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Talking to Small Financial Service Providers

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Small financial institutions like community banks and credit unions play key roles in a competitive consumer financial products and services marketplace. They are community members as well, often personally connected to the customers they serve. Each week, we hope to highlight the interaction the consumer bureau has had with these smaller institutions.

Professor Warren meets with the Community Bankers Association of Illinois (photo by David Schroeder of CBAI).

Professor Warren meets with the Community Bankers Association of Illinois (photo by David Schroeder of CBAI).

Last week, Elizabeth Warren met in Rosemont, Illinois, with twenty members of the Community Bankers Association of Illinois (CBAI). She discussed the consumer bureau’s priorities and highlighted the Office of Community Banks and Credit Unions. This office is dedicated to communicating with small financial service providers about their concerns, feedback, and suggestions.

The bankers from CBAI expressed concerns about possible increases in their regulatory burden. They cited how mortgage forms have changed over the last few decades as an example of why they are concerned. One banker demonstrated how these forms have grown more complex over time by comparing forms used decades ago with forms used today. Today’s forms are noticeably more complex. The CFPB is working on a mortgage disclosure project that will make it easier for families to see the costs and risks upfront and give them the tools to help them make the choices that are right for them.

The CBAI bankers also asked about the consumer bureau’s plans for supervising non-bank financial institutions. They echoed one of the CFPB’s top priorities: ensuring all institutions compete on a level playing field.

Elizabeth Warren also spoke with several bankers from the Community Bankers of Washington. They shared the CFPB’s belief that financial literacy is essential, and they stressed the need for a robust and diversified banking industry. They also asked about how often the CFPB must report to Congress, a question which a lot of people may want answered. By law, the consumer bureau must submit reports to Congress twice a year on matters relating to its budget and activities, in addition to submitting several other issue-specific reports specified by Congress.

Elizabeth Vale is the Assistant Director of External Affairs for Small Business and Community Banks.

  • http://www.facebook.com/people/Nathan-Jaco/763151434 Nathan Jaco

    The community banks are justified in complaining about the complexity of mortgage disclosure forms. But the supply-side of the industry has benefited greatly from the complexity of such documents. This can be demonstrated analytically.

    For example, suppose a lender offers a borrower two sets of terms (say a 30-year FRM and an ARM set to reset in time period T+n), one favorable to the borrower and one favorable to the lender. The lender gets to decide the language in which the terms are couched. The lender is a self-interested actor and as such, uses language that makes it unclear to the borrower which set of terms is the one favorable to the borrower. It follows that the lender benefits.

    Community bankers say that their business models are built on relationship banking with smaller depositors, among others. They don’t have the capital that large commercial banks do and so focus on providing a particular kind of experience for those they provide service. Complex mortgage disclosure documents may put them at a disadvantage relative to larger institutions.

    The CFPBs mortgage disclosure project is a notable and laudable undertaking. I would like to offer a word of caution though, on creating “plain vanilla” financial products. It is important to keep the information non-trivial. The language in which terms are couched is important. But at least as important as the language is the information being conveyed. It’s important that the information being conveyed be non-trivial, lest borrowers develop a tendency to ignore “plain vanilla” financial products the way consumers tend ignore instructions or warning labels. Information designed to warn the less sophisticated, or at least signal to them that careful attention is warranted, need not be so specific as to substitute basic levels of judgment. There is a difference between “close cover before striking” and “flame may cause fire.”

  • http://www.facebook.com/people/Nathan-Jaco/763151434 Nathan Jaco

    The community banks are justified in complaining about the complexity of mortgage disclosure forms. But the supply-side of the industry has benefited greatly from the complexity of such documents. This can be demonstrated analytically.

    For example, suppose a lender offers a borrower two sets of terms (say a 30-year FRM and an ARM set to reset in time period T+n), one favorable to the borrower and one favorable to the lender. The lender gets to decide the language in which the terms are couched. The lender is a self-interested actor and as such, uses language that makes it unclear to the borrower which set of terms is the one favorable to the borrower. It follows that the lender benefits.

    Community bankers say that their business models are built on relationship banking with smaller depositors, among others. They don’t have the capital that large commercial banks do and so focus on providing a particular kind of experience for those they provide service. Complex mortgage disclosure documents may put them at a disadvantage relative to larger institutions.

    The CFPBs mortgage disclosure project is a notable and laudable undertaking. I would like to offer a word of caution though, on creating “plain vanilla” financial products. It is important to keep the information non-trivial. The language in which terms are couched is important. But at least as important as the language is the information being conveyed. It’s important that the information being conveyed be non-trivial, lest borrowers develop a tendency to ignore “plain vanilla” financial products the way consumers tend ignore instructions or warning labels. Information designed to warn the less sophisticated, or at least signal to them that careful attention is warranted, need not be so specific as to substitute basic levels of judgment. There is a difference between “close cover before striking” and “flame may cause fire.”

  • http://www.acepennystocks.com/ pennystocks

    The main focus of this unit is to give learners a picture of the range of services
    offered by financial organisations (providers) and to build their confidence in dealing
    with these service providers. The term financial services is used broadly to cover
    both the providers and the services they offer.
    Many companies now offer a mixture of services, e.g. banks also offer credit cards.

  • http://www.acepennystocks.com/ pennystocks

    The main focus of this unit is to give learners a picture of the range of services
    offered by financial organisations (providers) and to build their confidence in dealing
    with these service providers. The term financial services is used broadly to cover
    both the providers and the services they offer.
    Many companies now offer a mixture of services, e.g. banks also offer credit cards.

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