Pub. 4 2016 Issue 3

4 The Community Banker www.mibonline.org President’s Address T here has been considerable debate among community bankers on the value versus the burden of the Con- sumer Financial Protection Bureau (CFPB) since it was created as part of the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010. Accord- ing to the CFPB website, the “mission” of the Bureau is to protect consumers from unfair, deceptive, or abusive practices and take action against companies that break the law. On the surface this seems like a great resource for consumers, but small communi- ty bankers often have mixed opinions. As community bankers, we know that the fallout from the financial crisis had the government looking for ways to protect the consumer, but this resulted in a substantial increase of new regulations for community banks, and despite its best intentions, did little to address the “too big to fail” mentality on Wall Street. It appears that the CFPB may be taking the same approach as they work to increase their regulatory reach and impose immaterial penalties on large institutions. Two such examples of this have recently made headlines in the news. Wells Fargo made headlines recently when the institution was fined $185 million for fraudulently opening roughly two mil- lion unauthorized deposit and credit card accounts without the knowledge of the customers. While we all agree that this prac- tice is illegal and detrimental to the bank’s customers, there is concern over the Bureau’s handling of the findings. The $185 million in fines is composed of $35 million in civil pen - alties, $50 million to the City and County of Los Angeles, and $100 to the CFPB directly. In addition, Wells Fargo will refund affected customers to a total of approximately $5 million. While $190 million hit to the bottom line would definitely force a small communi - ty bank out of business, the impact to Wells Fargo represents 6 percent of the bank’s profits from their consumer banking division for one quarter. So while the CFPB is looking to protect consumers, the slap on the hand to Wells Fargo is just another example of “too big to fail.” There will certainly be an increase in regulatory burden as a result of Wells Fargo’s actions, a burden that all banks, especially small community banks, will feel as a result of the fallout, making it more cost- ly and challenging to serve our community consumers, the very same consumers the Bureau is intending to protect. A second example, that has not been as prominent in the mainstreammedia, is the Bureau’s proposed rule on arbitration agree- ments in consumer financial agreements. The Bureau is proposing to prohibit manda- tory arbitration clauses that deny consumers the right to sue their bank for wrongdoing. Again, at first read, this appears to be a good thing for consumer protection, but it is the way the Bureau is approaching the issue that causes concern, especially for community banks. Many community bankers are saying that, rather than giving consumers greater access to justice, the proposal will make it more difficult and more expensive for consum - ers to resolve disputes with their banks. In addition, the Bureau’s process for develop- ing its proposal for regulating arbitration agreements demands that Congress exercise more oversight over the Bureau and to hold it more accountable for its actions. Below is an excerpt from ICBA’s August 19, 2016 letter to the CFPB urging them to reconsider their proposal: ICBA is very concerned that the Propos- al would effectively remove arbitration as a meaningful option for community banks to resolve consumer disputes as it would not be economical for community banks to continue subsidizing arbitration for customer if they are forced to carry the high costs associated with class action lawsuits. Community banks invest heavily in resolving customer complaints ami- cably; however, when claims are unable to be resolved, arbitration is a preferable option over judicial litigation. The Bureau’s own report on the subject contains information indicating arbitra- tion offers a better process and outcomes for consumers as opposed to class actions which are slower and provide on average, little financial recovery to putative class members. Given these findings, CFPB has not met the statutory requirements for regulating arbitration agreements. ICBA is also strongly concerned that the collec- tion and possible dissemination of arbitral data- even if it is anonymized- could lead to the re-identification of consumers and the release of sensitive personal and finan - cial information. ICBA urges the Bureau to withdrawal the Proposal and collaborate with all stakeholders to develop alterna- tive policies which preserve consumers’ access to arbitration. Amy Quarles