How a Biden Administration Will Impact the Banking Financial Landscape 

November, 2020 - Kevin Tran, Wes Scott

As the end of 2020 mercifully approaches and the presidential election is now in the rearview mirror, Waller’s Financial Services Industry Team is looking forward to 2021 to bring you its insight into what the future may hold for participants in the financial services industry. In this multi-part series, we will cover topics ranging from the forecasted impact of the presidential election on bank regulation to the trends bearing upon and the gradual thawing out of bank M&A activity to the continued appetite of the capital markets for additional debt and equity raises. Although our series will seek to provide a comprehensive look at banking in 2021, in the first two installments, we describe key bank regulatory issues to watch as President-elect Joe Biden transitions into office.

President-elect Joe Biden’s victory likely marks a pendulum swing back towards stricter banking regulation; however, predicting where the pendulum ultimately rests under a Biden administration is challenging.

During his campaign, Biden championed strengthening the Dodd-Frank era reforms that protect consumers from unfair, deceptive and predatory lending practices by financial institutions, provide greater access to credit and financial services to a broader cross-section of Americans, and prevent banks from engaging in risky lending and investment activities. However, few specific details on Biden’s financial regulatory platform emerged during the campaign trail. As a result, industry observers and participants alike are left wondering what form this “strengthening” may take, especially in light of the economic stress caused by the coronavirus (“COVID-19”) pandemic.

For bankers, obtaining insight into Biden’s financial regulatory platform and the appointees charged with carrying out his policies will be integral to post-election strategic planning. To that end, below is part one of a two-part series describing key bank regulatory issues to watch as Biden settles into his presidency.

Community Reinvestment Act

Social and racial justice movements dominated discussion on the campaign trail. As part of those movements, the concept of financial inclusion, in particular access to credit and financial services for minorities and low-to-middle income (LMI) neighborhoods, has taken center stage. However, a fractured CRA regulatory framework, with the federal banking agencies[1]going in separate directions, could derail consistent application of the Community Reinvestment Act (“CRA”).[2]

As a policy matter, Biden has expressed support for strengthening and expanding the CRA to ensure banks and nonbank financial institutions, particularly mortgage and insurance companies, are providing credit access to all members of the community while filling in loopholes that enable institutions to circumvent investing in community development. To that end, Biden could revisit the OCC’s CRA reforms by appointing a new Comptroller to better align the federal banking agencies to act in concert with respect to implementing CRA.

Consumer Financial Protection

The Consumer Financial Protection Bureau (“CFPB”) under Trump rolled back numerous consumer protections implemented under Dodd-Frank, beginning with a marked reduction in enforcement actions[3]and continuing, more recently, with the weakening of underwriting standards for payday lenders and initiatives to ease the “Qualified Mortgage” rule that would eliminate debt-to-income as a qualifying factor.

Biden is expected to reinvigorate the CFPB with a renewed focus on curtailing abusive or deceptive lending practices and increasing lending cost transparency for borrowers. These policies likely will take the form of (i) undertaking more aggressive enforcement roles, (ii) strengthening underwriting requirements and borrower protections, (iii) monitoring student-loan servicers, and (iv) potentially establishing a public credit-reporting agency under the CFPB’s control as an alternative to Equifax, Transunion and Experian.

 

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