As the debate over the creation of the Consumer Financial Protection Agency rages, I would advance the simple fact that community banks are the best protection for consumers in our financial services system today.
[IMGCAP(1)]As House Financial Services Chairman Barney Frank (D-Mass.) stated before the National Press Club in July, “It was largely the unregulated sector of the lending industry and the under-regulated and the lightly regulated— that caused the subprime crisis. The community banks, Chairman Frank said, have been unfairly disparaged — “they weren’t the ones who did subprime mortgages; they are not the ones who did credit card abuses. ... They weren’t the problem.—
The community bank model and the Wall Street model are as different as night and day. Wall Street’s model is transaction-based, while Main Street’s is based on relationships. Former Speaker Tip O’Neill (D-Mass.) famously quipped, “All politics is local.— The same can be said for community banks — all community banks are local. The foundation of community banking is the one-on-one customer relationship.
Community banks operate in limited markets with a relatively small customer base. It is the unwise community banker, indeed, who risks his or her personal reputation or the bank’s franchise value by misleading or abusing the bank’s customers. After all, the local banker lives next door to the customer, and their kids go to school together. Any community bank that does not do right by its customers will not last long.
Community bankers support good common-sense consumer protections because they benefit both the customer and the community bank. A well-informed consumer makes a better customer. In our view, if common-sense consumer protections are required of all financial services providers, those less-regulated financial providers will be forced to play by the same rules as our already heavily regulated community banking institutions. This would eliminate the unregulated firm’s advantage in luring unsuspecting customers away to products that may not be in their best interests. I believe we have all witnessed what happens to our fellow citizens when unscrupulous financial services providers are allowed to run free.
We understand and appreciate that several consumer laws should be improved, strengthened and better aligned. In the long run, that will benefit both the customer and the community bank. However, we hope the administration and the Congress will listen to our pleas to focus their consumer protection efforts on those firms that mistreated and deceived their customers and not bury the community banking sector under unnecessary additional regulations, when it was the community banking sector that, in many documented cases, helped consumers get out of jams caused by unscrupulous players.
Community banks are already subject to very strict consumer financial laws and work hard to adhere to and comply with those laws. We urge the Congress to be careful in shaping consumer protection policies in order to avoid enacting sweeping provisions that will create new and very restrictive policies on community banks already staggering under mountains of regulatory paperwork that even Harvard Law professor Elizabeth Warren has stated make no sense.
Just last week, a banker sent me a 57-page consumer examination officer’s questionnaire containing specific and complex questions digging into every detail of the bank’s consumer credits. Failing to answer a question or giving a false answer can result in civil and/or criminal penalties to the banker. And this is not Citibank; this is a $46-million-asset local bank in a town of fewer than 2,000 people! The questionnaire has 11 more pages than the bank has total assets!
Do we need yet another full examination force and new rules, fees and a new bureaucracy on that little $46-million-asset bank? All that will be accomplished is that the bank will collapse under the new burdens causing the town to lose its only bank, which in turn will mean that the consumers of that little town will be denied credit. Eventually the town will wither and die.
We can’t afford to let that happen. Independent Community Bankers of America and the thousands of community banks we represent stand ready to work for common-sense consumer protection measures to make sure our fellow citizens and customers never are duped again by unscrupulous providers of financial products. We want to make the credit-granting process a win-win situation for both the local bank and the consumer — which is the hallmark of community banking.
Camden R. Fine is president and CEO of the Independent Community Bankers of America.