Cordray Details Potential Links Between Bank Size and CFPB Rules

AUSTIN — Days after he suggested smaller banks should be subjected to different consumer-compliance rules than larger ones, Consumer Financial Protection Bureau Director Richard Cordray said regulators simply should consider the differences between financial institutions when crafting rules for everyone.

"What I have said is there are different institutions at different levels of sophistication and that's something that we should very much take into account as we go about writing regulations for the broader market," Cordray said in remarks to the Consumer Bankers Association convention here. "As to where we draw those lines, it's going to vary from market to market, (and) it's going to vary from product to product."

Cordray made the statement in response to a question from Richard Hunt, the CBA's president and chief executive. The CFPB chief's appearance followed a speech last week to the Independent Community Bankers of America, where he essentially said subjecting small banks to the exact same regime faced by larger institutions was not feasible.

While reminding the CBA audience that CFPB regulations apply to all depository institutions, regardless of size, he said there could be certain circumstances where an addendum to a rule provides more flexibility for smaller banks. (Under the Dodd-Frank Act, the bureau is responsible for supervising banks with more than $10 billion in assets, and for enforcing consumer financial laws for those banks. Smaller banks will continue to be supervised by their prudential regulators.)

When it proposed a rule on remittance transfers, for example, the bureau said it was considering a supplemental proposal that may include a threshold under which certain institutions would be exempt because it would be too burdensome for them to comply.

"I think that's something that we can do elsewhere, but where we'll draw those lines I think will be very contextual and whether they make sense can vary and again will depend on facts and circumstances," he said.

In an interview later with American Banker, Cordray said the broader aim of the agency is to level the playing field between banks and nonbanks, which before Dodd-Frank were never subject to a formal consumer regime. But that does not negate recognizing certain instances where there are distinctions between institutions based on size, he added.

"There was something and there was nothing - that doesn't work," he said of the difference between banks and nonbanks. "But in a thoughtful, careful way, potentially writing rules that might apply differently at different levels of institutions with different business models, that makes sense."

"The notion that rules applicable in one consumer market are necessarily exactly the same as would apply in other consumer markets, it's much more situational than that," he added. "I think that's true here."

During the question-and-answer session, Hunt also asked Cordray to explain how the bureau views its authority to prohibit so-called "unfair, deceptive or abusive acts or practices," also known as UDAAP.

Industry observers have complained that "abusive" is open to broad interpretation, even though it was defined by Dodd-Frank.

Corday noted that there is a long established precedent on what kinds of practices are "unfair" and "deceptive," established in part by the states and the Federal Trade Commission.

"We're not going to be departing from the law, we have no desire to upset all expectations and come out with some half-cocked, self-devised definition when the law is clear," he said.

As for "abusive" practices, he said, "Our job will be to apply that to particular facts and circumstances, and we will do that as we go."

Hunt also repeated a question that has been asked of other CFPB officials: Did Cordray see any products currently in the market that he thinks should be banned?

Cordray said he did not think it was the bureau's place to "ban" certain products or to design or oversee innovations in the financial sector, and noted that Dodd-Frank said nothing about banning products.

"We're meant to enforce the law against unlawful acts or practices," he said. "That's the way I would look at it."

"We have no authority under the law to set interest rates or to set price in any manner, and that's not how we'll go about our work," he added.