The past year was one of transition in the Washington, DC policy arena as a new President, Congress and group of banking agency heads took charge of the financial legislative and regulatory policy agenda. Now, nearly a year into this pendulum shift of political power, there is some greater clarity on what might lie ahead. It’s the time of year for predictions, and with the insights gained from 2021, I am ready to offer a few public policy forecasts for those in the financial services industry.
1. Open Banking Begins to Take Off in the U.S. with New Rules Promulgated by the CFPB
The U.S. has lagged the EU and UK, where Open Banking policy and standards are firmly in place. However, 2022 should signal a change. After more than a decade of waiting, the Consumer Financial Protection Bureau will issue long-awaited regulations, in accordance with section 1033 of the Dodd-Frank Act, that provide consumers with a right of access to their financial information. FICO is following these developments closely as we believe there is great promise in the power of consumer-permissioned data. One of our latest credit score innovations, the UltraFICOTM Score, leverages consumer-permissioned bank account information that is a focus of the 1033 rulemaking.
2. Debt Collectors and Service Providers Can Once Again Work Together Without the Fear of Violating the FDCPA
You would think the new CFPB debt collection rules, which took effect last month on November 30, would be the primary focus of the collections and recovery industry. However, an April 2021 decision from one of the country’s federal circuit appellate courts (the level just below the US Supreme Court) has sent shock waves through the industry. The Hunstein v. Preferred Collection and Management Services, Inc. case involves an allegation that a debt collector violated the Fair Debt Collection Practices Act (FDCPA) by sending personal information about the debtor to a print vendor which prepared and sent a dunning letter on behalf of the debt collector. The three-judge 11th Circuit Court of Appeals decision surprised the industry, which has long relied on service providers to facilitate compliance and other related services on behalf of debt collectors.
The decision immediately sparked a wave of lawsuits. The original three-judge panel subsequently doubled-down on its original decision in Hunstein II when considering the impact of the holding in the recent Supreme Court case, TransUnion LLC v. Ramirez. However, on November 17 the full 11th Circuit vacated its Hunstein II decision and ordered that the case be heard en banc by all 12 judges on the 11th Circuit. I predict that by mid-2022 the 11th Circuit will conclude that the original Hunstein decision was made in error and order will be restored between debt collectors and their service providers.
3. Despite a Wave of New Product Innovations, New Overdraft Rules Are on the Way
Perhaps no area in the financial services space has seen more change and attention in the past few months than overdraft practices. A number of banks have recently announced new changes, which range from more liberal policies and grace periods to the complete elimination of overdraft fees.
Despite these changes, the regulators still believe that more scrutiny is needed. CFPB Director Rohit Chopra recently stated that in addition to increased enforcement and supervisory efforts in this area, the Bureau “will be considering a range of regulatory interventions to help restore meaningful competition in this market…” OCC Acting Comptroller Michael Hsu also weighed in on the topic in a December 8 speech which included the spotlighting of eight features of an overdraft program that help support sound financial health.
However, it was another comment by Acting Comptroller Hsu that revealed new rules are on the near horizon. Hsu stated that industry reforms alone will not be sufficient. He noted “…while prior regulatory efforts may have prevented harmful overdraft practices from proliferating further, they did not result in material and sustained improvements. New rules and the credible threat of enforcement actions for harmful practices should help ensure that at least some progress will made in the future, bank reform efforts notwithstanding.” Clearly, more change should be expected, and in recognition of the rapidly evolving overdraft landscape, FICO’s Deposit SME Glenn Grossman recently shared his insights on a new approach to overdraft.
4. For the First Time in a Long Time, the TCPA Policy Front Will Be Relatively Quiet
For years, I have talked about the need for action by the FCC or Members of Congress to clear up the gray areas related to the Telephone Consumer Protection Act (TCPA). While neither body has found consensus to implement changes, 2021 has seen some key areas of concerns addressed by the launch of the FCC’s Reassigned Number Database and a major court case related to the TCPA’s definition of an automatic telephone dialing system (ATDS). While there are still other issues that will fuel TCPA litigation, I predict 2022 will be a year of relative pause on the regulatory and legislative front to determine how the recent 2021 developments play out.
5. Financial Inclusion Policy Proposals Will Continue to Promote the Promise of Alternative Data
The focus on financial inclusion and increased credit access has been an area of emphasis by regulators and policy leaders on Capitol Hill. At the center of these discussions is the impact that alternative data (e.g., telco, utility, rent and bank account information that currently resides outside of the credit bureau files) can provide lenders in gaining new insights on consumers.
In 2022, congressional leaders will consider proposals like the Credit Access and Inclusion Act and Building Credit Access for Veterans Access Act that focus on the benefits of alternative data. In addition, CFPB, OCC and HUD leaders have all made public statements encouraging lenders to explore opportunities provided by special purpose credit programs (SPCP). It is likely that future SPCPs will also include the use of alternative data.
Well, there you have my five predictions. Of course, I intentionally avoided the BIG prediction – who will have party control over the House and Senate after the 2022 elections? Given the twist and turns of recent U.S. elections, I will stay away from any election commentary and prognostications but hopefully will be back with 2023 predictions following the November 2022 results. Stay tuned!