Consumer Concerns
Of course, there is always the possibility that there will be a shift in regulatory agencies' attitudes toward bank products and services in response to the perceived wishes of lawmakers. When Congress speaks, says Wixted, "regulators read those signals, and it flows downstream pretty quickly."
That's particularly true of regulations involving consumer lending. One in particular that bankers fear is the introduction of a suitability requirement for mortgage lending. Suitability rules, a fixture in the world of securities broker-dealers, would create a fiduciary duty on the part of the loan officer underwriting a mortgage, requiring the bank to assure that it was actually in the interest of the borrower to accept the loan.
Democrats in Congress have expressed some interest in suitability requirements, but have fallen well short of proposing legislation. Late last year, however, federal banking regulators released new guidance on how banks will be expected to underwrite nontraditional mortgage products. Their rules placed more emphasis on requiring that the loan officer educate the borrower about the terms and conditions of the loan before it is finalized.
Some states are going one step further. Ohio recently passed a law creating a quasi-suitability standard that would require the loan officer to "make reasonable efforts" to obtain a financing arrangement "advantageous" to the client, and to obtain proof that the borrower will be able to repay the loan. Pennsylvania's proposed law would create a similar duty for lenders.
In Their Own Interest
Of course, bankers won't spend all their time playing defense this year. For example, the FDIC's recent extension of a moratorium on granting limited banking licenses, known as industrial loan company (ILC) charters, to nonfinancial companies is being cheered in banking circles. The ILC charter, which is being sought by such companies as Wal-Mart and Home Depot, is anathema to bankers, who view it as an unacceptable breach of the divide between banking and commerce. The FDIC's delay gives banks a full year to lobby Congress for a law restricting ILC ownership to financial firms, an effort that got a boost from the January 29 introduction of the Industrial Bank Holding Company Act of 2007, which would do just that.
Meanwhile, BofA, possibly accompanied by some allies, will continue to lobby Congress for an increase in the cap on the percentage of U.S. deposits that can be held in a single institution. BofA is approaching the current 10 percent limit, and is concerned that the existing law will stifle future growth.
Of course, it is growth that shareholders expect from BofA and its counterparts. And while bankers won't get everything they want from Congress and regulators, neither will those looking to tighten bank regulation. As a result, though it may be slowed, the banking juggernaut appears ready to roll through 2007.
Rob Garver is a freelance writer based in Virginia.
Off Base?
Banks active in consumer lending are keeping a nervous eye on the Department of Defense, which finds itself in the unfamiliar position of having to write regulations for financial services as the result of an amendment slipped into last year's defense authorization bill by Jim Talent, the former Republican senator from Missouri.
The Talent Amendment sets a 36 percent cap on the annual percentage rate that can be charged for loans to members of the military and their dependents. The law is intended to go after predatory unregulated payday lenders, which often open up shop on the outskirts of military bases. It is written in a way that defines a loan's APR as including late fees and other charges, which can easily drive some legitimate credit-card offerings above the annual rate.
The law is causing concern, partly because of the difficulty in determining which customers are covered and which may become covered due to activation or enlistment. Should it be implemented as written, says Joe Belew, president of the Consumer Bankers Association, a very large number of institutions may "throw up their hands" and try to avoid providing services to the military. — R.G.
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