I applaud bankers who are crying foul in the wake of profound regulatory overreach. Bankers and their representatives recently have filed lawsuits against the CFPB regarding rules implementing Section 1071 of the Dodd-Frank Act, and against the FDIC for guidance related to disclosure requirements and fees associated with item processing.
Regulators hold tremendous discretionary power over banks; if bankers decide to take them on in the court of law, they better have a good case. And they do on both counts. The American Bankers Association and the Texas Bankers Association effectively demonstrate that the CFPB has carried Section 1071 implementation way beyond Congressional intent. And, the Minnesota Bankers Association makes a clear case against the FDIC for enforcing guidelines as if they were law. Banks are participating in the lawsuits with the trade groups in each of the suits.
The data-collection requirements that the CFPB baked into 1071 implementation when it published the final rule in March far exceed the intent of Congress and the limits of practicality. Because there isn’t a universal application form for commercial loans, there isn’t a uniform way to collect the borrower’s race, gender and income data that the new rules require. And while regulators say they understand the importance of protecting borrower privacy, the collection and sharing of this kind of data, even in an anonymizing fashion, will cast unwelcome attention on some credit customers. CFPB officials behind the 1071 rules are clearly driven by political goals that run roughshod over the very people they say they are trying to help.
Like the CFPB, the FDIC seems to be disregarding Congressional intent. Ignoring the Electronic Funds Transfer Act and the Truth in Savings Act, the FDIC is using guidance it issued a year ago to strong-arm bankers into changing long-standing disclosures around re-presentment fees and in some cases encouraging the repayment of fees collected in the last couple of years. Acting alone, and ignoring the Administrative Procedures Act, the FDIC issued guidance without seeking public comment, nor without creating any sort of phased-in period for implementation; in fact, it leaves the door open for retroactive enforcement of the guidelines, even after it published a clarifying guidance in June.
Regulatory agencies are supposed to enforce laws written by Congress. Activist regulators who want to take matters beyond the letter of the law have a right like anyone else to work the political system to change the law. They cannot simply enforce rules that weren’t mandated by Congress. And these lawsuits are meant to remind them of that.