The Consumer Financial Protection Bureau's Impending Impact on Small Community Banks

Risk Advisory/Internal Audit

By Angela Gillis

The July 21st deadline is nearly upon us. On this day, the Consumer Financial Protection Bureau (the “CFPB”) is officially open for business. Created within the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), the CFPB will have significant, far-reaching powers over the banking community. It will stand as a new independent executive agency within the Federal Reserve.

The CFPB will be responsible for implementing and enforcing federal consumer financial law to ensure that consumers have access to markets for financial products and that those markets operate in a fair, transparent and competitive manner. The CFPB will have the authority to promulgate regulations applicable to banks of all sizes and has been granted examination and enforcement authority over banks with greater than $10 billion in assets. Does that imply a community bank with assets of $10 billion or less won’t have to be concerned with failing to comply with forthcoming regulations? NO. Although the CFPB will not direct site examinations of these smaller banks, it will have the ability to directly affect these banks through its authority to require the production of reports that it determines necessary to support its compliance assessment efforts. It will also have the ability to integrate its examiners into other agency teams who are charged with examining these banks.

Overall, the CFPB could significantly increase the regulatory costs of all banks, including community banks. However, Special Advisor on the CFPB, Elizabeth Warren, told Congress that a significant part of the new bureau’s mission is to help level the playing field for smaller lenders, such as community banks, and that the CFPB is committed to working with smaller institutions to reduce regulatory costs. The CFPB’s website includes a pledge to promote fair competition for all institutions, large and small.

To effectively demonstrate that a bank is proactive in addressing changes in the regulatory landscape, key functions such as internal audit, compliance and legal need to be effectively coordinating their activities to assess whether regulatory compliance activities and controls are in place and are effective to achieve compliance.

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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax-related matter.

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