How Banks Can Find Their Voice in a Turbulent Regulatory Landscape
By Justin Estes, Contributor at The Financial Brand
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Executive Summary
- On a recent episode of the Banking Transformed podcast recorded live at The Financial Brand Forum 2025, host Jim Marous spoke with Lindsey Johnson, president and CEO of the Consumer Bankers Association, about the challenges banks face in today’s regulatory environment.
- In an industry facing unprecedented regulatory scrutiny while simultaneously navigating rapid technological change, financial institutions find themselves at a critical crossroads.
- By fostering constructive dialogue between regulators and industry representatives and focusing on outcomes that truly benefit consumers, banks can position themselves to thrive in this evolving environment.
Banking’s Evolving Regulatory Landscape
Q: What is the biggest challenge facing banks in today’s regulatory environment?
Lindsey Johnson: The market noise is at a level we haven’t seen and boring banking is gone; we haven’t seen this much attention from regulators since the financial crisis.
If you can write a common-sense rule or regulation that addresses a market failure or consumer harm, it absolutely needs to be articulated. However, we’ve repeatedly observed a considerable amount of redundancy and rulemaking that does not genuinely consider the intended outcome before it’s drafted.
In the last several years, we’ve seen politics drive rulemaking and you’ve probably seen over the last four years that the industry has found its voice like it hasn’t in quite some time.
Q: How has the industry responded to recent regulatory actions like the "junk fees" initiative?
Johnson: Credit card late fees are a great example where you’ve got this rule that comes out following this announcement of junk fees and even the CFPB at the time admitted that 74% of consumers who paid their cards on time would see their costs go up. So, we peeled that back a little bit and we said, "Look, that’s 50% of subprime borrowers who pay their bills on time are going to see their costs go up."
Submitting a comment letter over the last four years was like going to marriage counseling when your partner sort of picked out another spouse. It wasn’t doing much; they landed exactly where they had started.
So, we actually joined a lawsuit against the CFPB regarding that rule. It’s currently tied up in litigation. Historically, the industry has not pursued this action. This marks the first time that CBA has sued our prudential regulators and it’s not a comfortable situation. We don’t expect it to progress, but it was necessary.
Creating a Level Playing Field with Fintechs
Q: How can traditional banks compete with less-regulated fintech companies?
Johnson: I think banks are welcoming the competition from a lot of fintech players. It is pushing us to be better, it is helping us see opportunity, they’re nimble, they can execute these things. Fintechs, especially over the last three years, have realized the benefits of having a bank partner.
Banks will continue to struggle with the idea that if they want to compete, they should do so genuinely. Competing solely on regulatory arbitrage will lead to significant issues. We’re finding more success in explaining why that approach shouldn’t be permitted.
Q: What regulatory inconsistencies currently exist between banks and non-bank competitors?
Johnson: One example — and I hate to single them out — is Chime. Chime generates nearly $2 billion in revenue from debit interchange, while banks have been significantly hindered. The federal government, specifically the Federal Reserve, intervened to set pricing for banks regarding debit interchange.
Why? If it’s good for the goose, it should be good for the gander. The same applies to consumer protection. Consumers should not have to guess whether they have the same protections based on who and where they’re receiving their financial services from.
Our approach resembles an activity or regulation. Banks follow various effective consumer protections that should simply be extended to non-banks; it shouldn’t even be questioned.
Leveraging Data and AI for Consumer Banking
Q: How are banks using data and AI to improve customer experiences while managing risk?
Johnson: Overdraft is a prime example of how the industry has evolved due to technology, driven by several innovations initiated within the industry, without any intervention from the government or regulators, while the industry has halved overdraft revenue.
Large banks led this because they could utilize that technology. Many banks did it differently. Some offered same-day grace periods, 24-hour grace periods and minimum amounts. They looked at their customers and how they used overdraft and innovated.
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Credit cards offer a prime example of where credit underwriting, AI and various technologies intersect. It is a very good place for that technology. You can underwrite more consumers, do it more efficiently and effectively and hopefully bring more consumers into the banking system.
Q: What barriers exist to more widespread adoption of these technologies?
Johnson: Part of it on the AI front is how we ensure that regulators appropriately use the tools in place. So, model risk management that exists today is a fantastic tool. Banks adhere to it, which is effective for AI and generative AI, but non-banks don’t. So, if we want to talk about the regulation of AI, let’s start there.
But again, if you’re not moving, that is likely the biggest concern: truly understanding where you are right now. Do you have the data? Is it clean? Is it usable? And then, do you have the capability to actually leverage it?
The Open Banking Evolution
Q: How is the industry approaching open banking and what concerns exist about current regulatory frameworks?
Johnson: Regarding the open banking question, I believe that the industry is transitioning to open banking. We have been moving toward open banking in this new ecosystem for quite some time. For example, the average consumer has around five fintech apps on their phone.
That’s incredible, considering just five or six years ago, that simply was not the case. So, we’re moving in that direction and banks are moving to a more open architecture. What’s troublesome, is that the CFPB and its rule, which has been challenged in court, are moving to force it into a European-style of open banking.
And if you’re going to go in that direction, which we have questions about, do they even have the authority? I strongly argue that they don’t. However, if they did possess that authority, they should have at least resolved the issues in the market. That’s what a regulator does.
Q: What potential issues do you see with the CFPB’s approach to open banking regulation?
Johnson: Stop screen scraping and hold other players to a higher data privacy standard. If you’re not going to do that, ensure the liability doesn’t come back on the banks. Right now, you all will be open to tons, endless fintech and others who want your consumers’ data that you have permission to give.
Yet, if something goes wrong with that consumer’s data, you will be held accountable. We just don’t think that’s fair. I believe we’re transitioning into a more open banking system and I believe that’s happening on its own.
Every bank should believe that consumers have the right to their financial data. So, again, I think we’re moving in this direction. I hope that some regulatory parameters make sense and address the problems in the marketplace without exacerbating the problems that are already there.
Building a More Constructive Regulatory Dialogue
Q: How can regulators and industry representatives work together more effectively?
Johnson: Well, I can tell you from our bank’s perspective, we are not only working to get the rules, the most harmful rules that we believe hurt consumers. We believe in our heart of hearts because the data shows that consumers were going to lose out on the overdraft rule; they simply were.
We believe and know that consumers would lose out on the credit card late fee rule. So, we worked and just had the overdraft rule undone. We believe that the credit card rule would be undone in litigation.
The CFPB is the only one that at least supervises non-banks. So, let’s fix the CFPB, right-size it and get it focused.
Q: What would a more balanced regulatory approach look like?
Johnson: Let’s get regulators in the room. We’re not ever going to agree on everything—we understand that — but if we all have the consumer’s interest in mind, if we all actually do cost-benefit analyses for the consumer, then I think most of these issues will get resolved well before they ever get into the public’s.
Right now, third-party risk management (TPRM) is very unwieldy. We need to figure out how to make it less unwieldy. It is very complicated. Can we offer TPRM as a service? I don’t know, but I think we should look at it.
Finding the right balance will be crucial ass the banking industry continues to navigate an increasingly complex regulatory landscape while embracing technological innovation.
By fostering constructive dialogue between regulators and industry representatives and focusing on outcomes that truly benefit consumers, banks can position themselves to thrive in this evolving environment.
