Lenders Beware: 2022 Could See Increased Enforcement Activity

2022 could see aggressive movement by some federal agencies, an experienced industry hand suggests. Joseph Lynyak III is a partner at the international law firm Dorsey & Whitney and one of the nation’s foremost experts in the country on the Consumer Financial Protection Bureau (CFPB), regulatory reform, the SBA, and the PPP.

Lynyak points to multiple developments to back his assertion. Even before the Senate approved Rohit Chopra as director of the Consumer Financial Protection Bureau, the agency issued several statements pointing toward a return to “enforcement by regulation”, especially in its oversight of banks. Enforcement personnel hiring has risen dramatically, and the industry expects an increase in enforcement actions against banks.

“Since assuming his position, Director Chopra’s public statements have indicated a concern about discriminatory practices by lenders that will be aggressively pursued (This is notwithstanding the fact that the CFPB’s own data on fair lending practices is to the contrary),” Lynyak says. “A focus of the director’s concerns has been on redlining based not on disparate impact but on old-fashioned disparate treatment in lending, pricing, servicing and appraisals.”

Lynyak cited concern about foreclosures and loan workouts. Lenders have been revisiting their fair lending policies and procedures in preparation for a possible agency visits in case they find instances of discriminatory treatment of protected persons and classes.

“The CFPB has also announced its concern regarding bank overdraft fees, which may force many banks to modify or eliminate overdraft fees in the future,” Lynyak suggested. “Essentially, the CFPB appears to view the right to overdraft an account without the imposition of a penalty as a fundamental right of a consumer.”

Lynyak expects regulators to closely watch the role cryptocurrencies play in the payment, an issue he deems a global concern. Stablecoins in particular, and the entities entitled to use them, will impact the Fed’s payment system update, which is scheduled for next year.

The interplay between banking activities and climate change could also be considered, Lynyak suggests. It may mean added consideration for the environment when underwriting policies, or even a debate towards shifting away from carbon-intensive energy industries.

Lynyak also believes there is a key appointment to be made that will influence the direction some key enforcement actions could take.

“While the position of the comptroller of the currency is important, the decision on the appointment of the head of supervision and enforcement at the Federal Reserve is the most critical banking agency appointment—because that individual will have primary responsibility over the top 10 bank holding companies in the U.S., as well as foreign banks doing business in the U.S.,” Lynyak explained. “The choice of that individual will signal whether the alleged relaxation rules for very large banks and bank holding companies in the past several years will be reversed (and new restrictions imposed).”

In 2022 Lynyak expects FinCEN to rewrite AML rules and create a federal database to identify shell company owners and other entities often used to avoid compliance.

“Perhaps as significantly, FinCEN has announced that it will commence a rule making to, for the first time, require AML compliance for non-financed real estate transactions—which already has the real estate industry in a tizzy,” Lynyak says.

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