ICBA Policy Resolution: Consumer Financial Protection Bureau

Position

  • ICBA supports legislation that would replace 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 and the CFPB’s governance.
  • ICBA supports granting the CFPB additional statutory authority to exempt or tier regulatory requirements for community banks and/or community bank products and services where appropriate.
  • 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. ICBA strongly urges the CFPB to concentrate its efforts and resources on greater supervision of irresponsible actors that are not regularly examined.
  • 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 regulations.
  • ICBA and community banks are concerned the CFPB’s use of 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.
  • ICBA urges the CFPB to ensure that adequate public input is sought and considered, especially from small entities, as it engages in rulemaking or development of interpretive rulings and guidance.
  • ICBA encourages the CFPB Office of Innovation’s efforts to create balanced and flexible regulation that promotes innovation

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 build in a system of checks and balances. A commission would promote measured and non-partisan agency decision making which would more likely result in balanced, high-quality rules and effective consumer protection.

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 seeks to address are too often forced to comply with rules intended to target bad behavior by larger financial services providers. Clearer statutory direction would help alleviate this burden. Arbitrary requirements that do not take into account the relationship-based community banking model reduce consumer choice and end up hurting the very consumers they are meant to protect. Additionally, regulation should not be overly prescriptive and deprive consumers of their ability to make financial services decisions.

Enforcement Concerns

The CFPB has used 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 appropriate industry stakeholders to develop authoritative written guidance that provides clear examples of permitted and forbidden practices.

Inadequate coordination between federal and state agencies in enforcement activity is a topic of ongoing concern for industry participants. Requirements in Dodd-Frank are overseen by multiple regulatory agencies. This overlap has resulted in increased compliance costs and duplication of efforts for community banks. The CFPB should implement a system in which it coordinates enforcement activity with other interested and relevant regulators.

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 the 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. The CFPB should concentrate its efforts and resources on greater supervision of irresponsible actors that are not regularly examined by regulators instead of writing more rules that affect community banks, which are proven responsible lenders and already sufficiently examined.

Rulemaking Procedures

ICBA urges the CFPB to improve its rulemaking process by enhancing the SBREFA process to allow additional time for small entity representatives to fully discharge their duties on the panel and streamline the notice of proposed rulemaking and final processes. In addition, ICBA urges the CFPB to cease the issuance of stand-alone interpretive rule guidance without opportunities for public notice and comment as required by the Administrative Procedures Act and to submit all existing and future interpretive guidance to Congress for review.

Office of Innovation

ICBA urges the CFPB’s Office of Innovation to help strike the proper balance of setting protocols and procedure while still leaving flexibility that facilitates innovation in the markets for consumer financial products and services. The CFPB’s proposed revisions to its Trial Disclosure Program and No Action Letter will facilitate community bank innovation, designed to better help the consumer.

Staff Contacts:  Rhonda Thomas-Whitley and Michael Emancipator

 

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