VIDEO: Regulation DD Revision
In this Compliance Clip (video), Adam talks about a potential revision to the Regulation DD. This topic comes from our latest quarterly update, the Winter 2024 Quarterly Compliance Update.
Video Transcript
The following is a transcript of this video,
This Compliance Clip is going to talk about Regulation DD and a possible revision by the CFPB. Where this is coming from is the CFPB publishes their rulemaking agenda twice a year as a part of the larger unified regulatory agenda that all government agencies have to contribute to. So the CFPB tells us what rules are in the final rule stage, the pre-rule stage, the planning stage, and then they have a list of long-term actions.
In the fall of 2023, the CFPB listed a list of long-term actions.And guess what regulation popped up in their list of long-term actions that we really didn't expect to see? Of course, it was Regulation DD. This is being brought up now because I just finished recording one of our quarterly compliance updates and we talk about this in our quarterly compliance update. This is one of those things that we do discuss in our quarterly updates because we're covering all of the regulatory changes that took place during the prior year.
As I was going through the preparation, I saw the abstract, and here's exactly what was said on the long-term actions released by the CFPB. They said, “Reg DD requires the clear and uniform disclosure of the rates of interest, which are payable on deposit accounts by depository institutions, and the fees that are accessible against deposit accounts, so that consumers can make meaningful comparison among the competing claims of depository institutions with regards to deposit accounts.”
They went on and they said this, “Regulation DD currently permits depository institutions to disclose that a variable interest rate is set at the institution's discretion.” So this is permitted. The CFPB says, “As a result, many depository institutions do disclose that the interest rates are set at their discretion, making comparison shopping on variable rate deposit accounts difficult, and potentially allowing institutions to delay increasing the interest rates they pay to consumers when the Federal Reserve raises their interest rates themselves.”
So at the end of the day, the CFPB said they're reviewing whether changes are needed in light of current market conditions. This is something we were not expecting, but of course, interest rates have shot up from the Federal Reserve. Of course, there's reasons for that when there's inflation. One of the monetary tools the Federal Reserve has is to increase interest rates to try to slow down the economy, which in result would slow down inflation. And so that's why we saw the interest rates from the Federal Reserve increase.
However, the CFPB is essentially saying here, the depository institutions have not increased their deposit account rates at the same speed. Now, financial institutions are able to earn money in their investments like through investments and, really, money that's at the Federal Reserve Bank, Federal Home Loan Banks, because the interest rates have increased and the CFPB may be saying that this might not be fair to consumers.
Now, whether or not this ends up as a final rule is yet to be seen at the time of this recording. So this is something where in long-term actions over the years, we've seen some long-term actions turn into proposed rules and turn into final rules. But we've also seen some long-term actions just disappear. So this is something we'll have to pay attention to and just something to keep in mind as we're having risk management discussions in our financial institutions.
So that's all I have on this topic. Again, this was a topic that was taken out of our Winter 2024 Quarterly Compliance Update. And again, we have this quarterly compliance series where we're looking at all the regulatory changes like the CFB’s possibility of revising Regulation DD, and we do that and release a new program every quarter. So if you're interested in those types of programs or our Winter 2024 quarterly update, you can check it out at our store at www.compliancecohort.com/store.
Again, that's all I have for this Compliance Clip.