Banks buffeted by beleaguered CFPB

Jackson Hataway: Bureau created an “overwhelming compliance burden” for banks.

Scott Colbert: The CFPB has done a good job with less regulated industries, like fintech and payday loans.

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In February, President Donald Trump halted the work of the Consumer Financial Protection Bureau, directing his administration to cut off funding and shut down its headquarters. Some of the bureau’s functionality has since been restored after a federal judge blocked the orders.

As uncertainty surrounds the CFPB and its role moving forward, some bankers who are regulated by the agency feel as though their institutions, too, are in limbo.

These moves could seem distant, centered as they are on a shuttered headquarters in Washington, D.C., but here in Springfield, banking officials are left to determine how to move forward amid uncertainty about the CFPB’s future.

Speaking on background, one area bank executive told Springfield Business Journal that employees have been directed to go “pencils down” on the bureau’s reporting requirements until more information is gleaned, and another said he wasn’t sure what to expect moving forward – and in fact, nobody is.

Jackson Hataway, president of the Missouri Bankers Association in Jefferson City, was shedding no tears over the pause in the bureau’s operations.

Hataway said the CFPB put an “overwhelming compliance burden” on banks, in large part because of uncertainty surrounding its communication practices.

One example of the bureau’s reporting burden is the result of its 1071 rule, which requires financial institutions to submit demographic information about loan recipients, as well as information on lending decisions and the price of credit, according to the Congressional Digest.

In its argument for the rule, enacted in March 2023, the bureau stated the data collection would offer insights to identify new opportunities to “support economic growth, help policymakers measure the effectiveness of any government programs and provide a data-driven approach to detect potential discrimination.” Opponents of the measure described it as government overreach, the Congressional Digest noted.

According to Hataway, the bureau’s former director, Rohit Chopra, frequently issued policy statements in blog posts or news releases, and these caused confusion to bankers and banking customers.

He gave the example of a blog post by Chopra labeling something as a “junk fee” – “an inappropriate, made-up term by the prior director,” Hataway said.

But if a banking customer in rural Missouri hears that a certain charge has been characterized as a junk fee by the CFPB, a banker has to deal with the fallout.

An even bigger issue, Hataway said, are the compliance and regulatory burdens posed for banks by the bureau.

“We had banks that were feeling choked out of business by CPFB in particular,” he said, adding, “That’s really bad for the consumer in Missouri, who sees a local entity is no longer able to do business for them.”

History of the CFPB
The CFPB tells a different story about its work.

The organization’s website states that as of Jan. 30, the bureau’s enforcement actions had resulted in $19.7 billion in consumer relief – including monetary compensation, principal reductions and canceled debts. An estimated 195 million consumer accounts have been deemed eligible for relief, and $5 billion in civil money penalties have been ordered.

The bureau was first proposed in 2007 by Elizabeth Warren, five years before her successful Senate run in Massachusetts. It was authorized by Congress in 2010 as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act – a response to the financial crisis of 2007-08 and the Great Recession – and it began operations in July 2011 as an independent bureau within the Federal Reserve.

The political genesis of the organization is part of the rub for the current administration, according to Scott Colbert, St. Louis-based chief economist with Commerce Bank.

“It was largely a Democratic creation, and the president has more Republican values,” he said. “It’s a territorial fight.”

Colbert said the bureau has done some good – but not necessarily in the banking industry.

“It’s been a positive driver from a consumer standpoint, especially in the fintech part of the world,” he said.

Certain underregulated industries, with examples including fintech, pawnshop lending and payday lending, have been held in check by the CFPB, Colbert said.

“They’ve done an awfully good job on that,” he said.

But banks are extremely well regulated, Colbert said, citing the Office of the Comptroller of the Currency, the Federal Reserve Board, the Federal Deposit Insurance Corp. and state regulatory agencies.

Removing the CFPB from the regulatory mix – probably temporarily, Colbert believes – won’t turn banking into the Wild West, mainly because there are still a lot of sheriffs in town.

But the move could spur more loan activity, according to Colbert.

“Loans have slowed down to almost a standstill,” he said. “Higher interest rates have slowed lending, and banks have a lot of capital they’d like to put to work.”

Colbert said most of the slowdown has to do with the business cycle – repeating waves of expansion, peak, contraction and trough.

“If we can get through the policy fog, the plane is flying with a lot of speed,” he said. “We will get to the other side.”

Politics, too, are a cycle, he noted, noting Democrats are likely to have an advantage in midterm elections, giving the current administration about two years to make its moves.

As far as dissolving a bureau established by Congress, Colbert said that may not be possible for the president to do.

“Even if he wants to get rid of it, I’m not sure he can,” Colbert said, adding the court system will also have to weigh in. “It’s not a done deal. It’s not necessarily gone.”

‘Hard to do business’
When it comes to federal consumer financial law, the CFPB has exclusive supervisory and enforcement authority over banks, thrifts and credit unions with assets of over $10 billion, according to its website.

But financial institutions of all sizes are affected by the bureau.

In an interview for another SBJ story, Greg Snyder, chief financial officer of River Region Community Federal Credit Union/Multipli, was asked by Executive Editor Christine Temple if the halt to CFPB activity would impact his institution’s operations.

“To a point, yes – just loosening regulations a little bit,” Snyder said. “Since the CFPB came into the fold – and I don’t think it was a totally horrible idea – but you start making it so hard to do business and help that consumer, and you’re building a lot of infrastructure back office that is managing regulations instead of sitting across the desk doing loans. That’s probably my biggest complaint with CFPB.”

Snyder said he is looking forward to the current administration loosening some of those regulations.

“You need the checks and balances and the watchdogs, but I do think there was probably getting to be too many departments,” he said.

The FDIC for banks and the National Credit Union Administration for credit unions do a good job on the regulation side, Snyder said.

“I don’t know if we needed that whole other division,” he said.

Bankers relieved
The feeling among bankers is broad relief, Hataway said.

“There’s been build up and build up and build up of regulatory activity that’s gone beyond Congressional intent – the rationale for creating it in the first place,” he said. “There’s a wave of relief that we can get back to the business of banking. That’s a huge, huge value to everybody.”

Hataway said banks have had to dedicate a lot of staff time to dealing with the volume of compliance responsibilities a bank has.

“A lot of it’s very appropriate,” he said. “Every bank in our state works tirelessly to take care of customers and make their communities economically vibrant.”

Hataway said layers of regulation add layers of paperwork, which, for many customers, is a frustrating part of the banking experience.

“Nobody who gets a mortgage these days is thrilled by 400 pounds of paperwork when they need maybe four of the pieces of paper,” he said.

The relief may be short-lived, however, if courts move to reverse the current halt in operations. In mid-February, Judge Amy Berman Jackson of the U.S. District Court in Washington ordered that its employees cannot be terminated and its data may not be deleted.