Wells Fargo 2013 Annual Report Download - page 107

Regulatory Reform
Since the enactment of the Dodd-Frank Act in 2010, the U.S.
financial services industry has been subject to a significant
increase in regulation and regulatory oversight initiatives. This
increased regulation and oversight has substantially changed
how most U.S. financial services companies conduct business
and has increased their regulatory compliance costs. The
following highlights the more significant regulations and
regulatory oversight initiatives that have affected or may affect
our business. For additional information about the regulatory
reform matters discussed below and other regulations and
regulatory oversight matters, see Part I, Item 1 “Regulation and
Supervision” of our 2013 Form 10-K, and the “Capital
Management,” “Forward-Looking Statements” and “Risk
Factors” sections and Note 26 (Regulatory and Agency Capital
Requirements) to Financial Statements in this Report.
Dodd-Frank Act
The Dodd-Frank Act is the most significant financial reform
legislation since the 1930s and is driving much of the current
U.S. regulatory reform efforts. The Dodd-Frank Act and many of
its provisions became effective in July 2010 and July 2011.
However, a number of its provisions still require final
rulemaking or additional guidance and interpretation by
regulatory authorities or will be implemented over time.
Accordingly, in many respects the ultimate impact of the Dodd-
Frank Act and its effects on the U.S. financial system and the
Company remain uncertain. The following provides additional
information on the Dodd-Frank Act, including the current status
of certain of its rulemaking initiatives.
Enhanced supervision and regulation of systemically
important firms. The Dodd-Frank Act grants broad
authority to federal banking regulators to establish
enhanced supervisory and regulatory requirements for
systemically important firms. The FRB has finalized a
number of regulations implementing enhanced prudential
requirements for large bank holding companies (BHCs) like
Wells Fargo regarding risk-based capital and leverage, risk
and liquidity management, and stress testing and imposing
debt-to-equity limits on any BHC that regulators determine
poses a grave threat to the financial stability of the United
States. The FRB has also proposed, but not yet finalized,
additional enhanced prudential standards that would
implement single counterparty credit limits and establish
remediation requirements for large BHCs experiencing
financial distress. In addition to the authorization of
enhanced supervisory and regulatory requirements for
systemically important firms, the Dodd-Frank Act also
established the Financial Stability Oversight Council
(FSOC) and the Office of Financial Research, which may
recommend new systemic risk management requirements
and require new reporting of systemic risks. The OCC,
under separate authority, has also recently released for
public comment proposed new guidelines establishing
heightened governance and risk management standards for
large national banks such as Wells Fargo Bank, N.A.
The Collins Amendment. This provision of the Dodd-Frank
Act phases out the benefit of issuing trust preferred
securities by eliminating them from Tier 1 capital over a
three year period that began on January 1, 2013.
Regulation of consumer financial products. The Dodd-
Frank Act established the Consumer Financial Protection
Bureau (CFPB) to ensure consumers receive clear and
accurate disclosures regarding financial products and to
protect them from hidden fees and unfair or abusive
practices. With respect to residential mortgage lending, the
CFPB issued a number of final rules in 2013 implementing
new requirements that generally became effective in
January 2014. These rules include provisions requiring
creditors originating residential mortgage loans to make a
reasonable and good faith determination that each
applicant has a reasonable ability to repay the loan. In
addition, these rules established a definition of “qualified
mortgage” to support a broad access to credit for consumers
coupled with legal protections for lenders and secondary
market purchasers. These rules also impose requirements
on servicers to correct loan information errors, to provide
information in response to borrower requests, and to
provide protection to borrowers in cases of force-placed
insurance. Other rules address policy and procedural
concerns, such as requirements to provide notice or
information regarding certain interest rate adjustments or
payoff information; to evaluate borrower applications for
and to provide delinquent borrowers with information
regarding loss mitigation options; and to establish loan
originator compensation restrictions, high-cost mortgage
requirements, appraisal requirements, and escrow
standards for higher-priced mortgages. In November 2013,
the CFPB also finalized rules integrating disclosures
required of lenders and settlement agents under the Truth
in Lending Act and the Real Estate Settlement Procedures
Act effective August 1, 2015. In addition to these rulemaking
activities, the CFPB is continuing its on-going supervisory
examination activities of the financial services industry with
respect to a number of consumer businesses and products,
including credit card add-on products, fair lending
requirements, and student lending activities. At this time,
the Company cannot predict the full impact of the CFPB’s
rulemaking and supervisory authority on our business
practices or financial results.
Regulators also provided guidance to the financial
services industry regarding the provision of short-term,
small-dollar loans to consumers, such as our direct deposit
advance service. On January 17, 2014, we announced that
we would discontinue our direct deposit advance service.
New consumer checking accounts opened February 1, 2014,
or later will not be eligible to access the service, while
existing customers will be able to access the service until
mid-2014. Discontinuation of the service is not expected to
have a material financial impact on the Company.
Volcker Rule. The Volcker Rule substantially restricts
banking entities from engaging in proprietary trading or
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