CONSUMER FINANCIAL PROTECTION BUREAU

Position

  • ICBA supports legislation replacing single-director governance of the Consumer Financial Protection Bureau (CFPB) with a five-member commission. Prudential banking regulators should actively participate in the consumer protection rule-writing process.
  • ICBA supports the CFPB promulgating regulations that provide community banks the flexibility to meet the unique needs of their customers. Arbitrary requirements that do not take into account the relationship-based community banking model will likely prevent community banks from serving many of these customers. This reduces consumer choice and ends up hurting the very consumers meant to be protected.
  • The CFPB’s consumer arbitration and small-dollar lending proposals should be withdrawn or should provide an exemption for community banks. Section 1071 of the Dodd-Frank Act, which requires lenders to collect data on small business loan applications, should be repealed through legislation. See separate resolutions on Small Dollar Lending and Loan Data Collection.
  • All firms that offer credit or offer financial products and services should be subject to meaningful supervision and examination, as community banks have long been.
  • ICBA and community banks are concerned the CFPB’s reliance on enforcement actions, rather than authoritative written guidance, creates compliance uncertainty for community banks and threatens to reduce access to credit and other financial products and services. The CFPB should work with community banks and other responsible industry participants to develop authoritative written guidance regarding problematic practices and regulatory expectations.
  • The CFPB should be granted additional statutory authority to exempt or tier regulatory requirements for community banks and/or community bank products and services where appropriate. Any regulations should directly target identified problems while allowing community banks to continue to provide responsible products and services free from undue regulatory burden.
  • Banks with assets of $50 billion or less should be exempt from examination and enforcement by the CFPB and instead be examined and supervised by their prudential regulators for compliance with consumer protection regulation.

Background

Strengthened Participatory Governance and Rulemaking. Replacing single-director governance with a five-member commission would allow for diverse views and expertise on issues before the CFPB and thus build in a system of checks and balances. A commission would promote measured and non-partisan agency action and would result in balanced, high-quality rules and effective consumer protection. Bank regulators have experience and expertise in balancing the safety and soundness of banking operations with the need to protect consumers and provide them with the information they need to make informed financial decisions.

Oversight of Non-Bank Providers. ICBA supports a balanced regulatory system in which all firms that offer financial products and services, including non-banks, are subject to meaningful supervision, examination and enforcement. Industry inequalities confuse and potentially harm consumers and create competitive disparities.

New Rulemakings. Recent proposals restricting community banks’ use of consumer arbitration and imposing stringent ability-to-repay requirements for small-dollar consumer loans would impose substantial new burdens. In addition, community banks are gravely concerned with a forthcoming proposal that would impose HMDA-like data reporting on small business lenders. See resolutions on Small-Dollar Lending and Loan Data Collection for additional information.

Enforcement Concerns. The CFPB is using enforcement actions – including charges of unfair, deceptive, or abusive acts or practices (UDAAP) – as a means of regulating marketplace behavior. This reliance on enforcement actions in place of issuing rules and other authoritative guidance creates significant concerns for community banks which do not have teams of attorneys and compliance professionals to parse the CFPB’s many decisions for compliance risk. The CFPB should work with responsible industry stakeholders to develop authoritative written guidance that provides clear examples of permitted and forbidden practices.

Community Bank Exemptions. While the Dodd-Frank Act allows the CFPB to exempt smaller financial institutions – including community banks – from its rules, it has been reticent to use this authority. Consequently, community banks which did not cause the problems the CFPB has sought to address are too often forced to comply with rules intended to target bad behavior by larger financial service providers. Clearer statutory direction would help alleviate this burden.

Better Risk Targeting of Exam Resources. Raising the exemption level for CFPB examination and enforcement from $10 billion in assets to $50 billion would enhance consumer protection by allowing the CFPB to concentrate on greatest threat to consumers, megabanks and non-bank financial services providers. Banks of less than $50 billion in assets would continue to be examined for compliance with CFPB rules by their prudential regulators. Community bank supervision is more balanced and effective when a single regulator examines for both safety and soundness and consumer protection.

Staff Contact: Joe Gormley