The new director of the Consumer Financial Protection Bureau sent out a peace offering to a crowd of community bankers last week, many of whom are nervous about the prospects of the new, consumer-friendly federal agency that will regulate the financial marketplace.
“Community banks simply did not cause the financial crisis,’’ said Richard Cordray at the Independent Community Bankers of America National Convention and Techworld in Nashville. “So as we work to clean up the mess that the crisis created, we must be mindful of the fact that community banks were among those most harmed by the mortgage frenzy, the ensuing credit crunch and the deep recession that cratered our local economies.”
The agency’s new rules can and will impact community banks, but the agency will conduct examinations only of non-bank financial companies and banks above $10 billion in assets.
Cordray said his agency will take into account how community banks work and their input when devising rules for the financial industry. He said that his agency has gotten 30,000 comments on proposed mortgage disclosure forms.
“One of our most important rulemaking will implement a new statutory requirement that lenders make a good faith and reasonable determination that a borrower can repay the mortgage,’’ he said, adding that he says community bankers have always done that.
“When the world went mad all around us, you did not stray,’’ he said.
He said the goal is to ensure that consumers are not steered into loans they cannot afford. Other provisions will impact mortgage servicing, including new disclosure requirements, force-placed insurance, and how payments are credited to a consumer’s account.
“Here, our principal is the fair treatment of borrowers,’’ he said. “Where it makes sense to treat community banks different from other institutions, we have pledged to consider doing so.”
He also asked bankers to report abuses in the industry to his agency, including wrongdoing among non-bank lenders, whom he said robbed community bankers of market share preceding the financial crisis.
“Where do you see corners being cut? Where do you see standards being bent or stretched? Where do you see the law being violated?” he said.
A few bankers attending the meeting said they were encouraged by his words, but wanted to see the CFPB in action before forming an opinion.
“It’s a matter of translating his words into a culture,’’ said George Guarini, president and CEO of Bay Commercial Bank in Walnut Creek, California, which has more than $270 million in assets. “It’s good that he had his staff listening in [to the speech]. I buy his vision but it’s a matter of translating that to action.”
Others were worried about the CFPB investigating complaints against banks submitted directly to the federal agency.
The CFPB encourages people on its web site to submit complaints against banks and private student lenders. It also asks for complaints about checking accounts. The agency promises to follow up by contacting the financial institution for a response.
“It’s an atom bomb,’’ said Tom Clifford, president and chief credit officer for First Community Bank of Bedford County, a $315-million asset bank in Shelbyville, Tennessee.
The CFPB also has launched an “inquiry” into overdraft practices.
“We are also seeking public feedback on a sample “penalty fee box” that could appear prominently on the checking account statements of consumers who overdraw their accounts,’’ and would highlight the fees that customer paid in penalties, Cordray said in a speech last month on the topic.