CFPB Should Exempt Small Banks from Certain Rules: Lawmakers

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WASHINGTON — A day after Consumer Financial Protection Bureau Director Richard Cordray told financial industry executives that Congress did not intend to exempt small institutions from most rules, several lawmakers begged to differ.

Appearing at the Credit Union National Association government affairs conference, several lawmakers endorsed an effort by Reps. Adam Schiff, D-Calif., and Steve Strivers, R-Ohio, to send a joint bipartisan letter to the CFPB asking it to make more exemptions for credit unions and community banks.

"We are going to remind the CFPB the regulations designed for JPMorgan do not make sense for Schools First [Credit Union]," said Rep. Ed Royce, R-Calif. "Republicans and Democrats did not want to make community financial institutions run like Wall Street banks … that was not the intent."

Rep. Brad Sherman, D-Calif., said legislative efforts to soften CFPB regulations are unlikely to pass, but he and other lawmakers hope they can persuade the agency to back off.

"The regulators get the message, we talk to them behind the scenes and we demonstrate the support on the floor and then we get most of what we would like to get from the CFPB," he said. "That is why I joined with many others in sending a letter to the CFPB … to say that they need to use the authority we gave them under Dodd-Frank to have reasonable goals for small financial institutions."

The lawmakers will need to persuade an openly skeptical Cordray. Speaking a day earlier at the same conference, Cordray said Congress was clear in the Dodd-Frank Act that "all financial institutions have to play by the rules and we have to enforce them."

Still, Cordray said the CFPB does not take a one-size-fits-all approach.

"Where we can customize our rules to treat smaller institutions differently in light of their compliance burdens and the level of risk they pose, we have done so and will continue to do so," he said.

That does not appear to go far enough for many lawmakers.

Speaking to American Banker after the conference, Rep. Randy Neugebauer, R-Tex., said Congress should consider requiring the CFPB and other banking regulators to conduct a cost-benefit analysis before implementing new regulations. "We envision in the future any kind of rulemaking comes with a very robust cost-benefit analysis, because what we are finding is some of the CFPB rules and some of the things they are doing have become extremely expensive for the financial institutions to implement," Neugebauer said.

Not all lawmakers who spoke at the conference were critical of the CFPB's rules, however. Rep. Denny Heck, D-Wash., suggested that the impending CFPB payday lending rule could end up helping small financial institutions.

"If the CFPB comes out with a well written rule … maybe all lenders will be on equal turf, maybe more people will turn to credit unions," Heck said.

Sen. Heidi Heitkamp, D-N.D., also agreed that there should be some regulatory rollback to help smaller institutions but noted the polarizing nature of something as politically charged as the CFPB.

"Somehow if you believe in changing things … you are disloyal or going to throw the rest of this economy into ultimate chaos," Heitkamp said. "There is nothing you can do. It is a mindset in Washington that needs to change."

"Unfortunately nothing that I have seen from the presidential election tells us that this mindset is going to change," she added.

Strivers, speaking after Heitkamp, urged credit unions and community banks to band together in their effort to ease regulations.

"In this fight for regulatory reform, you might find some allies that are not normally your allies. Small community banks are your allies in this fight," Strivers said to the group of credit union professionals, who were getting ready to visit lawmakers on Capitol Hill and plead their case. "You should work with them because they are being crushed under the same [regulations] that some of your small credit unions are fighting under."

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Law and regulation Community banking Dodd-Frank