Lawmakers Urge CFPB To Ease Up On Small Banks

A majority of the U.S. House of Representatives has spoken out in a new bipartisan letter urging the CFPB to remove small banks and credit unions from its list when developing new regulatory policies that may be designed for larger organizations.

Although the CFPB has claimed, in many cases, that it allows many smaller banks and credit unions to be exempt from many of the regulations, the congressional members have expressed fear that the bureau may not be doing enough to ensure those smaller financial institution aren’t unnecessarily regulated. The CFPB does not provide direct oversight of smaller institutions (under $10 billion in assets), but all banks and credit unions must abide by its rules.

“As you undertake rule-makings, 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,” according to the letter, as provided by American Banker.

This letter was drafted by Reps. Adam Schiff (D-CA) and Steve Stivers (R-OH) and included the signatures of 329 lawmakers.

“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.

In some cases across the industry, small banks, especially community lenders, may have misgivings about the CFPB’s legislation over them, which was part of the regulations passed over five years ago — particularly as they complain that they have fewer opportunities to lend to mainstream borrowers here in the United States. In general, some community banks and credit unions say that CFPB rules that were designed to curtail big banks disproportionally impact the smaller organizations.

“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,” according to Michael Fryzel, a financial services consultant and former chairman of the National Credit Union Administration.

Perhaps this will be one topic of discussion today (March 16) when CFPB Director Richard Cordray appears before the House Financial Services Committee. Last month, he argued that it was outside the scope of the CFPB’s oversight to give smaller financial institutions exceptions. But he did note in recent conversations that the bureau works to remove burdens from those institutions.

“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 last month.