Keeping Up with Regulatory Compliance in an Evolving Payments Landscape
In today’s constantly changing digital world, technology continues to reshape the way we manage our money. As advancements in technology revolutionize the world of payments, the speed at which transactions take place has also greatly increased. Regulatory compliance efforts must keep pace with these technological advancements and be capable of real-time implementation to provide a top-of-the-line, regulated customer experience.
A Regulatory Overview
Earlier this year the Consumer Financial Protection Bureau (CFPB) unveiled its long-awaited final rule implementing Section 1071 of the Dodd-Frank Act (DFA). The goal of the new CFPB rule is to promote fairness, transparency and accountability. Under the final rule, small business lenders must now collect and report information regarding all small business credit applications they receive, including business credit cards. The new ruling, however, will add a significant cost and process burden to financial institutions, especially smaller lenders such as community banks.
The new law is set to go into effect in late 2024, and all financial institutions offering small business lines of credit need to assess processes, procedures, and technology now to prepare for compliance.
The 1071 Final Rule applies to a wide range of lenders, including traditional banks, credit unions, and non-bank financial institutions. The rule mandates comprehensive data collection on credit applications, which will be compiled into a publicly accessible database to address future economic development requirements.
In July, a federal judge approved a preliminary injunction in a legal case brought against the Consumer Financial Protection Bureau. This injunction grants the plaintiffs temporary relief from having to adhere to the agency's rule regarding the collection of data from small businesses. This relief will remain in effect until the Supreme Court makes a decision next year regarding the constitutionality of the bureau's funding. While things are in a state of limbo, financial institutions should ready themselves for any potential changes that might arise depending on the court’s decisions.
Challenges and Considerations
While essential for the financial well-being of the financial institution and consumer, implementing real-time compliance systems can pose some challenges. The implementation of real-time compliance systems requires collaboration among stakeholders. Financial institutions, payment processors, technology providers, and regulatory bodies must work together to establish a seamless integration. Additionally, regulatory authorities need to provide clear and consistent guidelines to ensure a uniform approach across the financial services landscape.
Furthermore, getting data out of legacy systems is becoming an even bigger concern for regulators. With older technology customs, reports and extracts must be written to pull the information into a database where the information can be analyzed. While this may not sound concerning, the fact is it takes several weeks to take this step once the project can be prioritized. This leads to delays in providing information for exams, audits, and performing analysis to determine potential consumer compliance violations.
As financial institutions look into the solutions that may be best for them, it is important that they reflect on how the investment in technology can provide them with t...