Insight for Evolving Regulations
In recent years, the CFPB has focused on perceived unfair, deceptive or abusive products, policies or advertising that now includes overdraft practices and other consumer financial products.
Overdraft fees represent a large revenue stream for Financial Institutions. In this new environment, Financial Institutions are struggling to meet the short-term needs of lower mass market customers. Customers are being pushed out of traditional Financial Institutions due to financial hardship, rules changes and stricter lending standards. There is significant flight risk of mass market consumers to alternative providers due to short-term liquidity challenges.
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In February 2014, the CFPB encouraged large Credit Card issuers and Financial Institutions across the U.S. to provide free credit scores and educational programs to consumers on their monthly statements or online banking portal.
Due to regulatory changes on overdraft policies and interchange income, the financial services industry has lost millions of dollars in revenue over the past four years. With this latest announcement from the CFPB about providing free credit scores and educational programs to consumers, Financial Institutions potentially face even more lost revenue.
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Basel III is a global regulatory standard on bank capital adequacy, stress testing and market liquidity risk agreed upon by members of the Basel Committee on Banking Supervision. Basel III strengthens bank capital requirements and introduces new regulatory requirements on bank liquidity and bank leverage.
Many Financial Institutions face the challenge of increasing reserve requirements for excess HELOC line amounts. Customers are receiving reduced line amounts disclosure notifications as banks begin to mitigate these new requirements. Regional and smaller Financial Institutions will be forced to grow deposits in an increasingly competitive rising rate environment to help augment the reserves needed to meet these new requirements.
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Regulation II (Debit Card Interchange Fees and Routing) establishes standards for assessing whether a debit card interchange fee received by a debit card issuer for an electronic debit transaction is reasonable and proportional to the costs incurred by the issuer with respect to the transaction.
Banks are still trying to recover from the estimated eight (8) billion dollars in lost annual revenue from the first wave of changes to the debit interchange fee in 2010. With the possibility of additional interchange rate reductions, banks will be further impacted by an increasing revenue gap.
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