WASHINGTON – The Consumer Bankers Association is hoping that moderate Democrats will finally get on board with converting the Consumer Financial Protection Bureau to a five-member commission rather than a single director, despite continued opposition from Sen. Elizabeth Warren, D-Mass., to such a move.
The trade group says the “whipsaw effect” of having a single director who can quickly tack the bureau in one direction or another can make it challenging to plan out budget expenditures and determine which products and services they should invest in and offer.
But they face an uphill battle making their case, as Republicans push for further-reaching reforms, including subjecting the CFPB to the appropriations process, while Warren and other Democrats continue to object to a commission.
“We are fighting Democrats on the left and Republicans on the right because we just want stability for the marketplace and for consumers,” CBA President and CEO Richard Hunt said in a recent sit-down interview.
But Hunt finds reason for optimism, noting that several moderate Democrats up for re-election in 2018 may defect, particularly those in states President Trump won in the 2016 race.
“Elizabeth Warren does not play well in those states of Montana, West Virginia, Indiana, Missouri," Hunt said.
Hunt continues to insist that a commission is better for Democrats, too, particularly given the GOP push to fire CFPB Director Richard Cordray.
“Richard Cordray’s days are numbered one way or another,” Hunt said. “Either through elimination or his term expires, and there will be a director for at least two and a half years of Trump’s choosing. And I don’t think that is going to be a person Elizabeth Warren or Sherrod Brown is going to like.”
While some in the banking industry clearly relish the idea of a single director appointed by the GOP, Hunt said it's better for all if a commission is in place.
“We are not looking at a two-year play, we are looking for a 20-year play for the agency,” Hunt said. “There are some people that want to eliminate the CFPB. Our position is just restructuring the CFPB for long-term stability.”
Ross Carey, the CBA's chairman and an executive vice president at U.S. Bank, said Warren's continued opposition to the idea surprises him.
“It is puzzling in this current state that they are staying true to a single director,” he said. “We thought that would shift more than it has … a commission seemed logical from the beginning” of the bureau’s creation.
The return of deposit advance?
But the CFPB isn't the only issue the group is focused on. It also sees a path for the return of deposit advance products once new leadership is in place at the federal regulatory agencies.
Banks such as Wells Fargo, Fifth Third, Guaranty Bank, U.S. Bank, Regions and Bank of Oklahoma once offered small-dollar, high interest rate loans to customers who ran into short-term cash shortages. But 2013 guidance from the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. said the products carried a reputational risk because they were expensive to consumers, and the banks subsequently exited the business.
Hunt said Congress and the regulators should take another look at deposit advance because customers who run into funding shortages are turning to the more lightly regulated payday loan industry, which offers even costlier credit options.
“Small-dollar lending has also been a service that was provided by banks — a much better choice by banks is no longer available in the banking industry, and that has harmed the consumer on those small-dollar needs that happen for consumers sometimes,” Hunt said.
The CFPB issued a proposal last year that was designed to rein in the payday loan industry. An initial draft provision included in the plan would have allowed an underwriting exception for installment loans if the monthly payments did not exceed 5% of a borrower’s gross monthly income. Some thought that the exception might leave enough room for banks to get back in the business.
But that provision was not part of the official proposal issued by the CFPB, leaving the situation unclear.
“We still don’t know” if the 5% exception would work for banks, said Hunt, adding that not all six banks that previously offered deposit advance are in the same position. “It might work for one of the banks and not the other five. “
“We are trying to get many banks in this — not just the six — because it is a better, cheaper alternative than going to payday lending,” Hunt said.
If the OCC, FDIC and Federal Reserve Board provide new guidance that views the product more favorably, banks might get comfortable offering it again.
“Some of our banks, even though they are not FDIC-chartered, they care what the FDIC thinks," Hunt said. "So most of our banks say all three [federal bank regulators] have to be in agreement or we don’t go in” on deposit advance.
The CBA along with other bank trade associations want Congress to revisit the Durbin amendment, which caps debit interchange fees. The amendment was added at the last minute to the Dodd-Frank Act with the stated goal of passing retailers' savings on to consumers.
But banks say consumers aren’t reaping the benefits and want Congress to get rid of the cap.
“The Durbin amendment took money out of us and gave it to the merchants, but it hurt us with products like free checking,” Hunt said. “We would like to see that repealed.”