Banking is a highly regulated industry, and for good reason. When one bank fails, it often takes others down with it. During the Great Recession, many banks as well as accounting firms shuttered their doors. The result was a huge financial mess that required a government bailout and caused many people to lose their homes and livelihoods. All business owners, managers and leaders should be aware of these four recent regulatory changes.
CECL stands for calculated expected credit loss. It refers to the process that lenders use when evaluating the risk of a default and how much they would lose from the default. On January 1, 2020, the CECL regulations will change. Among other things, CECL will change the way that lenders account for expected losses on delinquent debt. Banks will use a set of standardized procedures in order to calculate their expected losses.
Enhancement of Consumer Privacy
The GDPR in Europe and the new California Consumer Privacy law may trigger more widespread protections for consumer privacy in the near future. These laws are related to what information lenders can collect, what they can do with it, who can see it and how they must protect it. Consumers will have the right to tell lenders how not to use their information. They can also ask for their information to be deleted. Consumers will have the right to sue lenders for loss or misuse of their data.
Enforcement of Financial Crimes Enforcement Network
The Financial Crimes Enforcement Network is an investigative branch. It looks at financial crimes of a complex nature in banking networks. There are new regulations in place with stricter procedures and more disciplinary options available for infractions and major violations.
Misleading Mortgage Advertising
Many new regulations are designed to protect the consumer. One is related to misleading advertising for mortgages. The new regulation prohibits misrepresenting the mortgage product in any type of an advertisement. It permits state attorney generals and federal investigators to prosecute such violations. The regulation is a part of the Dodd-Frank Act.
Businesses need to keep up with all of these regulatory changes. Staying in compliance with the regulations helps lending institutions avoid fines, and makes things smoother for borrowers. Maintaining compliance also demonstrates an attention to detail, and this is important for reputation management and the recruitment of new borrowers who are seeking different types of loan products.
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