WASHINGTON House Republicans warned Wednesday that bank examiners are going to continue to pursue small institutions as part of a government crackdown on certain merchants such as payday lenders, pawn shops and gun dealers.
Rep. Blaine Luetkemeyer, R- Mo., noted that the Federal Deposit Insurance Corp. withdrew its controversial list of high-risk merchants in July, but said scrutiny by the agency is likely to continue in private.
The FDIC "is not going to stop. They're still after this" and "there will be more people affected by this," said the Missouri Republican during the National Association of Federal Credit Unions annual Congressional Caucus. "All of you at some point will be touched by this."
Luetkemeyer, vice chairman of the House Small Business Committee, is pushing for proposed legislation that would create a safe harbor for institutions to continue offering services to named merchants so long as the business is legal and registered.
At issue are separate but related targeting of banks as a gateway to other businesses. The Justice Department has launched Operation Choke Point, which has subpoenaed and pursued banks that allow payments to be processed for certain businesses determined to be operating outside the law. The FDIC and other federal regulators have separately warned banks to perform due diligence to ensure they are not providing banking services to shady businesses.
Critics have accused regulators of abuse of power, arguing that legitimate businesses are being cut off.
Operation Choke Point "is one of the most dangerous things I've seen where the government uses the power it has not to pass a law, not even to do rules and regulations, but to essentially draw legal businesses out of the business," said Rep. Mick Mulvaney of South Carolina and a member of the House Financial Services Committee. "It's real. I never thought I'd see the day where the government is doing that and it frightens me to death."
A different warning came from Consumer Financial Protection Bureau Director Richard Cordray, who also spoke at the conference, saying financial institutions should be well into preparing new mortgage disclosure documents for a rule that go in effect August 2015.
"Implementation of the new rule will require significant changes to business operations and technology platforms, which may require close collaboration with third-party service providers," he said. "While many mortgage institutions are already deep into the process of implementing these changes, we want to make sure that everyone understands the need to be focusing on August 2015 right now. We have allowed a very reasonable timeframe 21 months for industry to implement these changes, and we are now nearly halfway through that period of preparation."
Cordray said the CFPB has launched various tools to help lenders get prepared, including a series of webinars on the guidance that is hosted by the Federal Reserve. The CFPB also plans to publish a "readiness guide" in the coming months to help lenders cross-check that they're ready for integrating disclosures mandated by the Truth In Lending Act with the Real Estate Settlement Procedures Act.
Though Cordray received a warm welcome from the audience, Republicans who spoke earlier that morning continued their advocacy to change the structure of the agency.
Mulvaney said it has a reached a point where even former Rep. Barney Frank, D-Mass., agreed during a hearing in July that there are things Congress could do to make the CFPB "more manageable," such as having a commission run the bureau rather than one person appointed by the President.
"The CFPB is probably one of the most out-of-control agencies that we deal with," Mulvaney said. "We got Barney Frank to admit on record in July that he thought that [the CFPB] going to a five-member commission would be a more advantageous thing and a good change... It does open the door for some bi-partisan agreement."