September 10, 2018
By Dondi Black, senior strategic product manger, FIS
The Economic Growth, Regulatory Relief and Consumer Protection Act (S. 2155), more commonly referred to as the Act, or EGRRCPA, is considered by most in our industry as a winning legislation for credit unions and community banks. Passed into law on May 24, 2018, the Act is written to nurture economic growth, make regulation more efficient and effective and empower consumers to make informed financial decisions with more financial products and services available to them.
FIS also views this legislation as a victory for both financial institutions and the communities they serve. The Act positions financial institutions of less than $10 billion in assets to better compete across the financial services ecosystem. By leveraging increased capital and reduced regulatory compliance expenses, coupled with recent lower taxes, banks and credit unions can realize higher operating cash flows that can be deployed to expand lending activity for consumers and businesses. The higher operating cash flows enable banks to invest in new product innovations and increase share repurchases to improve their return on equity.
Although the Act was not the complete roll back of burdensome Dodd-Frank regulations that many in the financial industry had hoped for, it does represent a major shift from a post-crisis focus on consumer protection and shines a light on stimulating economic growth by way of regulatory relief. It introduces an era of flexibility and provides smaller institutions the ability to make risk management decisions, where previously hard and fast mandates created roadblocks to growth.
Large community banks and credit unions will find a return to the latitude they once had around lending practices. The revised regulation removes burdens that had an unintended consequence for consumers by restricting access to credit that was used to drive home ownership and business development. Reduced capital reserve requirements and greater latitude in the extension of credit empowers traditional financial service providers to invest in their communities with innovative and creative product and services once again.
In this new era of reduced regulation with less government oversight, the time is right for financial institutions to create and deploy a comprehensive plan to successfully implement the changes. Focus should remain on the best practices that will enable the development of a compliance system that meets the requirements on the new Act.
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