Banks Seek a Détente With the CFPB
Big U.S. banks are working behind the scenes to ease tensions with a new federal consumer regulator whose approach to policing the financial sector has triggered industry criticism.
Source: Wall Street Journal
By ALAN ZIBEL and DAN FITZPATRICK
Top compliance executives from more than 20 banks, including Bank of America Corp. BAC -0.54% and Citigroup Inc., C -1.00% have met privately in recent months with senior officials from the Consumer Financial Protection Bureau to convey their concerns, including that companies weren’t getting much credit for cooperating with investigations, according to people familiar with the talks.
Last week, the CFPB gave the industry some relief when it published “responsible conduct” guidelines detailing how financial firms can help with the agency’s investigations in exchange for smaller penalties. Later in the week, the CFPB rewarded the cooperation of U.S. Bancorp USB +0.14% by not fining the Minneapolis bank in an auto-lending settlement. The bank didn’t admit or deny wrongdoing.
The CFPB’s moves highlight a balance the agency is trying to attain as it approaches its two-year anniversary. Agency officials want to counter persistent criticism from companies and some Republicans on Capitol Hill that it is insensitive to the concerns of companies. CFPB officials also want the agency to be seen as a tough but effective consumer regulator.
The CFPB has been working to expand its examination and supervisory efforts, flexing the muscles it was granted under the 2010 Dodd-Frank law and ruffling feathers in the process. The agency from the start adopted a more aggressive approach than other financial regulators have, regularly bringing enforcement lawyers to exams, rotating lead bank examiners to prevent too-close relationships from forming and requesting large amounts of data, like summaries of customer credit-card activity.
The publication of the cooperation policy was a “pivotal moment” in the industry’s relationship with the regulator, said Jo Ann Barefoot, co-chairman of Treliant Risk Advisors, a consulting firm that works for banks. If implemented correctly, the policy will give companies increased incentive to report their own problems, said Ms. Barefoot, who initiated a February meeting between the agency and bankers through her role on a CFPB advisory board.
People familiar with the meeting said the participating banks raised several issues with the regulator, including concerns about how the CFPB handled a $210 million settlement reached last year with Capital One Financial Corp. COF -0.50% over the marketing of credit-card services.
Officials at several banks said they were concerned the $60 million in penalties Capital One paid to regulators didn’t reflect the company’s cooperation on the matter, according to people familiar with the talks.
CFPB spokeswoman Moira Vahey confirmed the meeting and said the cooperation guidelines already were under development when the meeting was held. “Our goal has always been to be transparent and provide clear guidance to [the] industry on what we expect,” Ms. Vahey said.
Representatives of Bank of America and Citi declined to comment.
The CFPB was set up in the aftermath of the 2008 financial crisis to be a muscular watchdog for consumers. But after its launch in July 2011, banks and other financial firms groused—largely in private—about what they viewed as an aggressive approach to policing thousands of banks, lenders and debt collectors.
Some of the complaints stemmed from the fact nonbank companies such as payday lenders and debt collectors weren’t previously subject to federal oversight.
Another concern was the agency’s decision to bring enforcement lawyers—who bring legal cases against firms—to examinations. The presence of enforcement lawyers at exams has prompted an investigation by the CFPB’s inspector general, which is expected to issue findings later this year.
The U.S. Chamber of Commerce has separately questioned the legality of the agency’s push to collect data from financial firms. Chamber officials, who sent a letter to the CFPB last month detailing their issues, said they also are concerned about the sheer volume of data requests and the potential for privacy violations if information is inadvertently disclosed or hacked.
CFPB officials say they are aware of the industry’s concerns and are taking steps to train examiners and improve relationships with businesses, including hiring a former Freddie Mac FMCC -3.80% official to run a business-liaison office.
Agency officials said a tough approach is necessary to better-protect consumers. The policy of bringing enforcement attorneys to exams was designed to give the bureau’s examiners and enforcement lawyers insight into one another’s work and isn’t a sign a firm will be cited for legal violations, bureau officials say.
“We are still creating something from scratch here, which presents its own unique challenges,” Steve Antonakes, the CFPB’s acting deputy director and head of supervision and enforcement, said in an interview.
Ms. Vahey, the CFPB spokeswoman, said the data obtained from banks is protected and doesn’t include identifiable information such as names or Social Security numbers. The agency says it has authority under Dodd-Frank to require data reports from firms and that the data collection is intended to help inform policy decisions.
The few companies that have attempted to fight publicly with the CFPB have failed, including lenders that tried to rebuff attempts to collect large amounts of information on their practices.
Last May, the CFPB sent mortgage lender PHH Corp. PHH -2.29% a civil subpoena with 21 questions and 33 document requests as part of a probe into alleged kickbacks to mortgage-insurance companies, according to documents posted on the CFPB’s website.
PHH declined to cooperate, according to a petition filed with the CFPB last year, arguing the request was “overly broad and burdensome,” seeking information dating back to 1995, according to a document filed with the CFPB.
A PHH spokesman and a lawyer for the company couldn’t be reached. The company has said it believes it complied with the law regarding the practices at issue in the probe.
The CFPB denied PHH’s petition, saying in a ruling by Director Richard Cordray that it “needs to be thorough and comprehensive about its inquiries into possible violations of law that harm consumers.”
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