October 26, 2011

CFPB Will Increase Burden on Small Banks

Todd Zywicki

Senior Fellow, F. A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics

The Treasury Department, in an attempt to deflect recent criticisms of the Consumer Financial Protection Bureau, argued in a blog post on Monday that the CFPB will not increase the burden on small banks.

That's clearly not true. The CFPB imposes significant new regulatory requirements on small banks including data reporting as well as a dramatic increase in litigation risk because of vague definitions about what will qualify as “abusive practices.”

Community banks have made it pretty clear that they're terrified of the burden CFPB will impose on them, and the question is not whether the CFPB will increase that burden or not, but by how much it will increase it.

Part of the concern of small banks stems from the fear that CFPB will not live up to its promise to be a non-partisan, evidence-based agency, and until it’s reformed to include a bipartisan commission, budgetary oversight, and a clear definition of what the “abuse” standard will be, there’s no reason to think that small banks are wrong about that.