Washington: a Summit chat with the CFPB

Through its legislative evolution to its ongoing operations, the Consumer Financial Protection Bureau has been a lightning rod for bankers' frustrations with the Dodd-Frank Act. Executives packed the room during an early morning session at ABA's 2013 Government Relations Summit to hear from--and be heard by--Acting Deputy Director Steve Antonakes.

The Bureau's massive set of mortgage lending regulations, published in a blizzard of paper in January, its ongoing research into overdraft checking and related services, fair-lending issues, and more, dominated audience questions and comments. At times bankers aired their frustration over being smirched by the actions of nonbank players, notably in the mortgage-related aspects of the financial crisis.

"Consumer protection is not in conflict with safety and soundness," Antonakes stated at the outset. While he's now the number-two officer at the Bureau, and is also associate director for supervision, enforcement, and fair lending, Antonakes brings mainstream regulatory experience to the job as well. He spent a long career at the Massachusetts Division of Banks, beginning as a CRA examiner and finishing with a seven-year run as the state's Commissioner of Banks.

Antonakes warned that no business model built on deceiving customers was a model built to last. He remarked that "an educated consumer is a more capable and effective consumer," reflecting the Bureau's multiple roles as rules maker for all banks, supervisor of banks over $10 billion and certain nonbank organizations, researcher of consumer financial issues, tracker of complaints, and would-be educator of consumers.

Antonakes portrayed the Bureau's controversial "ability to pay" standards, a key part of its qualified mortgage rules, as protection not only of consumers, but of legitimate lenders from unscrupulous competitors. Antonakes promised bankers some help with the massive new mortgage rules in the form of forthcoming plain language summaries and videos. He also said the Bureau is working with traditional banking regulators to devise a common set of examination standards relating to the new mortgage rules, which address both origination and servicing.

He also said that the Bureau would be moving from a static examination cycle for the large institutions under its direct examination authority to a priority-based approach. The Bureau currently has 325 examiners on board, over 100 of whom are commissioned.

A sampling of the questions and comments from the bankers, and the replies Antonakes made to them:

Mortgage lending. A New Hampshire banker spoke of his concern that many of the loans his institution and other community banks make won't fit under the qualified mortgages standards. He spoke of the fear that continuing to serve customers with loan structures that don't fit the Bureau's conception of appropriate approaches could deny credit to those who need such structures.

Antonakes said the Bureau attempted to balance consumer protection with credit availability concerns. "We think we've done as good as job as we can," he said. He said CFPB would work to provide guidance in this area to assure that bankers' worries about being tagged for fair-lending issues are met.

A state association executive declared that his members believe "the people you are trying to serve are going to be hurt by this rule." Who will step in if banks, worried about litigation, exit the business? he asked. Antonakes called this a valid question, and added that "the last thing we want is for smaller banks to exit this business."

Another executive stated his members' belief that real estate brokers often direct mortgage borrowers to a lender, and their concern that nonbank lenders will rush in where banks leave. Antonakes noted that the Bureau specifically doesn't call its field force "bank examiners" to stress that they also will examine nonbank mortgage lenders. He added that exams of large nonbank mortgage lenders and nonbank mortgage servicers are already underway.

"You will see a continuing effort in that space to level the playing field," said Antonakes.

Regarding brokers, he said that they were beyond the Bureau's authority, and that there was little the CFPB could do about "bad acts of steering." He said CFPB had had discussions with real estate broker organizations.

The same executive asked about consumer mortgage fraud-falsified documents and such. Antonakes acknowledged that that had occurred, but added that other players cheated as well, including some lenders. Clearly, he said, among many lenders there had been a breakdown of underwriting quality.

In answer to a third state executive's comments about migration of customers to nonbank lenders, Antonakes stated that currently mortgage lending is dominated by the banking industry. Nonbanks don't enjoy the market share they did five years ago, he noted, and referred again to CFPB's efforts to examine nonbank players. He also pointed out that the Bureau has investigative powers and that in some cases those would be used immediately, rather than as a followup to examinations.

An ABA banker official asked if the Bureau would implement the new mortgage rules with a grace period, in recognition of the massive new regime of rules, perhaps with some coaching. "Thoughtful regulation is important at a time like this," Antonakes answered.

Fair lending. A Michigan banker asked about fair-lending, and the industry's concern about the effects of the disparate impact statement issued by the Department of Housing and Urban Development. Antonakes said he was aware of the concern, but said he was not "prepared to engage in that dialog today."

Overdraft services. A Texas banker recounted his own bank's experiences. He said his state makes overdrawing a checking account a crime, which is his own preference. He pointed out that overdraft charges at his bank equal the charge made by a merchant if an account bounces. And he spoke of how military officials in his area specifically asked for banks to work out soldiers' and sailors' overdrafts to avoid their incarceration. The banker spoke against pending regulations. Antonakes corrected the banker, indicating that while CFPB is studying overdrafts, it has issued no proposed rule to date.