CFPB: Small Banks Have Bigger Worries than Us

The Consumer Financial Protection Bureau is targeting large banks and a wide variety of nonbanks rather than community banks, a regional director of the bureau said last week.

In fact, the next industry in the CFPB's crosshairs is nonbank collection agencies, Jim Carley, the bureau's Southeast regional director, said during a panel discussion in Greensboro, N.C., hosted by the North Carolina Bankers Association. The CFPB is already looking into payday lenders, mortgage servicers, mortgage origination firms and credit bureaus.

"We're focusing our attention on the larger banks and the nonbanks," Carley told a crowd dominated by community bankers and directors. "So we are continuing to push out into these other sectors that have not had [regulators] supervising them for the last 75 or 80 years."

The CFPB is only allowed to conduct examinations of banks with $10 billion or more in assets, he noted. Banks twice that size are considered community banks, but the lion's share of them are well below the threshold.

Community banks should instead expect more discussions with bank regulators over strategic direction, panelists said. "We're focusing less on asset quality," said David Payne, assistant deputy comptroller for the Office of the Comptroller of the Currency.

"You've got the ability to move forward, so we want to know what's next," Payne added. "We want to see you succeed … but we also want to know what you are going to do with earnings. And when you start talking about innovation, we are going to start talking about risk parameters."

Interest rate risk is a focal point for the Federal Deposit Insurance Corp., John Henrie, the agency's deputy regional director for risk management, said. "Don't underestimate your role as a director with corporate governance," particularly when it comes to risk appetite, he said. "You should be implementing measures to monitor [risk] and hold your managers accountable."

The panelists also discussed the CFPB's controversial qualified mortgage rule. Large banks with more advanced compliance functions should end up with a competitive edge over smaller institutions because of the rule, warned Ray Grace, acting commissioner for the North Carolina Office of the Commissioner of Banks.

"It is going to be very hard for community banks to make loans that conform with" standards that provide a safe harbor from litigation, Grace added. "I think there will be a restriction of credit."

OCC examiners are having conversations with bankers about QM, Payne said. "It is surprising that we're not getting a lot of questions from bankers," he said. "It is a day-by-day process to see how we're going to handle it. Right now our focus is on whether bankers have read it and learning what they think about it."

"There's a hope that community banks will find a way to be innovative," added Jennifer Burns, a senior vice president at the Federal Reserve Bank of Richmond. "We'll look for banks to understand the compliance risk and make the adjustments to comply with consumer protection laws. Our expectation is that you have thought through the process and put the proper controls in place."