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.
  • The CFPB should promulgate regulations to provide community banks flexibility to meet the unique needs of their customers.
  • 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.
  • 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. Regulatory inequities confuse and potentially harm consumers and create disparities.
  • 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.
  • 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.

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 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. 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. Additionally, any regulations should not be overly prescriptive and deprive consumers of their ability to make financial services decisions.

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

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.

Staff Contact: Rhonda Thomas-Whitley