New CBA Chief on Regulation, QM Rule and the Future of the Branch

A host of regulatory issues, including new mortgage rules set to take effect in January, assures that Andy Harmening has a busy year ahead of him.

Harmening, regional banking group head at Bank of the West, is the new chairman of the Consumer Bankers Association. His one-year term began earlier this week.

Bankers are concerned about increasing revenue and many are returning to the basics to improve the bottom line, Harmening says. Bank of the West, a $63 billion-asset unit of BNP Paribas, has focused on small-business lending, an area that he says is ripe for banks.

The mortgage industry is likely to go through changes early next year due to the Consumer Financial Protection Bureau's qualified mortgage rule, and refinancing is slowing down. Still, Harmening says some hope exists because new home purchases could pick up as the economy strengthens.

The following is an edited transcript of American Banker's interview with Harmening Sept. 19.

What are your top priorities as CBA chairman?
ANDY HARMENING: I want to focus on participation, communication and education. We need participation from our members on our key committees, whether that is fair lending, auto or home equity. If we get participation then we'll get a good view of what is going on with the consumer.

We feel like we have a unique insight into what's happening in the field. That gives us an opportunity to go to [regulators] and talk to them about what regulation means when it gets implemented from the view of the bank and the consumer. On the education side we think it helps to have a smarter, more prepared banker and in turn allows for a better experience for the customer.

What are the greatest concerns for CBA members?
First and foremost, we want to look at revenue growth. Most folks think that will be a fairly big challenge in 2014, although the economy is slowly picking up so for the first time we see a light at the end of the tunnel that may not be a train coming.

With regards to regulation ... there are a lot of rules and multiple regulators. For example, if you look at deposit advance, that's a pretty minor product for the industry, yet there are opinion positions from the OCC, FDIC and CFPB. Some of the concerns we're seeing is whether there is a coordinated effort among our regulators. We think that's important and we see that as a major challenge.

In terms of revenue, are you seeing renewed interest among banks in offering certain products or expanding into new areas? What are some of the solutions you are hearing?
I see some signs of life in small-business lending. I see some very good signs of life as the housing market has improved, home equity loans are increasing and pent-up demand for auto has come around. I don't know if that is new. It is back to basics and executing and being there for the consumer. Most banks are talking about mass affluent and wealth offerings as well and trying to capture a bigger share of wallet. As an industry you can't get away from the discussion of digital banking and the impact on branches.

What are your thoughts on the future of the branch?
The branch is not dead. However, the way of doing business in the branch is going to change significantly. Many people are talking about the idea of a universal banker. I want to get to the point in my own bank where everybody in the branch can take a transaction and everyone can open an account. There will be fewer transactions. Remote deposit capture is changing the landscape.

The other piece that isn't talked about as much is the technology that will enable a singular experience across channels. It used to be you called a call center but the branch didn't know what happened. Or you are online and the branch doesn't know what happened. The question is can you create a seamless experience by coordinating all of your channels from a technology standpoint?

It forces us to delight our customers in multiple channels simultaneously and make sure it feels like one bank. That being said, I believe there have been some branch closures and that doesn't mean there won't be branch closures in the future because you are going to have to invest in these multiple channels.

Your bank has used analytics to improve cross selling. Can you talk about that?
A big part of that is understanding what a customer might want next. We don't want to contact the customer and they end up having a bad customer experience. We want to make sure we have a product or promotion that we think that might make sense for that customer. We use data to determine what might be appropriate so that more of the time it fits their needs and more of the time they acquire something. That helps us and it ends up helping them.

We've created an outbound contact strategy that goes all the way from leads being pushed to the branch to the result so that we understand better what was appropriate and then we track and monitor that. It has changed the fabric of our bank.

What are your thoughts on QM?
In theory, it makes sense. By that, I mean putting responsible standards in place for down payment and debt-service coverage ratios make sense to the industry. But there are still some questions around what it means to do nonqualified mortgages because not everyone fits into a perfect box.

I'm not sure we know as an industry — or will know that for quite some time — because it would take a default on a mortgage and a decision and some standards to be set. As for the timing of it, we've been working hard as an industry to be ready for it. There are some concerns about what the impact will be. The good news is we think a majority of loans do qualify.

How would you evaluate the CFPB's job so far?
I'd say the CBA and CFPB have a very good partnership. I feel like they have listened, whether that's [CFPB Director] Richard Cordray or [Deputy Director] Steven Antonakes. They have attended our events. They've spoken to our board. They have interacted heavily with the president of our organization. I feel like there is an ear for that.

I think there's some reason for optimism. I'm particularly heartened if you look at [Antonakes'] permanent appointment. He has a history in Massachusetts of looking at banks and nonbanks. I think from the prospective of a level playing field that will be important. I think it is one of the stated goals of the CFPB and I think we're anxious to see that play out.

Any predictions for mortgage lending?
Rates were at historic lows and refinancing volume was at a historic high. That has to be cyclical and has to slow down based on the rate environment. That being said, there are some very encouraging home valuation trends so the question is will some homeowners get to the position where they have enough equity in their homes to refinance and will that create a second wave?

The second question is will the purchase market improve based on home valuations increasing and the economy rebounding consistently? I think there are a lot of different factors. Clearly on the refinance side there will be a volume decrease. The question then is to what degree and what happens on the purchase side.

What are you looking forward to the most as CBA chairman?
I saw in an American Banker article that about 2% of people would be willing to go into banking. What a shame that is because we have an industry that has so much to offer. We're doing so much with technology and digital. We manage $18 trillion as an industry in retirement assets. We do $600 billion in small-business lending.

I would like people to understand what a great industry this is and I think that the way we do that is to have active participation from our group, great communication with regulators and Capitol Hill and a focus on education.