ABA: CFPB in Need of Reform, Hurts Small Banks Most

Small lenders are still fearful to make loans, and will continue to remain hesitant until the Consumer Financial Protection Bureau and Dodd-Frank reduct the regulatory burden on community banks, American Bankers Association President Frank Keating urged in a Boston Business Journal column published last week.

“Until the dawn arrives and the skies clear there will be a hesitancy to make loans, even though banks want to, because they’re fearful of what regulators might decide to do after the fact,” Keating wrote.

The CFPB, which is now operating under the leadership of its first-ever director, Richard Cordray, has already ramped up enforcement staff and has indicated it will begin examination of lenders including non-banks in the coming weeks.

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Having authority transferred from a handful of other regulatory agencies and operating under a single director, some have called the bureau’s power unprecedented. Especially with the ability to enforce under an “unfair and deceptive” rule, the agency can call lending practices into question on its own terms.

“…the CFPB is … worrisome and ponderable because nobody can say no to it. The one thing bankers don’t want is to be whipsawed,” Keating wrote.

There has been some indication made by Cordray to the effect that the CFPB has explored a two-tired enforcement system so that community banks may fall under different rules than their larger counterparts. The bureau has yet to follow through on the statements, however. The smaller banks are particularly limited in facing new, high costs, Keating said in his column.

“Smaller institutions that don’t have any compliance people [say] … ‘Capital is healthy. We want to lend, but regulators are telling us to be much more careful in how we lend. … We can’t hire that loan officer, we have to hire a compliance person, and [that] person doesn’t bring any business in the door.’”

Read the Boston Business Journal article.

Written by Elizabeth Ecker