Causing a furor before it exists

Original Reporting | By James Lardner |

Brad Miller, the North Carolina congressman, recalled that safety-and-soundness had also been the OCC’s justification when it “specifically approved banks jiggling the order that they put customer charges through,” so as to “kick people over into [paying additional] overdraft fees. Let’s say you got to the end of the month,” Miller explained, “and you had $100 bucks in your account, and you wrote a $20 check and then went to the ATM machine with your debit card a couple of more times for $20, and made a $15 purchase on your debit card, and then finally wrote a $105 check. Well, the OCC specifically allowed the banks to put the $105 check through first so that every one of those other transactions would trigger an overdraft fee. It’s hard to square that with any concern for consumers at all.”

“Since the CFPB cannot require any financial institution to offer any particular product,” what its critics are really saying is “that financial institutions, banks, and other lenders need to be able to cheat consumers to stay in business,” Rep. Brad Miller said.

With the advent of the CFPB, an important piece of bank regulation has moved to an agency that won’t necessarily see things the banks’ way, Plunkett said. The bureau might decide, for example, that some products or product features are so inherently tricky or dangerous that they need to be restricted or banned. That concept, according to Plunkett, is anathema to many bankers.

Indeed, Joe Witt of the Minnesota Bankers Association expressed concern that the CFPB might impose severe limits on mortgage prepayment penalties. “Consumer types,” he said, “always argue against prepayment penalties.” But when banks go into the secondary market to obtain loan funds, they can face pre-payment penalties themselves. In any case, Witt added, it’s wrong to “demonize” certain types of loans or loan features “when what you’re really talking about is probably a series of ten steps that were bad or maybe even fraudulent…” The loan term isn’t the bad thing, it’s the bad actor; let’s go after the bad actors instead of making judgments about particular loan terms.”

In last week’s House markup session, Rep. Miller and others argued that the Republican proposals could effectively define any threat to bank profits as a safety-and-soundness problem. “Since the CFPB cannot require any financial institution to offer any particular product,” what its critics are really saying is “that financial institutions, banks, and other lenders need to be able to cheat consumers to stay in business… [I]f that is true of a financial institution,” he said, “maybe that one should be out of business.”

The efforts to rein in the CFPB are based on farfetched notions of its power and intent, Donner said. The bureau, she noted, is required by law to put its rules out for comment, to listen to what bankers say, and to specifically consider the impact of its decisions on regulatory compliance costs and the availability and affordability of credit, among other factors.

For many bankers, these requirements are small comfort. Steve Zeisel, general counsel of the Consumer Bankers Association, acknowledged that the bureau has an obligation to listen to bankers; but it doesn’t necessarily have to be swayed by what it hears. “The statute does talk about them consulting with the other agencies… They obviously have to put rules out for comment — that’s standard administrative procedure; anybody would have to do that.” The bottom line of Zeisel’s concern? Having a consultation requirement, he said, “doesn’t dictate what they decide.”

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