Dodd Frank Act - Who will protect consumers (Contd.)

In my previous blog, I introduced you to the Dodd- Frank Act and how it will help consumers.

In this blog I want to take your attention to the focus areas of Consumer Financial Protection Bureau (CFPB) and what challenges the banks are facing in meeting deadlines for compliance of the act.

The Dodd-Frank Act (DFA) includes well-intended provisions to increase capital requirements and ensure the reasonability of fees. Implementation of the Act has lagged, as regulators have been toiling hard to formulate, propose and finalize hundreds of new rules. In 2014 there are still a number of requirements that are being defined and clarified by regulators prior to adoption and implementation against their business model. The constraints and cost burden associated with the rules that will be imposed on most financial firms, are raising questions about the economic impact on the banking system. One of the initial targets of the CFPB was the urge to regulate “open loop” products that carry significant consumer money, accepted over the mainstream retail electronic payments networks such as MasterCard, Visa, or American Express.

Now, two of the current areas of focus for the CFPB are around:

Mortgage reform targeted at the affordability of mortgage back products for consumers
Activities associated with trading desk for securities and how consumers are communicated with.

There are 16 Titles associated with DFA compliance and defined timelines that banks must meet to be in compliance. Since the ACT was implemented in 2010, banks have faced many challenges in meeting the identified deadlines due to budget constraints, staff expertise, and questions remaining to clarify the requirements for the regulation. To date, the definitions to some of the requirements are still in flux with the regulators and under constant change.

To address this outcry for clarity from the banks, The Consumer Financial Protection Bureau (CFPB) released a Web tool that aims to make regulations easier to find, read and understand. The tool, known as eRegulations, was unveiled recently.

The eRegulations tool lets users identify and display definitions for specific terms within regulation text, move easily among past, present and future versions of a regulation, and smoothly navigate between regulation text, official interpretations, appendices and certain sections. But it is still too early to determine if this tool proves to be a value-add to the banks as they move toward compliance with the requirements.

To reduce regulatory scrutiny and restore consumer confidence, banks must focus more sharply on delivering value to customers, managing customer complaints, curbing fraud, and resolving gaps in services, financial terms and internal processes.

How do you think banks can substantially improve their approach to risk management? Paying closer attention to customer complaints, with or without regulatory intervention, would represent a good starting point. A swifter response to complaints and incidents should be followed by transformative actions to remove root causes. Banks should then re-engineer credit and risk management processes, business model optimization, operational process, and leverage technology modifications/transformations to reap the benefits of more efficient "lean" workflows. Streamlined processes that add genuine value to customers >will also help banks remove vulnerabilities and improve the effectiveness of controls or implement new controls and process.

About the Author

Edmund Tribue is a risk, operations, and compliance veteran with decades of experience across banks, supply vendors, technology providers and buy side firms. He specializes in all areas of lifecycle credit and fraud risk management, retail regulatory compliance, and portfolio loan servicing, with recent focus in providing credit and fraud risk management solutions to global credit card issuers. Additionally, he has experience in both consumer and SME product lines to include credit card, unsecured loans, secured loans, sales finance and home equity portfolios.

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