Inside the CFPB’s community banker council

Did you know community bankers have a voice at the Consumer Financial Protection Bureau? We asked members of the Community Bank Advisory Council how they advocate on behalf of both their peers and customers

By Ellen Ryan

Twice a year, community bankers from small towns and cities across the country make their way to Washington, D.C. Without a word to its detractors, they all gather to meet with the Consumer Financial Protection Bureau (CFPB), that small federal agency considering everything from banks and credit unions to securities firms and payday lenders on consumers’ behalf.
And here’s the real secret: The bankers are glad to do it.

The little group comprises the bureau’s Community Bank Advisory Council (CBAC), which is barely known even within the banking community. “The average community banker out there doesn’t even know this exists, or how it works, or what kind of access it has,” says Tim Zimmerman, president and CEO of western Pennsylvania’s $480 million-asset Standard Bank, an early member.

Explaining its workings would be “useful and worthwhile,” he says. So, read on.

How does the CBAC fit into the CFPB?

The CBAC first met in 2012 with 14 members, including Zimmerman, now ICBA vice chairman, and Jack Hartings, immediate past chairman.

It’s one of four similar CFPB groups, including the Credit Union Advisory Council, the Consumer Advisory Board and the Academic Research Council. Congress mandated the consumer board but didn’t specify anything else, so CFPB director Richard Cordray set up the other three groups, according to documents, “to be sure that we hear from a variety of experts with diverse viewpoints…. These advisory groups provide us with information about emerging trends and practices in the consumer financial marketplace. They also allow us to hear directly from small financial institutions.”

The bureau may only regulate banks and credit unions with $10 billion or more in assets, but its decisions affect all financial institutions. The theory, says current member Sam Vallandingham, president and CEO of the $225 million-asset First State Bank in West Virginia, is that learning from smaller institutions about ideas and plans in progress will improve those eventual decisions.

A voice for community banks—The current Community Bank Advisory Council has 19 members, 13 of whom are ICBA members. They hold various positions within their banks, with expertise ranging from community development finance and risk management to information technology and lending.

How has the CBAC changed since its launch?
It has grown in size to 19, of whom 13 are ICBA members. Its three committees cover consumer lending, mortgages and small-business lending, and payments. Full-day meetings used to be closed, but after “some blowback from Capitol Hill,” says ICBA assistant vice president and regulatory counsel Joe Gormley, afternoons are now videotaped public forums.

In its early days, the CBAC consisted mainly of community bank chiefs, but six members now have the title “president and CEO.” There are also two CEOs and one president. Of the remaining 10, four are vice presidents, three are senior vice presidents, two are chief compliance officers, and one is something else. In addition, four serve on their banks’ board of directors.

Zimmerman believes having fewer C-suite members has “watered it down,” adding, “There were no bashful people when I was on it.” But Vallandingham says membership was expanded because topics were so complex. “The CFPB decided that some technical topics required someone with that experience … which might not be my strong suit.” In his experience, “no one hangs back.”

How does the CBAC work?
The CBAC meets four times a year with CFPB staff: twice by conference call and twice in Washington. All members serve on one of the committees, which meet once a year in person, as well as a main CBAC meeting. Members serve a two-year term and can ask to remain for a third year.

Not surprisingly, according to bankers, in-person meetings are more effective. Morning work sessions cover meaty financial topics. Public, more formal afternoon sessions may look at elder abuse or childhood education. Prepared remarks from Cordray have praised community banks for their financial education and asked CBAC members to work with the bureau on helping people improve their financial condition, including by saving more and avoiding scams.

What have community bankers found most surprising?

Probably the dearth of banking experience among CFPB staff. According to CBAC members, many or most employees have a legal or legislative background, and most are in their 20s or 30s. “They’re very smart, very educated, but they had no idea what we did,” says Hartings, president and CEO of Ohio’s $480 million-asset Peoples Bank Co. “Often, the contentious part of our meetings was us saying, ‘That doesn’t work on the ground for our customers.’”

Bankers find Cordray open and encouraging. Unanimously, sources call him “effective,” “inquisitive” and “attentive.” He takes notes, urges staff to act, follows up with bankers and takes on the dual role of counselor and coach. Some members worry about the CBAC’s efficacy were Cordray to leave.

What has the CBAC taught the CFPB?
Probably that all banks are not alike. Sources agree that to the extent CFPB staffers knew or know how banks work, they think first of Wells Fargo or Bank of America—not the kind of bank where a neighbor closes your loan, talks you through an overdraft or looks over your business blueprints.

Related to that, both Cordray and his staff regularly seem surprised that proposals meant to save citizens from big banks or nonbanks are hard on community banks. With proposed Home Mortgage Disclosure Act (HMDA) requirements, “If I have to add people for data collection, the consumer will bear that cost,” says Vallandingham. “They always think technology makes things easier than it [does].”

Where have CBAC members made a positive difference for community banks?

At the recession’s height, the CFPB took on overdrafts as an issue. “They thought we were ripping off consumers,” says Zimmerman. CBAC members educated the staff on why rural customers actually like how their community banks handle overdrafts. “[The CFPB] came to the conclusion that there are various ways to run these programs,” he says.

Also, the CFPB had planned to outlaw balloon mortgages, which had caused homeowners so much trouble. Midwestern bankers noted that agricultural loans had used a balloon structure for a century, and customers needed them. “We did prevail there,” Zimmerman says.

Where have CBAC members had less effect?

The TILA-RESPA Integrated Disclosures Rule for mortgages (or Know Before You Owe, as the CFPB calls it) is one example. In response to suggestions, the CFPB said it would come out with a paper method and a digital method to handle disclosures. Great, thought Hartings. But then the timing was virtually the same.

“They missed the point of why you want a digital disclosure: so the customer has a faster way to close,” he says.

Similarly, although members explained that HMDA requirements would necessitate hiring an extra staffer to specialize in the data, few eventual rules went community banks’ way.

On reflection, what do members think of the CBAC and their service on it?

“I saw a lot of good happening from this council,” says Hartings. “There were some better results because of our involvement.”

Zimmerman adds, “At first I was concerned that it was ‘check the box,’ no meaning to it.” But “it’s a program that’s working in the background for us.”

“It’s absolutely useful,” says new member Linda Feighery, vice president-CRA/fair lending officer of the $1.3 billion-asset Citywide Banks in Colorado. “The point is to take the pulse of community banks.

How are CBAC members chosen?
The CFPB invites applications from a variety of people, including community bank staff: “experts in consumer financial products or services … consumer protection, community development, consumer finance, fair lending and civil rights,” and “representatives of banks that primarily serve underserved communities.”

Two seats will be filled this fall. Feighery’s vetting process took four to five months, she says, including a background check, recommendation check and interview. The next application opportunity will be next spring. See www.consumerfinance.gov.


Ellen Ryan is a writer in Maryland.
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