Changes in the banking industry force lenders to rethink risk levels

What does the Dodd-Frank Act do?

When the Dodd-Frank bill forced major banks to lower the debit card fees they charge merchants, most financial institutions began to search for other places to make up for the lost profits. But when Bank of America’s attempt to charge customers $5 every month they use their debit card was met with complaints, it was clear there may not be an easy solution. As other upcoming changes develop, such as the switch to mobile wallets, financial institutions may consider cracking down on risk management to better prepare.

As Susan Palm writes in American Banker, changes from the Durbin Amendment of the Dodd Frank bill combined with innovative developments in the mobile wallet and other forms of digital payments have put more pressure on the banking industry. Though some banks have tried to combat the debit card fees by pushing credit cards or even creating hybrid credit and debit card forms, this in turn creates new, potential risks.

By pushing credit cards to consumers, banks and other lenders may find themselves with unqualified borrowers, thinking instead about avoiding the debit card fees. While the credit card fees remained unchanged, providing credit cards to unqualified borrowers may not only not make up for the lost debit card charges, but instead will cause banks to lose profits with higher delinquency rates.

Credit risk management software can allow banks to make not only loans to qualified consumers, but also credit cards to avoid the debit card fee and remain solvent. Even for institutions with less than $10 billion in assets that are not affected by the bill, as changes in payment methods affect how users bank, investing in risk management software can help banks to further adapt to these changes.

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