CFPB's Rohit Chopra warns of 'creep of consolidation' in bank M&A

Ting Shen/Bloomberg

WASHINGTON — Consumer Financial Protection Bureau Director Rohit Chopra said banks' mergers should go beyond meeting regulatory requirements by also proving that they're filling unmet needs in the communities they serve.

Chopra touted recent efforts by federal regulators to enhance scrutiny of bank mergers in a speech at the National Community Reinvestment Coalition's conference Wednesday. He added that regulators had lost focus on the best ways to evaluate whether a bank combination would better the lives of community members.

The Federal Deposit Insurance Corp. proposed Bank Merger Act revisions last month that, if passed, would require banks to provide proof that a merged entity could better serve the community and maintain financial stability. Chopra, along with Michael Hsu, Acting Comptroller of the Currency, sits on the FDIC's board.

"We see so many individual towns, cities, communities, have dealt with the harms inflicted by the creep of consolidation across the banking sector," Chopra said to the audience of nonprofit leaders, consumer group advocates and bankers. "[The policy revisions] are intended to address all of this and restore a reconnection to service to the community and the public."

As Chopra lambasted current "rubber stamp" regulation, one of the biggest, and most contentious, proposed bank acquisitions in 15 years awaits its fate. Capital One filed its official application to acquire Discover Financial Services last month in what would be a $35.5 billion deal, creating a credit card behemoth. 

Critics of the deal, including the NCRC, fear it would limit options for subprime borrowers and decrease competition. The bank claims the merger would create more competition by bolstering Discover's network against powerhouses Visa and Mastercard.

Although the FDIC doesn't have pull in the blockbuster transaction, which needs approval from the Federal Reserve and Hsu's OCC, Chopra made clear in his Wednesday remarks that he doesn't jive with the prospect of the deal crossing the finish line. Whether the banks' plan will satisfy regulatory hurdles is still unknown.

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Federal Reserve Vice Chair for Supervision Michael Barr, who also spoke Wednesday at the NCRC conference, said that while the FDIC and the OCC are updating their merger rubrics, the central bank wouldn't be likely to amend its own policies. Barr added that he thinks "we have a pretty robust process," which includes gauging companies' financial and managerial capacity for execution, financial stability, community impact and go-forward plans.

While highlighting provisions of the FDIC's proposed changes, Chopra said that bank combinations should boost competition, but the review of community impact is a distinct, equally important evaluation. 

"The community should be better served by the combined institution, not just shown that it won't be worse," Chopra said. "We have to have answers to the questions: Does the merger address the gap or unmet need in the community? Will the merger improve the product services and delivery channels the community already has or doesn't have now? In other words, is there any benefit at all?"

Chopra added that community groups have often taken the onus of negotiating community benefit plans with merging banks, but don't have means of enforcing compliance. The FDIC proposal increases accountability for the regulators, Chopra said, by establishing community commitments as formal conditions of a merger's approval.

For example, the NCRC and KeyBank's parent company, KeyCorp, collaborated on a community benefit plan in 2016 that helped smooth the way for the Cleveland bank's acquisition of First Niagara Financial Group, only for the relationship to sour a few years later. However, on Wednesday, NCRC President and CEO Jesse Van Tol announced that the fair-lending group and Key had mended fences and were reuniting in a $25 million effort to revitalize the community benefits plan.