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Community Banks and the Consumer Agency

On my first day of work helping to establish the new consumer agency, I met with community bankers from Oklahoma. We talked about a lot of things—three of us had gone to the same high school, and many of their banks were located in towns where I still have family. But the most engaging part of the conversation was about how the new Consumer Financial Protection Bureau (CFPB) could become a strong partner with community banks.

Since that first day, I have continued meeting with community bankers—in Ohio, in California, and here in Washington. After each meeting, I come away more convinced that small banks and credit unions face unique challenges in today’s environment. I also come away more convinced that the new consumer agency’s push toward transparency in financial products can serve families and small financial services providers alike.

During most of my meetings with community bankers, I’ve listened more than I’ve talked. I’ve heard about duplicative and complicated paperwork and how often they need to take employees away from serving customers in order to fill our more forms. I’ve heard about the high cost of regulatory compliance. I’ve heard about how hard it can be to get a clear answer on what is or is not required by a particular regulation. I’ve heard a lot of frustration and a deep concern over the future of small banks.

Community banks and other small institutions build their business model on long-term customer relationships. They worry a lot about dissatisfied customers and a tarnished hometown reputation. But the bankers I have talked with must compete with lenders that have been less reluctant to offer one price upfront and to re-price the product later on. One Ohio banker forcefully explained that his bank didn’t believe in pricing tricks, but that he had to compete with lenders who do—and who sell products that often appear to be cheaper. From his perspective, real competition in the credit market is less about who makes the best product and more about who can hide costs until it is too late.

For more than a decade, the number of small banks has shrunk as consolidation has thinned their ranks and some have failed outright. The result is less diversity—fewer firms and fewer differences in the approaches used in the financial services sector.

The bankers I have talked with are not looking to Washington to solve their problems, but they are looking for a market that allows them to compete. They are looking for a regulatory structure that doesn’t require an army of lawyers, and they are looking for a level playing field that lets customers see the true cost of a product so they aren’t competing against a phantom price.

We are only at the beginning of our work and most of the consumer agency’s authorities are yet to phase in, but the direction of the CFPB is coming into focus. We want to level the playing field by streamlining regulations and eliminating outdated or ineffective rules. We want to make it easy for banks—large and small—to meet their obligations to their customers to make the costs and risks of credit clear.

My first week on the job, the agency’s implementation team launched a mortgage disclosure project with the ultimate goal of giving consumers better information while reducing the number of redundant federal forms. It is only a start, but it is a good start.

As we build this new agency, outreach to small providers will be built into its DNA. Whether it is in Washington or outside the beltway, we will maintain an ongoing conversation with community bankers and credit unions to make certain that they are included from the beginning in all initiatives. This effort is important not only because of the instructions of the Dodd-Frank Wall Street Reform and Consumer Protection Act, but also because it is the right thing to do.

A generation of flat wages and rising core expenses has hammered families. Too many middle class families have spent all of their income, spent all of their savings, and taken on debt to pay for college, to cover serious medical problems, and just to stay afloat a little while longer. Too often that debt is poorly understood, and terms buried in the fine print have cost customers dearly. The new consumer agency can serve families by making credit easier to understand and by making markets more competitive.

But families won’t benefit over the long run if only a handful of banks are left standing. Families will be protected only if they can count on a robust, diversified banking industry. To serve American families, the new consumer agency needs to work with America’s community banks to make sure that there are a range of services and options available now and in the future.

This article originally appeared in POLITICO under the headline “Giving Small Banks a Chance to Thrive .”