The Consumer Financial Protection Bureau may not regulate community banks directly but it is affecting the actions of banks’ primary regulators, commented speakers at a conference last month in Milwaukee.
Federal regulators are more aggressive in enforcing consumer regulations because the CFPB is looking over their shoulder, according to Don Musso, president of bank consultancy FinPro, Inc., Liberty Corner, N.J. He spoke at the Bank Executives conference hosted by the Wisconsin Bankers Association.
Musso has a client in the New England region that had a UDAAP violation. “For their debit card holders, if the customer had a problem with their card, the customer had to come to the bank in-person to identify themselves before the bank would act on the complaint,” Musso said. “So, the regulators took real offense at this. It was a total hit of $2,450.”
But then the FDIC decided the violation was a $75,000 civil money penalty offense, Musso said. “So, my team of heavy-hitting ex-regulators went and got the 13 criterion of a civil money penalty. We filled it in and told the FDIC that the bank had not met the criterion for civil money penalty,” he said. “The compliance division of the FDIC came back and said that the 13 criterion stated in the law was not the criterion the FDIC used. They gave us the criterion they were using, so we filled out the violation again. There still was no civil money penalty using the FDIC’s newest – and by the way illegal – standard that hadn’t ever been published in the register.”
Musso said the appeal went all the way up to the board before it was removed. “When it was all over, we asked the people at the FDIC why they were so heck-bent for leather on the civil money penalty. The violation was only a $2,450 offense and the bank immediately fixed it while the FDIC was on site. And, the bank went to every customer and offered to reimburse any lost money,” Musso said. “[They] responded that they were worried because they have CFPB looking over their shoulder. They said, ‘If we do not take the harshest approach we could be ridiculed by them and we might lose our primary authority for consumer protection.’ That is the status of regulation today, it is ugly and it is going to get worse.”
In effect, the CFPB can lock a bank down without due process, according to Bill Isaac, past FDIC chairman and senior managing director of FTI Consulting in Washington, D.C. “There is zero due process with the CFPB,” he said.
The bureau can come into a bank on an examination with a primary regulator, review something the primary regulator has approved 10 times before and raise a concern about it, Isaac said. “What do you think the Fed, the OCC or the FDIC will do at that point?” Isaac asked. “There is no formal action the bank can play out in court with the CFPB to prove who’s right. Instead, the primary regulator will refuse to approve any applications for branch expansion or whatever else until the bank resolves its CFPB issues.”
Isaac said federal regulators will do this even though the CFPB has not filed formal charges, even though it hasn’t proved its charges and even though the bank’s day in court hasn’t come. “The bank is in the penalty box and it can’t run itself while this is hanging over it. This is absolute denial of due process,” he said. “Surely members of Congress can be shown that this is not the America we all know. Surely banks can be granted due process.”
Isaac also said that he never opposed the creation of the CFPB. “You need to have someone doing consumer protection,” he said. “We made a mistake to fight it tooth and nail. If we had worked with it, we might have gotten a board to run it. It might have been funded by Congress, rather than by the Fed where there is no accountability. We might have gotten a charter that says what it can and cannot do. We didn’t get these things.”