Will the CFPB serve up a small bank Rapture?

From Flickr: “Whack a Banker: A Unique Opportunity to Discipline the reckless Bankers , based on robust modelling of the banking system.”

Small banks and credit unions feel the CFPB is brandishing a big whacking stick. (Photo Credit: CC BY/dullhunk/Flickr)

The Consumer Financial Protection Bureau has been called out by the American Bankers Association, reports Investors Business Daily. The banking conglomerate insists that once the CFPB begins enforcing new Dodd-Frank Act laws regarding loan disclosure and transparency this summer, the costs of bureaucracy will send 1,000 community banks and credit unions to their doom. It’s the kind of change small banks can’t see a good reason for.

Strong enforcement arm in consumers’ corner

Elizabeth Warren, the interim chief of the CFPB, has warned that “change is coming” and that all U.S. financial institutions will have to play by new rules. More than half of the Consumer Financial Protection Bureau’s budget will be directed at supervision and enforcement, a fact Warren has used on multiple occasions to accentuate talk of the fervor with which the CFPB will defend the financial rights of U.S. consumers.

Community banks and credit unions fear their own Rapture

ABA representatives have stated publicly that if Dodd-Frank rules go into effect as they are currently written, more than 1,000 banks will be forced out of business before the end of the decade. As the CFPB will be able to request any information it wants at any time and in any format, the ABA believes that the strain of compliance will take too many resources away from small banks’ customer service efforts. Furthermore, the Home Mortgage Disclosure Act’s eye against predatory lending will reportedly require banks to collect more borrower demographic information than ever before so that the CFPB can determine whether discrimination is occurring.

ABA Chairman Stephen Wilson told Investors Business Daily that all of this amounts to bad news for community banks and credit unions, as smaller financial institutions tend to make loans that larger banks avoid. The more small banks that shut down, the fewer capital sources remain available. This is passed on to consumers in higher rates and fees, argues Wilson.

“If we tie up our capital system, it’s going to take money away from the people who need it to create jobs,” warned U.S. Chamber of Commerce President Tom Donohue.

The battle over Elizabeth Warren

Though the organization is slated to launch July 21, the CFPB still doesn’t have a permanent chairperson in place. Elizabeth Warren will likely be nominated by President Obama, but numerous lawmakers who support the banking industry have attempted to derail the Warren nomination. House Republicans believe the CFPB will have too much power, while Warren has countered that her critics’ true goal is to make the CFPB “toothless.”

By way of comparison, the Sarbanes-Oxley Act of 2002 – one of the more significant pieces of financial regulatory legislation, pre-Dodd-Frank – changed 16 rules over two-and-a-half years. The Dodd-Frank Act will require more than 250 rule changes over several years.


American Bankers Association

Florida Realtors

Investors Business Daily

Sarbanes-Oxley Act of 2002

Rep. Sean Duffy (R-Wisc.) fights for community banks and credit unions

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