Experts at BCG break down what Joe Biden's presidency will mean for consumer banking — and what firms need to do now to prep for changes in oversight

  • Retail banks can expect renewed regulatory focus in the new year, says Boston Consulting Group.
  • Likely actions might include greater overdraft fee and payday lending enforcement from the CFPB, in addition to a renewed focus on the Community Reinvestment Act, a 1977 law promoting lending in underserved communities.
  • Banks should be proactive and prepare to respond quickly to regulatory changes while also making investments in more equitable lending areas, according to BCG
  • Visit Business Insider's homepage for more stories.

Six weeks before the inauguration of President-elect Joe Biden, the composition of much his future cabinet, and who will be heading key regulatory agencies come January, is becoming clearer by the day.

One exception, however, seems to be those tasked with heading some of the key agencies responsible for regulating consumer banking  — namely, the Consumer Financial Protection Bureau (CFPB) and Office of the Comptroller of the Currency (OCC) — where there's been little in the way of names for who will likely replace officials appointed by President Donald Trump.

The term of the current head of the CFPB, Kathy Kraninger, expires in 2023, while Acting Comptroller of the Currency Brian Brooks was nominated by Trump in late November to a full five-year term. Whether Brooks will be be confirmed by Biden's inauguration on January 20th remains a question.

But if there's one certainty, it's that banks can expect a more focused regulatory environment under a Biden administration, regardless of who's at the CFPB and OCC, according to a new report from Boston Consulting Group.

Read more: Execs from Plaid and Yodlee explain how new data-sharing rules will dictate the future of how banks and fintechs work together

"I don't have a crystal ball, but it's a fair assumption to say that there will be a reinvigorated CFPB," BCG Partner Mindy Hauptman told Business Insider. "To prepare for that is a no-regrets move."

For one thing, Hauptman noted in the report, banks will need to explore products and services that more equitably serve communities, like "fee-for-service, subscription, freemium, and shared-benefit models," and be prepared to step in to new markets as scrutiny of other financial companies like payday lenders increases.

"Getting ready to act, so that you can act quickly," in the event of new or more stringent enforcement of regulations, "doesn't cost anything," Hauptman said.

There is a potential for new leadership at both the OCC and CFPB

While the CFPB's Kraninger's term doesn't expire for a few years, her tenure could be short lived. 

In June, a Supreme Court decision "laid the foundation" for Biden to replace Kraninger at the CFPB, although the president-elect's choice "may be constrained by the need for Senate confirmation," Hauptman wrote.

Previously, the CFPB's director could only be removed "for cause" by the president. However, the June ruling stated that was unconstitutional and gave too much power to Congress.

The Trump-era CFPB was notable for a marked decrease in enforcement actions against lenders under former acting director Mick Mulvaney and his successor, Kraninger. Public enforcement cases in 2018 were down 80% from their 2015 high, according to a 2019 Consumer Federation of America report. 

See more: Four key impacts Biden's victory may have on banking

As a result, banks should be ready to adapt to the new regulatory environment once Trump leaves office.

This will be true even if the realities of a divided government, pending the outcome of the two Senate run-off elections in Georgia next month, means sweeping legislative shifts (like changes to corporate tax rates) will be off the table in the near term.

If Republicans do hold the Senate, any changes affecting retail banks will likely have to come from rules made by the CFPB, OCC, or other regulators, rather than through legislation in Congress.

"Any of the things that require legislation really depend on what happens in Georgia," Hauptman said.

Banks might see a renewed emphasis on fair lending, underbanked communities

Another potential area of focus under the Biden administration could involve the Community Reinvestment Act. The 1977 law encourages banks to lend in low and medium-income areas.

The OCC, acting apart from the FDIC and Federal Reserve, finalized rule changes to the CRA in May that expand the criteria for what bank activities would qualify under the CRA, a move critics say weakens compliance standards in the process.

In early December, Chairwoman of the House Committee on Financial Services Rep. Maxine Waters of California called on the incoming Biden administration to rescind the changes, which wouldn't take effect until 2023.

Banks could see "more rigorous enforcement of the Community Reinvestment Act" that could lead them to revisit plans to close branches or start collecting data on loans to small-business like they do for mortgages, Hauptman noted.

Learn more about the financial services industry.

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