Remembering the spirit of financial regulation

It can be easy to get drawn into a negative mindset when it comes to regulatory compliance. Following the letter of the (often complex, often gray) law gets overwhelming at times. Now, with a new administration about to take the helm, a virus that won’t go without a fight and continued societal conflict, worries about the shape regulation will take in 2021 and beyond are mounting. 

So, it’s against this backdrop that I wanted to spend a few minutes focusing on the purpose of regulation. Even among frustrating implementation challenges, it’s important to acknowledge that regulation is rooted in our country’s history of governance and purpose. It drives right to the heart of the nation’s aim to support ethical behavior, fair growth practices, and overcome discriminatory practices. 

Take the Fair Housing Act, for instance. Created in 1968 as a part of the monumental Civil Rights Act of 1968, the law prohibited discrimination in the sale, rental or financing of a home. The law was finally enacted during a time of civil rights protests and open housing marches, as well as the Vietnam war. Following the war, African American and Hispanic infantrymen returned home only to be prevented from purchasing or renting homes in certain residential developments on account of their race or national origin. The Act, which had been floundering in Congress for more than a year, was signed into law just days after the assassination of the Rev. Dr. Martin Luther King, Jr. President Lyndon Johnson viewed the Act as a memorial to Rev. King.

No doubt there was some dissonance at the time of the Act’s signing (That’s democracy!). But more importantly, there was joy around the passage of a law like this – a feeling that our country took a step toward a fair housing system. 

To be sure, compliance with Fair Housing regulations can be time- and resource-consuming. But consider this, there is still a significant gap in homeownership between white and minority homeowners, as well as frequent examples of rental discrimination. While we hope that we’ve moved away from systemic racism or that unconscious bias has no meaningful impact, that’s not the case. Sometimes, we act on unrecognized bias or make innocent mistakes that may have the same result as an overtly discriminatory act, which is another area regulation helps financial institutions avoid. Regulations are not the silver bullet to solve all problems. However, they can be part of the solution when properly written and designed.

Aside from the extra time it takes to comply with Fair Housing Act regulations, there are objections over some of the rules’ gray areas. Regulators are keeping an eye on this, as well as unintended consequences of integrating technology, specifically artificial intelligence, into lending decisions. (Not exactly something President Johnson could have written into the original bill.)

Homeownership is just one piece of a much larger pie. Access to fair, affordable and dignified financial services is how we build wealth in this country. Credit unions exist to ensure exactly that kind of access to their neighbors, regardless of their personal or cultural attributes. 

With each election, there is debate as to which requirements are most effective at preventing discrimination. It is critical that credit unions focused on diversity, equity and inclusion (DEI) in lending provide feedback through comment letters, discussions with regulators and their representatives about rules that are effective and feasible. Amid the challenges of an ever-evolving regulatory framework, it’s important to remember the spirit and history of the law or rule.

As you and your credit union colleagues explore becoming even greater champions of DEI initiatives in 2021, keep compliance top of mind. Advocate for appropriate regulation adjustments. The regulations are there for a reason, to address historical problems that are still relevant today. Adopt that mindset to ensure your compliance program is thinking about the larger picture and the inequities that members of your community may face.