CFPB Continues Their Assault on American Banks

In a mad fury to impose unshakeable ideologies, the CFPB is singled handedly waging war on the way banks do business. Their tactics are rutheless, misguided, and will have consequences that reveberate throughout our economy for years to come. When the wolves begin to circle, will Congress have the guts to stand up for the American people?

by Ballard Cassady, KBA President

“Stupid is as stupid does.” In one of the most memorable roles of his career, Tom Hanks stamped that piece of wisdom on a generation, a reminder to judge people by what they do instead of how they appear.

That’s especially true these days of how people appear on paper. Too many of those in positions of bureaucratic authority over our industry – with their top-tier educations and unshakable ideologies – look profoundly stupid when judged by what they do. At the CFPB, there is a flagrant abundance of such persons.

Was the CFPB always going to be a magnet for people with massive ideological blind spots and a hunger to take control of the private sector’s primary economic engine? Or is it just the tendency to take on the character of the guy at the top, most recently Rohit Chopra? I think it’s both, but either way, the buck stops in the same place.

With every CFPB pronouncement, I hear Forrest saying, “Stupid is as stupid does.” And it’s become a weekly occurrence for the CFPB, and by extension its Director, to come out with some suggested guidance that constitutes a checklist on how to go broke in business. To the extent Mr. Chopra and his minions credit any academic source of business education for their understanding of fundamental business principles, they should all sue for a refund.

Just this week, the CFPB said that comparison-shopper tools that recommend certain products and lenders in return for financial compensation potentially violate the Consumer Financial Protection Act (i.e. points on your credit card). The bureau also said that lead generators can violate the prohibition on abusive practices if they steer consumers to a participating financial service provider instead of another because they receive payment for doing so (i.e. points). The Bureau specifically called out the credit card market, claiming that it “has found evidence of practices that may imply anti-competitive behavior.” Huh?

Even though there are hundreds of card issuers and thousands of card options and features out there, the CFPB (and by extension Mr. Chopra) says that the credit card business is not competitive. In an effort to be generous to Mr. Chopra, I’m willing to posit that he has a rogue lawyer on staff whose undergraduate degree was in Puppet Arts – yes, that’s a degree option at the University of Connecticut – and who is completely disconnected from the experience of millions of cardholders across the country.

To quote the ABA, “American consumers know they have a wide array of credit card options to choose from, including terms that are fully disclosed by law, which allows them to compare offers and select the card that best meets their needs. By every measure, including by the [Department of Justice’s] standard and even in the view of the U.S. Supreme Court, this market is competitive, and saying otherwise as part of a misleading campaign does not change that fact.” That’s putting it tactfully. If I may translate: STUPID IS AS STUPID DOES.

If this was an isolated incident, you could probably have a good laugh at the statement and move on. Unfortunately, the regulatory agencies in Washington under the guidance (or lack thereof) from this White House are assaulting the banks daily with insidious rules and “suggested guidelines” – that’s code for “do it or we will write you up under UDAP or some other nefarious rule.”

A handful of recent examples:

· Proposed changes to Reg II by the Fed. – this would immediately slash debit interchange revenue by more than a third.

· The CFPB issued a proposal to reclassify bank overdraft services as “credit” subject to truth in lending Act and Reg. Z.

· CFPB 1034© advisory opinion (there is that code phrase again) prohibits banks from charging even modest fees to cover their cost of responding to consumer information request.

The unintended casualties -- and I’m being generous here when I say unintended -- are low to moderate income individuals and families. Mandates that cap fees below the cost of the service will cause the service to go away.

If Mr. Rohit truly doesn’t get that, he’s got himself a good exhibit to use in suing for his tuition refund. Also, 88% of consumers value their bank’s overdraft fees, and 77% who have paid a fee for this service in the past year consider it a worthwhile expense. Americans continue to need ready access to short -term liquidity, as only 44% of U.S. adults say they would be able to pay an emergency expense of $1000 or more. If you take away consumers’ overdraft privileges and leave them without access to liquidity when needed most, that number would jump off the charts.

To repeat myself – as I do at every opportunity – the most important Supreme Court ruling for banking and our free enterprise system in general was the WV vs EPA case where the Supreme Court ruled (using the major question doctrine) that regulatory agencies can’t expand on what Congress intended in the laws they pass. When will Congress take the reins back from these bureaucratic agencies and do the job that must be done by the only branch of government that is answerable to the American electorate?

Yes, Congress, that will take working harder and smarter and placing the common good above your reelection calculations. The pessimistic among us think the culture and norms of our federal government are too far gone for that to happen. If you’re someone who prays, pray very hard that they’re wrong.