Remarks to the Independent Community Bankers of America

Thank you, Jim, for that kind introduction, and thank you, Cam, and the members of ICBA, for inviting me to join you today. I first went to ICBA’s office in Washington to meet with Cam to discuss the idea for the new consumer agency almost two years ago today. Cam was very skeptical – and he helped me understand why.

In the time since then, I’ve learned a great deal from Cam, and I value his friendship and insights. Cam encouraged me to talk with community bankers from all around the country. From my first day on the job, when I met with community bankers from my home state of Oklahoma, I have followed his advice. As of last week, I have spoken directly with community bankers from all 50 states – from Hawaii to Maine to Florida to Alaska – and everywhere in between.

I am here today to offer my thanks for your help. Thank you. Many of you in this room have taken the time and the energy to help me understand your businesses, and taken the time to make sure that I see the competition you face from companies that have not had oversight at the federal level. Many of you have walked me step-by-step through mortgage documents – not a pretty sight. At a recent meeting in Chicago, a banker brought a stack of closing papers along with a comparison – the one-page note he had signed when he bought his own house years ago. And each and every one of you that I have spoken with has talked with me about the regulatory burdens you face and your worry that if you have to spend all your time with regulations and regulators, you won’t have time for the families you want to serve.

I am grateful to you for the time you have spent with me. I’m here today to talk about what I have learned – starting with three lessons in particular – and to talk about how these lessons influence the development of the CFPB.

Lesson #1: Community banks build long-term partnerships with the families they serve.

I have studied the economic pressures facing middle-class families in my job as a law professor and an empirical researcher. I studied families that worked hard, played by the rules, and then found themselves squeezed by an economic system that too often seemed tilted against them. In particular, I studied families who turned to debt to buy a home, to pay for an education, to cover the costs of medical bills, to start a business, to cover a job loss, or just to make it to the end of the month. I have spoken out for these hard-working, middle-class families – and I will keep doing so. And that brings me to America’s community banks.

The valuable role community banks play in our economy is on display every day. Most community banks and other small institutions build their businesses on long-term customer relationships. They make every effort to avoid having dissatisfied customers and a tarnished hometown reputation, and they try to run their banks so that people know up front what they are getting and don’t hit nasty surprises later on. In other words, community banks work hard to be trusted, long-term partners with the families they serve.

I’ve heard from many of you about relationship lending. Community bankers in San Antonio talked about third and fourth generations of the same families doing business with their banks, and community bankers from small towns in Maine told me about making loans that big banks wouldn’t make, but that they knew were all right because they knew their customers. You tell me that you can’t build your brand as a respected community institution by using surprise fees and back-end re-pricing. If someone feels like they weren’t treated fairly, word gets around. Pretty soon, the talk at the Little League game or in the checkout line at the grocery store will be about how the local community bank let down a friend, or a neighbor, or a business partner.

Let me be clear: That doesn’t mean that every community bank is perfect. But you have made it clear that community banks strive to build their businesses around serving their customers in open and fair ways.

That brings me to the second lesson.

Lesson #2: Community banks didn’t cause this financial crisis.

I often make the point that the financial crisis began one lousy mortgage at a time. You and I know that those mortgages were seldom originated by America’s community banks. In fact, most of the abuses in the run-up to the latest crisis weren’t to be found at community banks at all.

While many community banks continue to provide high-quality services, the truth is that in the past two decades, the larger financial landscape has shifted. For a long time, the prices of financial services – credit cards, checking accounts, mortgages, and signature loans – were pretty easy to see. Both borrowers and lenders could more easily understand the basic terms of the deal. And that meant that community banks competed with bigger financial institutions and with the small number of unregulated lenders on a pretty level playing field.

Those days are behind us. A different form of pricing has become all too prevalent. Use a low, low advertised price on the front end, and plan to make it up with fees and charges and penalties and re-pricing on the back end. Customers walk into a payday lender and would reasonably think the business model is a short-term loan – not a trap. They go to a mortgage broker and reasonably expect that every broker puts the customer’s interests first. Too often, customers have no realistic chance of reading their credit agreements and figuring out the actual terms of the deal until it is way too late. They thought they got a cheaper deal somewhere else, but they didn’t.

And that leads me to the third lesson I have learned.

Lesson #3: If we don’t do a better job on regulation, we will push more community banks out of business.

At the same time the part of the financial services market that is unregulated or lightly regulated at the federal level has grown, the regulatory pressures on banks have increased. The government’s failure leading up to the crisis to set sensible rules and to scrutinize practices of large banks and non-bank lenders as closely as it should have hurt the ability of community banks to compete by offering clearer products that imposed far less risk on consumers and cost far less in the long run.

And there are other problems. Some of the complicated papers that consumers receive – at a real estate closing, for example – are required by government regulations. This complicated, duplicative paperwork forces small financial institutions to reallocate precious resources away from serving customers and toward filling out more forms.

During my many visits with you, I’ve heard about the high cost of regulatory compliance. I understand the difficulty of determining what is or is not required by a particular regulation – and the costs that creates. I appreciate the widespread anxiety and frustration over the future of community banks and other small financial institutions. I know that you want a regulatory structure that doesn’t require an army of lawyers. Big banks may be able to afford to hire all those lawyers, but you cannot.

This is what you have said to me in visits all around the country: Community banks work hard to build long-term partnerships with the families they serve. Community banks didn’t cause this financial crisis. And badly done regulation can further weaken our community banks, significantly increasing the pressures they face. How should the new consumer bureau incorporate these lessons into its work?

Applying these important lessons

First, the CFPB can serve the American people by embracing a strong, diversified banking system. For this consumer bureau to succeed, community banks must remain a major presence in the economy. Families across America must continue to have the option of receiving their financial services from these institutions.

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. It can do this in part by including community banks in the work of the agency from the very beginning. We need you there when we think about priorities and we map out directions. Involving you early in the conversation – giving you a meaningful seat at the table and advance notice – allows all of us to better understand the consequences of what we do.

That is why we have worked hard to make outreach to community banks part of the new consumer bureau’s DNA. We know that, over time, even good intentions can go awry, so we are trying to build a structure that keeps the new consumer agency in partnership with those who serve consumers. One of the first people we hired at the consumer agency was Elizabeth Vale, so that someone with a background in community banking would be able to raise a community bank perspective in our conversations. We encourage you to send your thoughts and suggestions to Elizabeth. Once you e-mail her, you will never be lonely again.

Second, we can aim at problems where they exist. We are committed to ensuring that all providers – including community banks, credit unions, large banks, non-bank mortgage lenders, and payday lenders – must follow the rules for offering consumer financial products. We can’t enforce the law only against the banks that are easiest to find. Instead, we will build a strong enforcement arm that will – for the first time ever – put significant federal resources behind ensuring compliance by non-bank financial companies. That is why we anticipate more than half our budget will be committed to establishing supervision and meaningful enforcement. We need to make sure that the non-bank companies, and also the largest banks, follow the rules.

Finally, the CFPB can get smarter on regulation.

One of the amazing things about this new consumer agency is that it has the opportunity to cut back on regulatory costs. With your help, we have set our first initiative squarely in mortgage documentation. We are aiming to consolidate the TILA and RESPA forms to create a shorter, cheaper form that consumers can understand – and that you can fill out more quickly and easily. When it comes to piles of paperwork, less is better for you and your customers.

And we’ll be on the hunt for other places where we can do the same thing – find a way to give the consumer something shorter and clearer, and to cut your regulatory costs at the same time.

We want clarity up front, a business model based on the idea that what you see is what you get. That’s good for customers – and for you. If everyone has to follow “what you see is what you get,” there will be opportunities for community banks to grow. Right now, borrowers go to the lenders who they think are cheapest. When advertising says, “Low cost!” or “Special deal!,” too often consumers don’t know the real costs hidden in the back. It is hard to compete when you are telling the truth up front and your competitors aren’t. When everyone has to make the price clear up front, then customers can see good value. Customers may decide that selecting a bank for its good customer service and its willingness to work with a customer in the long-term is a smart decision, not a costly one. That could be very good for community banks.

This is an important moment in history. Much has gone wrong in the financial world, and there are many moving parts right now. We have only a brief time to get this right, so I’ll strip this down to the basics. This consumer agency is dedicated to serving America’s families. In the long run, these families will not be better off if only a handful of big banks are left standing.

Change is coming. I want it to be change that gives families good choices and the chance to find long-term financial partners they can trust. I want us to work together for the right changes.

Thank you for inviting me to join you today. And thank you for your help.