Compliance Blog

Written by Steve Van Beek

We have blogged in the past about statements from Elizabeth Warren about the CFPB's regulatory and compliance burden on community banks and credit unions.

For example, this April 25 blog post quotes Professor Warren from a speech to community bankers:

"During my many visits with you, I've heard about the high cost of regulatory compliance. I understand the difficulty of determining what is or is not required by a particular regulation and the costs that creates. I appreciate the widespread anxiety and frustration over the future of community banks and other small financial institutions. I know that you want a regulatory structure that doesn't require an army of lawyers. Big banks may be able to afford to hire all those lawyers, but you cannot.

This is what you have said to me in visits all around the country: Community banks work hard to build long-term partnerships with the families they serve. Community banks didn't cause this financial crisis. And badly done regulation can further weaken our community banks, significantly increasing the pressures they face. How should the new consumer bureau incorporate these lessons into its work?" (emphasis added).

This July 19 blog post quotes Professor Warren from a Congressional hearing about the CFPB's need to find and replace outdated and useless disclosures:

"We recognize that government regulation also has played a part in making credit products more opaque. Mandated federal disclosures, sometimes written in obscure language, covering all manner of subject matter, and reproduced in small type, too often have imposed significant burdens on lenders while providing little benefit to consumers. It should be the job of the consumer bureau to revise and update outdated regulations and useless disclosures as aggressively as it monitors the fine print layered on by lenders. If everything is on the table, including existing government regulations, the goals of transparency and consumer understanding can become a reality." (emphasis added).

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There are some that are worried that Professor Warren leaving the CFPB to return to Harvard Law School will prevent the CFPB from "walking the walk" on compliance burdens for credit unions. After all, the CFPB is not bound by language in speeches or Congressional testimony, right?

Well, Section 1022(b)(2)(A)(ii) of Dodd-Frank requires the CFPB to specifically consider the impact of its rulemakings on depository institutions under $10 billion in assets. Of course, since this is legislation - it doesn't spell this out clearly - but the requirement must be followed:

"(2) STANDARDS FOR RULEMAKING. In prescribing a rule under the Federal consumer financial laws

(A) the Bureau shall consider

(i) the potential benefits and costs to consumers and covered persons, including the potential reduction of access by consumers to consumer financial products or services resulting from such rule; and

(ii) the impact of proposed rules on covered persons, as described in section 1026, and the impact on consumers in rural areas;"

So, who are these covered persons under Section 1026?

"SEC. 1026. OTHER BANKS, SAVINGS ASSOCIATIONS, AND CREDIT UNIONS.

(a) SCOPE OF COVERAGE. This section shall apply to any covered person that is

(1) an insured depository institution with total assets of $10,000,000,000 or less; or

(2) an insured credit union with total assets of $10,000,000,000 or less."

This means the Consumer Financial Protection Bureau must consider the impact of their new regulations (or changes to existing regulations) on credit unions below $10 billion in assets.  This is a statutory requirement.

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What does this mean for credit unions? Your comment letters need to be given special attention by the CFPB. For example, if the CFPB proposes a "one-size fits all" regulation - it needs to consider whether the proposal is more costly for small institutions than large institutions (who have more resources and more technology).

This requirement could also open the door for alternatives. If the CFPB proposes a rule with large implementation costs, credit unions could propose alternatives that will meet the same regulatory objective at a lower compliance cost.

The CFPB has addressed these Section 1022(b)(2) issues in its latest Interim Rules. For example, the State Official Notification Rule includes this language:

"Further, the Rules have no unique impact on insured depository institutions or insured credit unions with less than $10 billion in assets described in section 1026(a) of the Act, and do not have a unique impact on rural consumers."

When the CFPB begins amending existing consumer regulations and adding new requirements - pay close attention to their Section 1022(b)(2) analysis. The burden should be on the CFPB to show their rules do not overly impact smaller depository institutions.