House Financial Services Committee Hearing on Bill to Sharply Curtail CFPB Authority Over Banks and Credit Unions

by Jeff Sovern

Last week, the House Financial Services Committee's Subcommittee on Financial Institutions and Consumer Credit held a hearing titled Legislative Proposals for a More Efficient Federal Financial Regulatory Regime: Part III on a variety of bills. One of the bills, H.R. 1264, provides that "Community financial institutions shall be exempt from all rules and regulations issued by the Bureau." The bill defines a community financial institution as one with less than $50 billion in assets. I wonder how many entire communities have $50 billion in assets. How many banks would this leave subject to the CFPB? Not many. According to one witness, Scott B. Astrada, Director of Federal Advocacy for the Center for Responsible Lending, H.R. 1264:

. . . would essentially exempt a large part of the banking industry from the CFPB’s supervision. This is a radical break from the two-tiered regulatory structure put in place by Dodd-Frank. Anticipating the need for dynamic regulation, Dodd-Frank grants broad discretion to the CFPB to tailor regulation based on such factors as asset size and capital (e.g. determining the best approach with community banks, CDFIs, and credit unions).

This legislation takes the opposite approach to consumer protection, and would essentially (if passed) exempt more than 99 percent of all banks, and all credit unions, except one, from the supervisory authority of the CFPB. . . .

While the Bureau would have the power to revoke exemptions under the bill, it could do so only if other banking regulators agreed on the revocation. How likely is that, given the tendency of those regulators to be captured by the industry, as the industry itself acknowledges?

My favorite moment in the hearing came in response to Astrada pointing out that last year was the most profitable in history for banks, and that as for community banks, in the third quarter, more than 95% of them were profitable, which is the best since 1997.  The response: we're here to talk about regulatory burden, not the profitability of community banks. Oddly, when community banks did less well, the claim was that the cause was regulatory burden. So when community banks do badly, they blame regulations; when they do well, regulations somehow have nothing to do with it.


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