Nearly three years after the creation of the first ever regulatory agency just for consumers of financial products, the Consumer Financial Protection Bureau, or CFPB, has rewritten mortgage rules, targeted debt collectors, auto lenders, big banks and even for-profit colleges. It has been a busy few years. So how has the agency transformed the industry? We asked a panel of bank attorneys.
What has been the impact so far of the CFPB?
I would have to say that the biggest impact, at least from the perspective of community banks, has been the cloud of regulatory uncertainty that the CFPB has cast over those institutions, and the resulting impact on their bottom line. While community banks are not directly regulated by the CFPB, they are still subject to much of the same rulemaking by the agency as are the big money center banks. Even where community banks are specifically exempted from CFPB regulation, those regulations nonetheless tend to serve as standards or competitive baselines for smaller institutions. It is difficult, as a result, to anticipate the infrastructure and resources needed to stay ahead of the regulatory curve. As a result, community banks are forced to beef up their compliance departments, or outsource oversight of those responsibilities, creating disproportionately higher overhead for such banks as compared to larger institutions.
—Patrick S. Murphy, Godfrey Kahn, S.C.
One important impact CFPB has had thus far on the banking industry is the creation of a renewed fervor among the bank regulatory agencies in the area of consumer protection. Since the inception of CFPB after the enactment of Dodd-Frank, those in leadership positions at CFPB have noisily and frequently made it clear that the bureau believes consumers have been, and are currently being, taken advantage of by financial institutions, both bank and non-bank institutions. Given the preeminent position the CFPB holds in the consumer compliance regulatory arena, the other agencies (Office of the Comptroller of the Currency, Federal Deposit Insurance Corp., the Federal Reserve, and the state regulators) understandably are following CFPB’s lead. Some effects on the banking industry of this heightened interest in consumer compliance include increased overhead costs, uneasiness about upcoming regulatory examinations, diversion of senior management attention from revenue generating activities, and degradation of the working relationship between bankers and field examiners.
—Michael G. Dailey, Dinsmore & Shohl LLP
In a word – UDAAP. The CFPB’s “gotcha” approach to exercise of its regulatory enforcement authority over unfair, deceptive, or abusive acts or practices (UDAAP) took many of our clients aback. As they try to develop new products and procedures designed to accommodate changing consumer preferences (for example, in connection with mobile services and prepaid cards), the chilling effect that the enforcement actions have had on those business units has been notable. Some bankers have gone back to the drawing board with current products while others have grown skittish about rolling out new offerings. At a time when the marketplace is demanding innovation, the CFPB’s UDAAP enforcement actions against major financial institutions have caused the mentality among some bankers to shift from “What shall we do next?” to “Are we next?”
—Jonathan Wegner, Baird Holm LLP
The CFPB’s biggest impact has not been through any regulations it has enacted, nor has it been through its own enforcement of consumer protection laws. No, its biggest impact has been indirect—by heightening the emphasis on consumer protection and leading to a dramatic increase in civil money penalty (CMP) actions by federal bank regulators for alleged unfair or deceptive acts or practices (UDAP). In 2013, the FDIC imposed CMPs against banks 89 times, 16 of which were for alleged UDAP violations. At 18 percent of all bank CMP actions, this is a near doubling from 2012 and three times the percentage in 2011. Expect these percentages to keep growing. Once bank regulators have identified an industry “problem,” they do not change course until the next flood, financial crash or other newsworthy event redirects their attention. And the CFPB has barely begun its own enforcement actions under the new unfair, deceptive, or abusive acts or practices law.
—John ReVeal, Bryan Cave LLP
It is always important to remember that the CFPB was established to be immune from regulatory capture by the industry, and the CFPB will be quick to tell you that it’s not about the bank, but about the consumer. For banks, the rule-writing, supervision, data gathering, and enforcement activity of the CFPB has elevated the status of consumer compliance within the hierarchy of concerns of senior management and boards. While issuing a range of new and complex rules, the CFPB has also emphasized third party oversight and principle-driven versus rule-driven compliance (think unfair, deceptive or abuses acts or practices, or UDAAP). Moreover, the CFPB has influenced the prudential supervisors in their oversight of community banks, where consumer compliance is also getting heightened attention.
—Cliff Stanford, Alston & Bird LLP