August 5, 2023 / VOLUME NO. 273

(Some) Banks Get a Reprieve

In what could be the weirdest court ruling in a long time, a U.S. District Court judge in McAllen, Texas, signed a preliminary injunction this week against the Consumer Financial Protection Bureau’s enforcement of a contentious small business lending rule, also referred to as 1071. But only for certain banks. 

That’s right. If you’re Rio Bank in McAllen, Texas, or a member of the American Bankers Association or the Texas Bankers Association — the plaintiffs in the case — you get an automatic delay in implementing the new rule. If you’re not a member, you won’t. 

The timing couldn’t be more difficult for the industry, as banks struggle to comply with yet another expensive and time-consuming rule just as the cost of funds in general has been rising faster than the yield on loans. The 1071 rule is scheduled to go into effect in phases, with the largest small business lenders complying as of Oct. 1, 2024. The CFPB will collect bank demographic data on small business loans to create a massive public database, helping to facilitate the enforcement of fair lending laws and scrutiny of loans for minority- and women-owned small businesses.

One bank CEO responding to Bank Director’s 2023 Risk Survey earlier this year said: “We have concerns over the increasing amount of data that we are being asked to collect and submit to the government. The next big challenge will be HMDA data for small businesses. We have already hired an additional FTE [full-time employee] to prepare for it.” 

The Texas Bankers Association estimated the cost of compliance at about $100,000 per bank, according to the judge’s order. 

The injunction applies while the Supreme Court hears a challenge to the constitutionality of the CFPB’s funding structure, with a decision expected before the end of June 2024. Any delay of an expensive rule benefits banks. But even if the Supreme Court rules against the CFPB, that doesn’t mean the small business lending rule goes away. After all, 1071 refers to the section of the Dodd-Frank Act of 2010 that required it. 

“Although the ruling potentially gives certain banks some breathing room for implementing the regulation,” says John Geiringer, a partner at Barack Ferrazzano Kirschbaum & Nagelberg LLP, “this issue won’t go away entirely unless Congress changes the law itself.” 

• Naomi Snyder, editor-in-chief for Bank Director

Is Relationship Banking Too Risky? 

The three financial institutions that failed this spring were some of the most well-known relationship banks in the industry, raising questions about relationship risk. 

“Relationship banking was not the problem. The problem was the concentration. Relationship banking is still good, but you can’t be single threaded on a particular segment.”

— Peter Serene, Curinos

• Kiah Lau Haslett, banking & fintech editor for Bank Director

Practical Tips on Artificial Intelligence Risk Management

Institutions must update their internal policies and processes to address new and emerging risks in order to effectively and responsibly deploy AI.

Managing Interest Rate Risk With Stronger Governance

Banks caught off guard by the rapid pace of interest rate hikes over the past year are questioning how to manage their interest rate risk.

Are Non-Competes on the Ropes?

Non-competes that restrict employees from going to competitors are under attack. Here’s what to know.

7 Essential Elements to Integrate Financial Metrics and Risk Strategy

Growth-oriented banks that truly understand their risks can avoid unacceptable risks and make opportunistic and strategic decisions.