Inside Financial Services

Exempt Small Banks From CFPB Rules? Ridiculous And Unfair.

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From Tuesday’s American Banker (via National Mortgage News):



WASHINGTON — In an impressive show of force, roughly three-fourths of House lawmakers signed a bipartisan letter that calls on the Consumer Financial Protection Bureau to take more steps to carve out community banks and credit unions from onerous regulations. . . .

“As you undertake rulemakings, we urge you to consider the benefits credit unions and community banks provide to their members and ensure that regulations do not have the unintended consequences of limiting services or increasing costs for credit union members or community bank customers,” said the letter, which was drafted by Reps. Adam Schiff, D-Calif., and Steve Stivers, R-Ohio, and signed by 329 House lawmakers. [Emph. added.]

My, my, my. This pathetic example of special pleading was signed by three-quarters of the members of Congress—the same Congress that, when it created the Consumer Finance Protection Bureau, via Dodd-Frank, in 2010, gave rise to the burdensome CFPB regulations that these Congressmen now decry. Geniuses!

I’m of course no fan of Dodd-Frank or the CFPB, and lament the damage both have done to the banking industry and the economy at large. But the CFPB is authorized by law and, unless the law says otherwise, its rules ought to apply to everybody—including the banks with loudest lobbyists. Is there something different about customers of community banks and credit unions that make them somehow not vulnerable to the abuse that CFPB rules are supposed to prevent? Are executives at small banks and C.U.s more virtuous and so don’t need as rigorous oversight?

The answers, of course, are “no” and “no.” If all these Congressmen really are as upset as they say they are about the weight of bank regulation, they have an easy out: amend Dodd-Frank in order to make the burden less onerous. They sure seem to have the votes. They might, if they’re so concerned about the CFPB in particular, make the agency more answerable to Congress by funding it via appropriation (rather than direct funding from the Fed as it is now) and reforming its governance by installing a bipartisan board to run the place rather than a single individual.

Those would be straightforward and sensible fixes that would go a long way to fixing the problems these Congressmen have identified. Instead, they’ve chosen instead to beg to Richard Cordray. Pathetic.

What do you think? Let me know!

4 Responses to “Exempt Small Banks From CFPB Rules? Ridiculous And Unfair.”

  1. SWPilgrim

    Just imagine the KStreet expenditure on this item!

  2. Raymond

    I’m not sure you’re posing the correct questions here. I don’t believe anyone thinks that small bank executives are more virtuous. However, their failure is seize up our entire financial system. It seems sensible that community banks would not require the same level of regulation as say a BOFA or CITI. I think 2008 and 2009 proved the system can handle plenty of small bank failures without stressing our system (check out all the failures in Georgia). Unfortunately, the same couldn’t be said for the failure of large financial institutions. If you’re gonna be big you should expect more oversight.

  3. Alan Gay

    Community bank executives are not more virtuous. However, they are vastly more subject to discipline by the market. They have no powerful brand, no superior technology, no business model advantage, no technological advantage, and no ability to shape the industry. What they have is the good will of their customers, and they are loath to abuse it. Community banks were certainly not blameless in the financial crisis, but their contribution was being too easy on commercial credits. They didn’t take advantage of anyone other than ultimately their stockholders.

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