from a captive auto
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lender, let's say VW Right whoever, they are not going to have to
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comply with this. Interesting, So
you're gonna have segments of the market that
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don't aren't held accountable as the banks
and credit card companies quicken loans. There
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are non banks, this will not
apply to them. A lot of mortgage
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has gone through and so the non
bank lendingsumer is going to assume that they're
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getting all that their information. They're
not, So it's a complex, really
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market shifting um rule, and there's
a lot of challenges to it and risks
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associated with it as well. I
imagine too there's the question of like how
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good is the compliance and security on
the receiving side. Mean, just because
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the consumer says I want you to
share my with this party does not mean
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the consumers done full diligence. Because
I've been screaming about that for a while.
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How do we know that X fintech
company has the systems in place to
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secure that data? We don't.
And there's no federal agency with oversight that
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can go in and look. The
CFBB can't go knock on the door and
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say, show me how you're complying
with this rule. They can do an
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enforcement investigation, but they can't examine
active basis. So we're we've been pushing
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the bureau to look at that.
We think it's a system that they need
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to think about that. Plus liability
also the shift in if there's a breach,
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So if the bank's holding all this
sense of infigation and somebody acts the
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bank, there's a liability there.
If that same data goes to a data
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aggregator or to a third party,
and there's a breach. Where's the consumer
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going to turn? Are they going
to go to the data aggregator or we
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go to the bank exactly. Yeah, so we don't think that's the right
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approach to either. If you have
the data all the day, help we
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should be responsible. We would halt
accountable for Yeah, it just seems interesting
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to me because it's reminds me of
you know, when that I want to
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go back to the clops BESTVB.
But there was a threat of conversation that
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was following this. So, well, depositors deserve what they got because it
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was their job to look into the
proper asset management of their bank, Like
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like the depositors were looking at the
quarterly filings to figure out what kind of
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assets the banks have bought they were
the safety and soundness oversight was going to
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come from depositors looking at them.
So that's kind of ridiculous. And here
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you kind of going, well,
the consumer will look in. They won't
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ask the bank to transfer their data
to an unsafe party. It's the consumers
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responsibility. Will maybe the consumers it's
not owning that responsibility the same way we
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might think is critical and the context
of this kind of information, the same
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way the bank would be held accountable
to a regulator to do. I think
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that's if we think the consumer is
going to be the oversight line of defense
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for their data not ending up in
unsafe places. That's probably a bit like
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asking your depositors to make sure that
your bank is making sound risk management dicisiences.
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It's really not the right oversight mechanism
in place. Yes, where who?
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We hope that the Bureau will factor
that into their rule. I guess
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we'll find out over the next few
months. Your other area was the overdraft
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credit card late fees overdraft fees section
of role machias. Talk a little bit
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about what's going on in that space. Sure, So the Bureau has proposed
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a rule to lower the safe harbor
on credit card lea. So the Febble
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Reserve about a decade ago said,
if you're going to charge safe harb a
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late Yep, We're going to establish
a safe harbor that says, if you
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charge x amount, no matter what
you do, there is no risk of
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being sued on that. We've we've
created the safe harb. The Bureau has
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decided to take a fresh look at
it and decided at the moment proposed to
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lower the safe harbor from currently a
thirty one dollars down to eight dollars.
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Wow, so dramatic reduction and big
reduction. It will have a significant impact
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on the market credit card market,
for sure. We believe it will have
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ramifications for some consumers. Certain segments
of the market will be impacted more than
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others. They Bureau does not really
address the deterrent factor of a late,
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so you run the risk of consumers
failing to pay their monthly payment, which
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more commonly because they why should I
have two bills do and one's got a
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penalty and the other doesn't. I'm
gonna pay the late, But as you
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wait for thirty plus days, you're
delinquent and you're gonna get recorded to your
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credit bureau, so your credit score
is going to go down. But I'm
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not sure every consumer understands that.
I'm sure they don't. At least some
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number of them do, right,
So we believe that, you know,
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this should be a very thoughtful process, data driven analysis, or we're not
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sure the Bureau has done a very
effective job at analyzing the data and accurately
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calculating the collection costs involved. And
so we will be encouraging the bureau to
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take a closer look at how they're
analyzing the impact on consumers. There's also,
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in my mind always this question of
kind of second order impacts, like
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what happens to the approval rates,
who gets access to credit cards or the
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lines of credit that are issued when
when these things change, it's not just
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like well, it's kind of like
I want to get too politically here,
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but I guess I'm talking about leegedly, but like you see rank control,
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Like there's the impact that the people
who are paying rent, and there's the
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impact on building housing, the amount
of stock that becomes available because of the
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prices that can be charged. In
an analogy, and that's tough. The
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balloon, when you squeeze it all
one side, it's got it's gotta go
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out there other So what will happen? There's a lot of possible things.
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There could be increase in the interest
rate over charge to sure right, there
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would be a clow scene of dormant
accounts. So if you havn't used your
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account and shut that, shut it
down, shut it down. You could
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decide and likely opping is you won't
decide who you're going to actually extend credit
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to the reduced number of people you're
doing credit and how much right, and
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if you think that group is a
riskier and may not either bills may not
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extended them credit. Yeah. So
it's a fascinating time in the credit cards
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Mose. Yeah. Yeah, it
feels to be like so much government policy
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ends up not understanding the second order
effects and optimizing for a first order of
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fact and occasionally not calculating the second
order the law of unattended consequences or whatever
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it may be. I think regulators
really shouldn't do is um combine regulatory policy
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and politics. It gets messy.
We've seated in the penest that when you
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do that can really mess things up. Yeah, so that is one of
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the biggest risks with regulatory interventions that
day they look at it from a political
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as rather than a safety and sound
and sewer protection at large. Yeah.
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So if you're talking to members bankers
who are then saying, hey, there's
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a lot of stuff up in the
end, there's a lot I'm moving parts.
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What should they be doing to prepare
to think about how do I,
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you know, get ready for what
may be coming down the pipe and the
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changes that are that are you know, possible coming both technologically business wise.
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What do we what do we do
to adapt? I start out with,
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you have a rule that's going to
be final. You're going to have to
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put significant resources on the ten seventy
one small houses did. But then I
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also be quickly to overdraft. It
is a major issue or the current administration
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or the current director. We believe
that it was in the Unified Agenda that
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they're adding overdraft. It is a
significant and auduct of almost every bank in
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the country, for sure, and
you have to look at the risk of
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that either being highly regulated or going
away in some form regulation. And how
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do you how do you manage that
risk, not just for that product,
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but you are you know your revenue
side, and every institution is different.
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And you can see that many CPA
members have pivoted on their overdraft programs in
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the last year or so, pivoted. How how do you see em pivoting?
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What's the So A lot of them
have changed their under overdraft practices.
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Some have lowered the overdraft fee,
some have put a diminimus so if you
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overdraft by fifty dollars or less,
they won't charge, and there's no fee
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to have Some of them have a
twenty four hour ruling off period that if
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you overdraft, but you cure it
within twenty four hours, there's no Some
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have eliminated it all together, many
of eliminating the non sufficient funds charge.
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But that is many CBA members,
but that's not the entire banking ecosystems.
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Many banks that happen to changes.
We will see what the Bureau decides terms
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a rule a rule and how restrictive
or what kind of approach they have.
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You seen motion among the members to
find a more traditional lending alternative. A
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lot of times it's overdraft these it's
like a small dollar loan in disguise slip
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and we're really excited about it.
When I was at the CFBB, we
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a lot of work urged backs with
it. Two of small dollar products.
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Yeah, it's really challenging. It's
very hard to operationalize that with losing your
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shirt and to at least make back
your Yeah. And so we've seen at
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least five major banks in the last
six to eight months introduce small dollar loans
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and so far, so good.
They see it as a product to help
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their customers so that they're not leaving
the banking system rather than looking at it
336
00:25:25.200 --> 00:25:29.160
as a revenue center as much.
Yep. It's it's okay to use this
337
00:25:29.319 --> 00:25:33.160
product to help your customers stay in
the bank rather than go outside. So
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we're continuing to have conversations with regulators
to encourage them to encourage our banks to
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do it. You think it's needed. There is a clear need for short
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term liquidity, yep. And if
you're going to regulate overdraft, it's like
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the balloon they're gonna have to go. So we need the money, they
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need the money, they're gonna have
to get it. So where they're gonna
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go payday loan is worse, eighty
days worse. We would prefer that they
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stay in the banking system. Yeah, yeah, but it is to your
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point. Are to operationalize a small
dollar loan at a cost that is recouvable
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on that duration in dollar amount.
I mean, it's just even at any
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reasonable industrate, there's not a lot
of money in that. And so the
348
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handard across his hard board of a
bank to support a program going into it
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knowing it's tend to lose money.
We're not in the business of losing money.
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No businesses are. Let's spend x
amount of money knowing that when we
351
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actually roll the product out, it's
coles after the vestment. Hitles just lose
352
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money for it's not a good look. So I'm very investment the banks that
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have done it, Yep, they
understand the need. They're evaluating what the
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true potential boss is versus maybe they'll
make a profit in the long run.
355
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They look at it a little differently. It's sort of like overdraft. They're
356
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looking at it from a different lens. Retain our customers and what's the value
357
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of that versus just your revenue on
this product, on overdraft and on small
358
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dollar to changing how banks are looking
at it, there's more competition, so
359
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you sort of look at how do
we maximize our ability to keep our bustomers
360
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and help them become the better buster. Yeah yeah. Let me ask you
361
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one last thing, which is what
do you think separates institutions end up with
362
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good relationships with their regulators from those
that strong I mean, I've seen it's
363
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really funny. Is it worked with
a lot of banks. I'm sure you
364
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seen this. I had two banks
who gave a totally polar opposite answers about
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how they wanted to work with their
regulators, and I thought that they had
366
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the same ic, not just the
same just the same regulator with the same
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guy walking on the doors. I
don't know if you knew this. When
368
00:27:38.200 --> 00:27:41.920
I worked at FEAR, I managed
the relationship we industry in bureau, I
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00:27:42.000 --> 00:27:45.240
did not know that. So so
I dealt with all of the banks,
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00:27:45.440 --> 00:27:51.480
all of the financial institutions and help
them navigate how do you interact with your
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00:27:51.480 --> 00:27:56.839
regulator the bureau Later and the positive
part of Valley speaking a positive impact and
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00:27:56.920 --> 00:28:02.000
the value of having include having a
yeah. And there were a couple of
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00:28:02.720 --> 00:28:06.359
banks, for instance, that were
rock stars at it, and I wouldn't
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00:28:06.359 --> 00:28:08.680
tell them, like, you guys
have the huge advantage of your better because
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00:28:10.279 --> 00:28:15.160
strong relationships, you've become a trusted
entity. When you speak, the Bureau
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00:28:15.200 --> 00:28:18.359
listens to you, right. And
then there's those that just sort of dodge
377
00:28:18.359 --> 00:28:21.440
it because they're afraid of They may
say something where if I go talk to
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00:28:21.480 --> 00:28:26.079
this person, it may refers to
dig the enforcement side, which never happened
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00:28:26.160 --> 00:28:30.559
when I was there six years.
I never saw like somebody talk to the
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00:28:30.640 --> 00:28:36.359
markets teams, they get up call
the enforcement here that the Bureau when your
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00:28:36.519 --> 00:28:41.400
career step like that's your job and
if you ruin that relationship. You're done,
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00:28:41.599 --> 00:28:44.960
like nobody's gonna talk to you.
So and plus people don't come in
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00:28:44.960 --> 00:28:51.160
and disclose things that are illegal.
That's not not These are conversations about markets,
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00:28:51.599 --> 00:28:56.599
what they're seeing, What can we
as a bank do better. I
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00:28:56.720 --> 00:29:02.839
saw a lot of banks who prove
of the years and their relationships. They
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00:29:02.920 --> 00:29:10.279
should feel comforted talking to their regulators. It's important so that they understand how
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00:29:10.319 --> 00:29:15.279
you operate because every institution is a
little bit different and they don't understand all
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00:29:15.319 --> 00:29:18.240
those dynamics. So the more you
share with them, the different pressures you're
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00:29:18.279 --> 00:29:25.400
feeling, the different dynamics within your
market, it's it's critical that they understand
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00:29:25.480 --> 00:29:30.039
them. Interesting so early often communication
on broad topics. Yeah, it's it's
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00:29:30.039 --> 00:29:33.279
just been fascinating to watch how those
you kind of as an outside somebody,
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00:29:33.400 --> 00:29:37.240
came from a different issue. It
should just be like a consistent approach,
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00:29:37.279 --> 00:29:40.160
and it feels like it's a very
different sid relationships. It's fascinating to see
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00:29:40.160 --> 00:29:42.119
how some navigate that to their advantage
of others, to their detriment. When
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00:29:42.240 --> 00:29:45.079
I was at the Bureau, I
was starting thirteen in this role. I
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00:29:45.119 --> 00:29:49.680
started the office and I could not
get one of the top four banks to
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00:29:49.759 --> 00:29:55.440
engage with us for nine months at
all at all. That's crazy. I
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00:29:55.440 --> 00:30:00.880
don't know if it was just they
were just not well connected and couldn't figure
399
00:30:00.920 --> 00:30:06.359
it out. But the second we
actually were able to sit down, got
400
00:30:06.359 --> 00:30:10.759
them in front of the director,
had a great conversation. They instantly saw
401
00:30:10.839 --> 00:30:14.119
the value and quickly turned one the
best. They would come in on a
402
00:30:14.200 --> 00:30:18.200
quarterly basis. They bring in different
people in the institution, from the CEO
403
00:30:18.440 --> 00:30:23.079
to the head of consumer lending.
We had banks come in and get the
404
00:30:23.319 --> 00:30:26.720
fraud people would come come in and
scare the heck out of us, but
405
00:30:26.799 --> 00:30:30.839
it really showed how smart they are. Yeah. Yeah, there's some of
406
00:30:30.839 --> 00:30:34.240
the large banks and they bring in
the cybersecurity people and they scare the heck
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00:30:34.240 --> 00:30:37.519
out of the bureau. But it
actually shows like this is what we're doing
408
00:30:37.519 --> 00:30:41.559
to protect our It reminds me of
this. There's a saying it silk in
409
00:30:41.640 --> 00:30:45.119
value when they whenever you come upon
a seeminglarly stupid decision or you ask how
410
00:30:45.119 --> 00:30:48.960
did this decision get made? It's
usually a thoughtful person making a thoughtful trade
411
00:30:48.960 --> 00:30:52.720
off that you haven't yet contemplated,
which is like usually these things that seem
412
00:30:53.119 --> 00:30:56.119
not to make sense to you.
Are there because of some other trade off,
413
00:30:56.160 --> 00:31:00.480
some other considerations you you couldn't even
think about yet this I'm smart,
414
00:31:00.519 --> 00:31:03.640
thoughtful, well meeting person made.
And the more you can make people aware
415
00:31:03.680 --> 00:31:06.680
of what those trade offs are,
what we're seeing, why maybe we've got
416
00:31:06.720 --> 00:31:08.440
these extra rules in place to open
a well, we're seeing a huge ticketup
417
00:31:08.440 --> 00:31:11.640
in fraud. Show you some examples
of what fraud looks like. Oh my
418
00:31:11.720 --> 00:31:14.920
god, that's terrifying. Yeah,
and that's why we're Be's why we're doing
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00:31:14.920 --> 00:31:17.759
these things. I think the better
off you are to help people understand where
420
00:31:17.759 --> 00:31:19.799
you're coming from. Excellent, Dan, I really appreciate you for making the
421
00:31:19.799 --> 00:31:22.720
time to come by and talk to
us. This was fascinating. I learn
422
00:31:22.759 --> 00:31:25.480
a whole bunch of new numbers I'm
gonna have to try and memorize in my
423
00:31:25.519 --> 00:31:29.440
head. But thanks for taking the
time. Thanks for having me. Upstart
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00:31:29.480 --> 00:31:33.200
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help grow their consumer loan portfolios and deliver
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dash banks. That's upstart dot com
slash foward dash banks. You've been listening
437
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