Prepared Remarks by Richard Cordray
Director of the Consumer Financial Protection Bureau
ICBA National Convention
March 14, 2012
Thank you so much for inviting me to be with you today. The roots of my public service career are at the state and local level. So, like you, my success has depended crucially on my ability to develop strong and lasting relationships within the community. Those relationships were most rewarding for me and for those I represented when they were based on honesty and trust. That was especially true for me because I served for six years as county and state treasurer. For all that time, I was entrusted by the public to manage other people’s money and to keep it safe. People have to be able to trust their treasurer. Community banks operate on the same fundamental principles.
I have seen firsthand how the success of community banks benefits the people who live in those communities, where the bankers themselves also live and work. When I was the Ohio Treasurer, I worked directly with community banks to promote small business growth. Through our “GrowNOW” initiative, we put money on deposit with banks at a reduced interest rate, which in turn subsidized reduced-rate matching loans to small businesses that made a commitment to create and retain jobs.
The program was moribund when I set out to revive it. By consulting closely with the community banks, we found that too much bureaucracy had made it impractical. We overhauled the program and made it easier to use by developing an understanding of the needs and operations of small banks. You know what the key was? You may not believe that we did it, but we developed a 30-minute on-line application and achieved a 72-hour turnaround time on our decision-making.
After that, the GrowNOW program really took off. Over two years, we touched many thousands of families, helped 1,500 small businesses grow, and affected nearly 15,000 jobs. Helping local businesses. Supporting jobs. Earning the satisfaction of knowing that countless families were made better off. That is the enduring power of community banks.
You are at the heart of business in your towns and the surrounding areas. Whether by financing your neighbor’s home, sustaining a local farm, or helping students pay for schooling, you are the lifeblood of your communities. Because of your local roots, you are uniquely responsible to your neighbors. If your bank’s actions do not sit well with the community, you hear about it at the barber shop, at your daughter’s ballgame, or in line at the grocery store. Your neighbors trust you with their life savings, and earning that trust is at the heart of any good banking relationship.
The influence you exert on your communities also goes well beyond your business ethics. You are the true community leaders. You may be active in the local chamber of commerce, or in service groups like the Lions Club or Sertoma, or you may volunteer your time or your money in countless ways to support the aspirations of your friends and neighbors.
If help is needed with a food drive, or the local library, or to send the high school band to achieve the dream of playing in the Rose Parade, or to help provide holiday gifts to needy students at the elementary school, people naturally look to you for help. And others follow your example. I know this very well. I have done all of those things for more than twenty years now back home in Ohio, from which I still commute every week, and I continue to take great pride in doing them today.
One of our bedrock beliefs at the Consumer Financial Protection Bureau – and I have heard it echoed by community bankers across the country – is that honest businesses will benefit when those that cheat their customers are held accountable. We want all financial institutions, all of your competitors, to have the same kind of accountability that community banks face every day. And we want to protect you from the pressures that an unregulated market can put on you to adopt practices that make profits by hiding costs and risks to consumers.
You know that your reputation is essential to your success. You know that your business is built on treating your customers well, both in the short run and in the long run. Consumers know what you stand for, and community banks deliver. It is an excellent business model, a traditional business model that has proven itself through the years. That is why the continuing success of our community banks is so important to our economy and to our society.
Going forward, the Consumer Bureau has an important role to play in ensuring that the great financial meltdown does not happen again. We now have the ability to examine participants in both the bank and non-bank segments of the mortgage market, and our authority over non-banks will be especially helpful. Before the crisis hit, only part of this multi-trillion-dollar market was subject to federal oversight.
How could that ever be expected to work? It most certainly did not. Bad practices drove out the good. Your banks were literally robbed of market share; and the whole stinking mess eventually collapsed, dragging down many innocent people along with it. I firmly believe that had the Consumer Bureau been in place ten years ago, the crisis would have been headed off before it metastasized.
So one of our major objectives is to help level the playing field for you and your non-bank competitors. In order to do that, we need your help. We need to hear from you about what you see going on in the marketplace. Where do you see corners being cut? Where do you see standards being bent or stretched? Where do you see the law being violated?
One of the saddest stories I heard leading up to the crisis was from a community banker in Ohio who told me that he had customers coming in and wanting certain types of loans that he knew very well would not succeed. When he told them so, they went down the street to someone else, who was quite willing to do what they wanted, to make the loan and then sell it off in the secondary market with no qualms or conscience. It was little solace to the banker to learn a few years later that he had been right all along.
So what have we learned? We have learned that we need evenhanded oversight to make the marketplace work. If cheaters are not allowed to prosper, then honest businesses will regain their natural advantage.
Let me also say a few words about regulation. Under our authorizing statutes, we do not enforce the law against community banks. We do not examine community banks. But we do write rules that can affect the community banks. Over the next year, the Consumer Bureau is required to adopt new mortgage rules that protect consumers. One of our most important rulemakings will implement a new statutory requirement that lenders make a good faith and reasonable determination that a borrower can repay the mortgage.
Other rules will address the origination of mortgages, including loan originator compensation and the origination of high-priced mortgages. On all of these fronts, we need to return to sound underwriting standards and sound customer service. Our principal goal in implementing the law is to improve financial stability and help ensure that individual consumers are not steered into loans they cannot afford. A number of new statutory provisions address mortgage servicing, including new disclosure requirements, force-placed insurance, the crediting of payments, and error resolution requirements. Here our principal goal is fair treatment of borrowers.
As we develop these initiatives, we are intent upon keeping your concerns in mind. We know that one size does not fit all. Where it makes sense to treat community banks differently from larger institutions, we have pledged to consider doing so. We also want our regulations to be more accessible.
We plan to highlight the key points for small banks, which do not have the same army of compliance officers that are on staff at the very large institutions. We know that is simply not feasible for you. Nor should it need to be. As I described earlier, our GrowNOW program worked in Ohio because we took the time to understand the business operations of smaller banks and we then tailored our program to their needs. The same spirit should pervade our work at the Bureau.
Let me say one thing very plainly that it is important for you to hear: We understand at the Consumer Bureau that community banks did not cause the financial crisis. I am not saying that every community banker is a saint, and I have heard from some of you that you regret certain decisions you made in the run-up to the meltdown. But community banks simply did not cause the financial crisis. So as we work to clean up the mess that the crisis created, we must be mindful of the fact that community banks were among those most harmed by the mortgage frenzy, the ensuing credit crunch, and the deep recession that cratered our local economies.
Like the blameless homeowner who has a sensible mortgage and has always faithfully made the payments but finds that the foreclosure crisis has left the family home deeply underwater, you deserve better. You deserve to have a marketplace where you can compete on your merits for market share based on sound practices and excellent customer service. The Consumer Bureau can and will stand for that. When the world went mad all around us, you did not stray from your traditional model of steadfast customer service and concern for long-term relationships. That model is just as sound today as it ever was, and we embrace it.
So please take away today a new understanding of our mission that is a bit broader than perhaps you have seen it before. Our fundamental purpose at the Consumer Financial Protection Bureau is to protect consumers in the financial marketplace. But by the same token, our job is to protect all those who serve consumers well in the financial marketplace. You are the ones who do that best. Like us, you serve the public, and you cannot succeed if you disserve them. You would be run out of town and you would deserve it.
In my hometown, and in hometowns across this nation, hundreds of millions of Americans depend on you every day. They place their trust in you and they know that you have earned their trust. This is about far more than mere economics. It is about human beings depending on one another. When people entrust you with their money, they are entrusting you with their hopes for the future, with the claim they are staking to the Great American Dream. We will work with you to vindicate their hopes, and to see that they can realize that dream. Work with us, talk with us, guide us and support us, and together we will be able to make it so.