The Consumer Financial Protection Bureau might have the driest name in federal government since Office of Information and Regulatory Affairs, but drama surrounding the agency that regulates financial services like payday loans is anything but boring.
The CFPB was created in 2011 in response to financial institutions’ actions connected to the Great Recession. The bureau quickly became a target for critics of corporate regulation. Under the Trump administration, CFPB cut back on enforcement actions against the financial institutions it was created to regulate.
Now, U.S. Sen. Jim Inhofe, R-Oklahoma, and five other Republican senators, including U.S. Sen. Ted Cruz, R-Texas, have filed a bill that would shut down the CFPB for good.
“For almost eight years, the CFPB has held far too much power with virtually no congressional oversight,” Inhofe said in a press release. “I’ve seen how Oklahoma banks are being forced to spend more and more of their time and resources on complying with federal government mandates, and less on their customers — driving up costs for families, small businesses, farmers and ranchers.”
This is not the first attempt to kill the CFPB, and it probably will not be the last. Inhofe’s statement illustrates the anti-regulatory ire against the bureau, but half of what he said is not quite right and the other half is difficult to prove.
Does the CFPB lack congressional oversight?
The CFPB was intended to be an apolitical agency that would educate the public on financial matters, protect consumers from fraud and enforce laws reining in financial institutions.
To keep politics out of the equation, architects of the CFPB, like U.S. Sen. Elizabeth Warren, D-Massachusetts, opted to fund the bureau through Federal Reserve funds – not Congress. Politics crept in, though, as conservatives harped on that funding source as evidence that CFPB is free from congressional oversight.
Maybe Congress cannot control the CFPB by funding (or defunding) it, but it has other options. The most obvious avenue is through legislation, like the bill that Inhofe and company filed. If that were to pass, it is safe to say that completely shutting down the CFPB would have at least a smidge of influence on the CFPB.
Aside from legislation, the CFPB is subject to typical checks and balances like any other part of the federal government. Plus, Congress can request the Government Accountability Office (GAO) to audit CFPB, and the bureau’s director cannot hold the position without a go-ahead from Congress first.
Are banking costs in Oklahoma going up because banks have to spend more time and money on CFPB compliance?
Trying to factcheck this was like a wild goose chase, especially so because I think geese would have ignored my emails about it, too.
I will start with who did answer my questions, or at least tried to. Matt Mowdy, legal counsel for Oklahoma Banking Department, said banks tell the department that they are devoting more resources to complying with CFPB regulations, but the department does not have data or other material to back that up. Mowdy also said the department was uncertain if costs were going up for Oklahoma banking consumers.
Similarly, Jeremy Cowen, vice president of communications at Oklahoma Bankers Association, said by email that the group has heard anecdotal reports that banks are spending more on compliance.
“Essentially, with new and more compliance rules, banks need access to more compliance help, which usually means a larger compliance staff,” he said. “With the larger staff comes all the related overhead. And much of that – not all, obviously, but some – has to be passed on to consumers.”
However, the bankers association also did not have available data to support those anecdotal reports.
I reached out to some of the largest banks in Oklahoma and asked the same questions – if the CFPB has forced banks to spend more on compliance and if banking costs are going up in Oklahoma or nationally. Tulsa-based Bank of Oklahoma and MidFirst Bank, based in Oklahoma City, did not respond to my emails. An executive from BancFirst, also based in Oklahoma City, did not answer my questions but suggested I contact the Oklahoma City branch of the Federal Reserve Bank of Kansas City.
A spokesperson for the Federal Reserve also did not answer the questions but provided links to two reports about compliance costs for banks. The reports did not address how CFPB regulation impacts those costs, but one mentioned that banks do not usually track their compliance expenses in the first place.
When I contacted the Federal Deposit Insurance Corporation (FDIC), a spokesperson there also did not answer my questions and suggested I contact CFPB instead. An email to CFPB went unanswered.
At this point, it was clear that most of the people I had contacted were not up for saying whether or not banking costs are increasing for consumers, even before getting into why they might be going up.
Fees are a huge part of banks’ business strategies.
I ultimately could not fact check Inhofe’s claim that complying with CFPB is hurting Oklahoma consumers. But what I did find is that banks have steadily increased their reliance on fees since the 1980s and this shift in their business approach took place well before CFPB entered the picture.
For decades, banks’ income from fees and interest grew at the same rate, but according to research from the Federal Reserve Bank of Minneapolis, that started to change in the 1980s. That was when banks’ fee income started to grow at twice the rate as interest income, which historically had been the banking industry’s main revenue source.
Deregulation during the 1990s allowed banks to pursue fees as a way to increase and diversify revenue, research from the Federal Reserve Bank of Chicago said. In 1980, fees made up 20 percent of banks’ income. By 1999, that number had doubled to a whopping 40 percent, representing a radical change from traditional banking in the United States.
Reliance on noninterest income, revenue largely based on fees, continued to rise after that, with a huge crest in the Great Recession of 2009, when revenue from banking fees reached a staggering $46 billion, according to The Pew Charitable Trusts. By 2015, banks with more than $1 billion in assets reported upward of $11 billion in revenue from overdraft fees and nonsufficient fund fees alone.
What about Oklahoma banks?
Fees are also a big part of the banking business here in Oklahoma. BancFirst’s 2018 annual report even lists certain fees and service charges as a major area of competition in the state’s banking industry.
MidFirst Bank’s noninterest income actually appears to be going down, based on recent financial reports, but that is not the case at Bank of Oklahoma or BancFirst.
Its annual report shows that since 2016, BancFirst’s yearly revenue from noninterest income increased by more than $45 million to land at about $152 million. BancFirst attributed that 42 percent increase not to CFPB, but to other factors including increased debit card and nonsufficient funds (NSF) fees.
At Bank of Oklahoma, revenue from fees makes up 37 percent of revenue, down 10 percent from 2012. Despite that, reports from this year and last year said that the bank’s fee-related income was up, but because of an acquisition, not CFPB. Perhaps most telling, last year’s report notes that a “robust portfolio of fee generating businesses provides balance in periods of economic instability,” suggesting that the bank’s pursuit of fee income isn’t connected to CFPB.
The only mention of CFPB I found in these documents was from BancFirst’s 2018 annual report. It said CFPB and consumer protection laws could potentially reduce the bank’s ability to charge fees for NSF, which made up a quarter of its noninterest income. So, CFPB could chip away at the bank’s income from fees, and BancFirst also expected to take a hit from transfer services like PayPal. The report did not mention spending more to comply with CFPB regulation.
All of these reports suggest that CFPB is unlikely to blame for any increased banking costs for Oklahomans. Banks had a demonstrated history of using fees to raise revenue long before CFPB was created, and if anything, there seems to be concern that the bureau could cut into that piece of the pie.
This piece was produced as part of a partnership between Oklahoma Gazette and Big If True.
Contact Mollie Bryant at 405-990-0988 or bryant@bigiftrue.org. Follow her on Facebook and Twitter.
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