Banking Regulation Predictions 2018:  U.S. Reform Takes Off

With much of the dramatic shift in the U.S. regulatory landscape complete, we are moving to the next stage, which will focus more on efforts to adopt regulatory reform.

Last year, my regulatory predictions offered little suspense. The winds of change were howling and it was clear that the New Year would be dramatically different than previous ones for those in the U.S. financial services industry. The surprise election of Donald Trump led to a 180-degree course correction of the regulatory agenda that bankers and compliance professionals had grown accustomed to in the wake of the financial crisis.

2017 was highlighted by a series of Executive Orders calling for comprehensive reviews of existing regulations, a series of reports issued by the U.S. Department of the Treasury accompanied by recommendations for significant regulatory reforms, and major changes in leadership (and vision) at many of the federal banking agencies. Also, I wrote about the more than dozen regulations which were rolled back as a result of a rarely triggered statute, the Congressional Review Act.

Now, with much of the dramatic shift in the U.S. regulatory landscape complete, we are moving to the next stage, which will focus more on efforts to adopt regulatory reform. Below are a few predictions to watch for in the upcoming twelve months.

1. Bipartisan Dodd Frank Reform Will Become a Reality

Bipartisanship on Capitol Hill?  Sounds like a fantasy but look no further than the recent Senate Banking Committee passage of the Dodd-Frank Act regulatory reform bill. While there have been more wide-sweeping proposals introduced in Congress during the past six years, this bill provides a range of changes to the 2010 law that include providing relief to small and mid-size banks.

With 10 Republicans and 11 Democrats co-sponsoring the legislation, there is enough support to clear the challenging 60-vote threshold that is needed to get controversial bills through the Senate. Despite a deep partisan divide, look for this bill (perhaps with a few additional tweaks) to make it to the finish line in the first quarter of 2018.

2. A Decision by the DC Circuit Will Spark the Beginning of Much-Need TCPA Changes

I admit that I made the same prediction in 2017 and we are still waiting for the United States Court of Appeals for the District of Columbia to issue its decision in the industry’s appeal of the 2015 FCC Telephone Consumer Protection Act (TCPA) Declaratory Ruling and Order.  While a court decision is long overdue, does anyone believe that it won’t be issued in 2018?

Once a decision is made the real work will begin. I expect industry to focus on any remaining grey areas that are not resolved by the DC Circuit.  Special attention will be directed to ensuring that unnecessary barriers are removed that prevent customers from receiving important messages via their mobile phones. The new FCC leadership is expected to lead the way in fostering important reforms in this area. It may not be fully completed in 2018 but substantive work will commence during the next 12 months.

3. The Time for Housing Finance Reform Will (Finally) Arrive

Policy leaders have been talking about the need for housing finance reform since the government was forced to infuse Fannie Mae and Freddie Mac (GSEs) with $187.5 billion and place the two entities into conservatorship nearly a decade ago. To date, a bipartisan reform proposal has yet to gain any momentum in Congress.

So what might change in 2018? A little-known impact of the recently forged tax deal.  Fannie Mae and Freddie Mac hold billions of dollars of “deferred tax assets” on their balance sheets. These assets include items like credits that can used to defray tax bills in future years.  However, the tax reform legislation reduces the corporate tax rate and, in doing so, the value of these deferred tax assets will tumble. As a result, in the beginning of 2018, it is expected that both Fannie and Freddie will have to take another draw from the Treasury.

This pending development may have jumpstarted new bipartisan efforts to craft a solution in the Senate, a draft proposal is reported to include a simplified approach designed to protect the taxpayer, the preservation of the 30-year fixed mortgage as well as access and affordability provisions. In addition, House Financial Services Committee Chairman Jeb Hensarling’s (R-TX) recent comments on the topic may indicate that he is motivated to finding a compromise solution before he leaves Congress at the end of next year.  The stars seem to be lining up for a proposal that has a chance of gaining consensus. It may not get to the finish line in 2018 but, for the first time, expect significant progress to occur.

4. The Wait Will Continue for New Debt Collection Rules

With new leadership at the CFPB, the Bureau’s rulemaking agenda is under review. Most expect a significant slowdown in the pace of CFPB rulemaking.

Since November 2013, the CFPB has been preparing for a set of new debt collection rules governing third-party collectors and first-party creditors. Just this past summer, Director Cordray announced that the CFPB would focus first on rulemaking for third-party collectors. Many predicted the issuance of a new proposed rule by the end of 2017, however, the latest unified agenda now indicates a possible February 2018 release.

The CFPB has been very deliberate in its work in this area and with new CFPB leadership I suspect this rulemaking will be among those that come under added scrutiny.  As a result, we may not see a proposed rule at all in 2018.

2017 marked the beginning of a seismic shift in the regulatory landscape. Though 2018 is an election year where the legislative agenda is usually scaled back, both legislators and regulators appear poised to take action on some big-ticket policy issues and regulatory reform.  So rest up and enjoy your time with your family and friends during the holidays, because next year is going to be an active one on the regulatory front.

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