WASHINGTON — In an impressive show of force, roughly three-fourths of House lawmakers signed a bipartisan letter that calls on the Consumer Financial Protection Bureau to take more steps to carve out community banks and credit unions from onerous regulations.
The letter comes at a time when partisan tensions are so high that members of Congress can barely agree what day it is — but it's not clear it will have much sway with the CFPB, which claims it already tries to lessen the impact of regulations on smaller institutions.
"As you undertake rulemakings, we urge you to consider the benefits credit unions and community banks provide to their members and ensure that regulations do not have the unintended consequences of limiting services or increasing costs for credit union members or community bank customers," said the letter, which was drafted by Reps. Adam Schiff, D-Calif., and Steve Stivers, R-Ohio, and signed by 329 House lawmakers.
The CFPB does not have direct supervisory oversight over institutions with less than $10 billion of assets, but its rules apply to all banks and credit unions, regardless of size.
Community banks and credit unions have argued that certain CFPB rules, including ones governing mortgage underwriting and remittances, were intended to stop activities that larger institutions conducted in the run-up to the financial crisis.
"Credit unions and community banks do not pose any systemic risk, yet the CFPB continues to issue rules that disproportionately hurt those community financial institutions," Stivers said in a statement.
The letter cited a Government Accountability Office report's finding that Dodd-Frank Act regulations caused smaller institutions to spend more money on compliance and might be reducing the availability of credit.
Industry representatives welcomed the move.
"Complaints against credit unions are minimal ... so to put the burden on credit unions to meet these regulations to adhere to these regulations that the CFPB is putting forward is a tremendous burden," said Michael Fryzel a financial services consultant and former chairman of the National Credit Union Administration.
But this is hardly the first time the CFPB has been pressured by Congress to grant regulatory relief. CFPB Director Richard Cordray, who is slated to appear before the House Financial Services Committee on Wednesday, testified last month that he did not have legal authority to grant small institutions a broad carve-out. He added that the agency does what it can to reduce burden on community banks and credit unions.
As a result, industry observers said, the letter will have little impact.
"If the agency takes the position that it doesn't have the authority to exercise the exemptive authority, then that obviously would be a nonstarter," said Kevin Petrasic, a partner at White & Case and a former official at the Office of Thrift Supervision. Regardless of congressional pressure, the industry needs "to make the case that there is relevant authority."
Cliff Rosenthal, an independent consultant and former assistant director at the CFPB, said it isn't just about what the CFPB can legally do. He said officials within the agency likely oppose giving a pass to an entire class of institutions.
"The breadth of congressional interest is quite impressive. However I think that there is a pretty strong core principle at the CFPB not to exempt a given type of institution," Rosenthal said. "They really see that their mission is to regulate the whole marketplace, so it kind of runs against that."
However, many in the industry are more hopeful, arguing that the sheer number of lawmakers signing the letter should have an impact.
"There is a lot of traction in Congress" for providing regulatory relief to smaller institutions, "and this letter really capitalizes on that and puts the onus back on the CFPB to tailor their regulations to exempt smaller financial institutions" said Paul Merski, executive vice president of congressional relations and chief economist at the Independent Community Bankers of America.
Chad Adams, associate director of legislative affairs at the National Association of Federal Credit Unions, said that the massive support shown by the House proves that the Dodd-Frank Act gave the CFPB the authority to exempt credit unions and community banks.
"We think the CFPB should use the authority that they were granted, and based on the number of signatures on this letter, you can see a lot of members that are on the letter voted on Dodd-Frank and participated in discussions. Those people agree that they should use their exemption authority much more then they have," Adams said.
Congress could also act on its own to pass legislation that would force the CFPB to exempt smaller institutions, but such a bill would be unlikely to pass the Senate, where Sen. Elizabeth Warren, the agency's founder, has been skeptical of any changes to its mandate.
The CFPB has made some modifications to accommodate smaller institutions. In a speech last month, Cordray said that the agency should not take a one-size-fits-all approach.
"Where we can customize our rules to treat smaller institutions differently in light of their compliance burdens and the level of risk they pose, we have done so and will continue to do so," he said.
