CFPB Has Created a Regulatory Credit Crunch

In 2010, I, along with several fellow bankers, met with Elizabeth Warren in Dallas to discuss her framework for the CFPB. She agreed to listen and said community banks would not be impacted and consumers would see a simplified two-page disclosure statement for home loans.  Wow, was she wrong! She lied!

Nearly seven years later, the Dodd-Frank Act has resulted in approximately 24,000 pages of proposed and final rules. The new regulatory atmosphere has driven banks to merge in unprecedented numbers: in Texas alone, we have lost more than 125 banks since the law was enacted in 2010 … and the number is growing. The too big to fail banks, on the other hand, continue to thrive. Remember, it was the Wall Street banks that caused the financial crisis. It was these banks that the Dodd-Frank Act was intended to target through tightened supervision.

One may be asking, who cares if a few small rural banks go away? Who does that really affect? To answer that question, according to the FDIC, more than 1,200 U.S. counties (out of a total of 3,238) encompassing 16.3 million people, would have limited physical access to mainstream banking services without the presence of community banks.

Where does that leave the small business woman and man who have formed relationships with their local bankers and depend on them for advice and help them grow their businesses? If banks are the economic engines of their communities, who suffers when these banks close their doors because they can’t afford to operate in the current overregulated environment?

As for the promised simplified mortgage disclosures? The new forms remain very lengthy and intimidating to the average consumer and, for various products, do not present cost information in a way that consumers can understand.  

The CFPB and Dodd Frank Act have stalled lending and the American Dream with home ownership. It is more difficult than ever for Texans to obtain a home loan. The banks have money for loans but the new TRID and other regulations have not only increased paperwork and disclosures for the consumers, community banks can no longer rely on traditional approaches of character, cash flow, collateral value, and different elements of income to make loans. In short, the self-employed and small businesses are “directly impacted!”

Case in point: In 2014, Ben Bernanke, former Federal Reserve chairman, told attendees of a conference that he had tried to refinance his mortgage and “was unsuccessful in doing so.” Why? Although he had vast earning potential and was a safe credit risk, he had recently changed jobs, making him a steeper credit risk. Now imagine how difficult it must be for the rest of us to refinance who don’t command $250,000 per speaking engagement.

Some community banks have stopped providing mortgages altogether. Others, are only making loans to customers whose loan fits into the “Qualified Mortgage” designation. These customers aren’t being denied mortgage loans because they can’t afford them; rather, the community banks that would normally offer them a loan simply aren’t in the business of lending anymore.

Furthermore, the CFPB has no oversight or financial accountability. While there is a place for consumer protection, this out of control agency has no spending limits and needs to have an oversight commission and congressional budget oversight.  In a recent court decision (PHH v. CFPB), the court said the unelected CFPB director “enjoys more unilateral authority than any other officer in any of the three branches of government ... other than the president.”
A solution to this bureaucratic nightmare is to Sunset them like we do in Texas.  

Finally, with a repeal and abolishment of the CFPB – the real winners will be the Texas consumers, Texas homeowners, and small business owners.  Jeb Hensarling is right on track!