Banking and Finance Law Daily Wrap Up, CONSUMER FINANCIAL PROTECTION BUREAU—House committee hears testimony on Washington “red tape”, (Apr 9, 2014)

By Katalina M. Bianco, J.D.

The House Financial Services Committee heard testimony on the impact of federal financial agency regulations on financial markets and institutions. The committee hearing,“Who’s in Your Wallet: Examining How Washington Red Tape Impairs Economic Freedom,” was held toexamine the economic consequences of recent rulemaking, supervisory, and enforcement actions of the Consumer Financial Protection Bureau, Federal Deposit Insurance Corporation, Federal Reserve Board, National Credit Union Administration, and Office of the Comptroller of the Currency on consumers, community financial institutions, the U.S. economy, and domestic job-creating businesses. General Counsels for the listed agencies appeared to testify.

A committee memorandum outlined the goals of the hearing. The committee wanted to ascertain:

• how regulators evaluate the costs and benefits to consumers of their supervisory activities; and

• whether products or services are no longer being offered to consumers because of agency actions and the steps federal regulators take to measure the impact on consumers if they no longer have access to specific products or services as a result of regulatory action.

Hensarling opening statement. In his opening statement, Committee Chairman Jeb Hensarling (R-Texas) said, “It is time for all to take off partisan blinders and acknowledge the truth that Washington regulators aren’t always right and more red tape is not always the solution to every problem.”

Hensarling blasted the Democrats for criticizing regulatory cost-benefit analysis. The Fed reports that one-third of black and Hispanic borrowers would be hurt by the Qualified Mortgage rule, according to Hensarling, and a recent survey by the American Bankers Association revealed that one-third of respondents said they plan to reduce their mortgage lending only to QM loans. “Perhaps that is why QM is rapidly becoming known as the ‘Quitting Mortgages’ rule,” Hensarling said.

Turning to the CFPB’s remittance rule, Hensarling said that the FDIC reported it has become more difficult for lower-income Americans to access banking services because checking and savings account fees have gone up. Almost one-half of banks that previously offered free checking no longer do so. In a recent survey of banks on the CFPB’s remittance rule, the ABA reported that 42 percent will now increase fees and 18 percent plan to stop offering the services altogether, according to the chairman.

Hensarling told the committee that he frequently receives letters from bankers who are finding the regulatory burden difficult to handle. “Thus, the subject of our hearing today,” he said.

Waters fires back. Congresswoman Maxine Waters (D-Calif), Ranking Member of the Financial Services Committee, praised regulators for “putting the financial system on more stable footing after the worst economic crisis in a generation.” She was critical of Republicans for “continuing to push an ideologically-driven agenda focused on deregulation.”

Waters said that Republicans are avoiding “real, serious issues that need the immediate attention of the Committee, issues that grow our economy and create jobs.” She said these issues include the reauthorization of the Export-Import Bank and extending the Terrorism Risk Insurance Program, “both of which are critical to ensuring certainty for businesses.” The Congresswoman noted that these measures have widespread, bipartisan support.

The Ranking Member addressed the issue of cost-benefit analysis, stating that “the simple fact is that the majority’s cost-benefit requirements would impose additional costs on our regulators and expand government bureaucracy.” She added that she finds it “ironic” that “we are participating in a hearing to examine government ‘red tape,’ while many of my Republican colleagues are pushing measures that would only serve to increase it.” She accused Republicans of “a not-so-veiled effort to roll back the significant accomplishments of the Dodd-Frank Wall Street Reform Act” rather than focusing on important policy matters.

Waters also noted that one of the causes of the financial crisis was lack of transparency throughout the financial system. “Although Washington had a role to play—it certainly was not because regulators erred on the side of over regulation.”

Fuchs testifies. Meredith Fuchs, General Counsel for the CFPB, outlined for the committee significant aspects of the work the bureau has done to fulfill its mission. Specifically, she noted that the bureau issued regulations to:

• strengthen mortgage markets;

• make federal mortgage disclosures easier for consumers to understand and less burdensome for firms to make;

• establish standards for mortgage servicing;

• examine a range of larger non-bank participants in the consumer debt collection, consumer reporting, and student loan servicing markets; and

• examine larger participants in the international money transfer market.

Fuchs said the bureau also is considering regulations on debt collection, payday lending, prepaid cards, and overdraft programs.

Regulatory burden. Fuchs said it is bureau strategy to “ensure the most effective regulation possible is to consider consciously the costs and benefits of rules to avoid imposing unwarranted new regulatory burdens.” The CFPB makes use of small business review panels, and, pursuant to the Dodd-Frank Act, considers the potential costs and benefits to consumers and financial service providers.

Examinations. Fuchs told the committee that the bureau takes a risk-based approach to conducting examinations. The CFPB assesses a number of factors when deciding which entities to examine so as to direct resources to the products and markets that the CFPB feels pose the greatest risks to consumers and focuses investigative resources on violations of law that cause the greatest harm to consumers, she said.

Osterman testimony. Richard J. Osterman, Jr., Acting General Counsel for the FDIC, testified on the improving state of the economy but admitted that challenges remain. He cited the fact that “although credit quality has improved, delinquent loans and charge-offs remain at elevated levels.” Osterman said that the Deposit Insurance Fund also has moved into a stronger financial position.

Alvarez statement. Fed General Counsel Scott G. Alvarez testified on activities that the Fed has undertaken to implement the Dodd-Frank Act and other reforms and said the Fed is committed to strengthening the safety and soundness of institutions under its supervision.

Alvarez told the committee that the Fed recognizes that regulatory compliance can impose a disproportionate burden on smaller institutions. In addition to overseeing large banking firms, the Fed supervises approximately 800 state-chartered community banks that are members of the Federal Reserve System and several thousand small bank holding companies.

NCUA testimony. In his testimony, Michael J. McKenna, General Counsel for the NCUA said that the association “understands the need to strike a proper balance between implementing the safety and soundness considerations required by the Federal Credit Union Act and minimizing the bottom-line impact for the credit unions we regulate and insure.” McKenna told the committee that the NCUA has a tailored program intended to mitigate compliance costs and improve the examination process for all credit unions. “Rather than adopting one-size-fits-all regulations, NCUA focuses the agency’s rules on risk and asset size.”

Testimony by OCC. Amy S. Friend, Senior Deputy Comptroller and Chief Counsel for the OCC, testified on the OCC’s rulemaking, supervisory, and enforcement processes and recent actions. She spoke of the economic analyses the OCC conducts with respect to its rulemakings and the agency’s approach to banking products and services.

Friend also testified on the OCC’s efforts to address the concerns of community banks over regulatory burden. She said the OCC had instituted a number of initiatives to minimize the burden on community banks. Friend stressed that “the OCC understands a one-size-fits-all approach to supervision does not work, especially for community banks.”

Ross questioning. Representative Dennis A. Ross (R-Fla) questioned the counsels on payday lending, asking if they would agree that the demand for payday lending will remain despite strong regulation. Ross’s position is that overregulating payday lending could lead to a black market, making a bad situation that much worse. Fuchs agreed that there is a market for small-dollar lending and said the bureau is aware of that market. Osterman noted that the targets of regulatory action are not legitimate businesses.

LegislativeActivity: CFPB DoddFrankAct DebtCollection EnforcementActions Mortgages