A banking regulatory agency asked whether the Consumer Financial Protection Bureau should be involved in deciding whether to green light bank mergers.
The industry’s answer? A resounding “No.”
Trade groups such as the American Bankers Association and the Independent Community Bankers of America, say that doing so would be beyond the scope of the CFPB, which has authority over certain industries, including mortgage, as well as lenders with more than $10 billion in assets.
The pushback from banks came after the Federal Deposit Insurance Corporation (FDIC) announced it is mulling changes to regulations that govern bank merger transactions and asked the industry for input. The Biden administration last year asked federal agencies — which have not denied a bank merger in the last 15 years — to update their bank merger policies.
The FDIC asked for feedback on whether it should consult with the CFPB when it is considering the “convenience and needs,” or the community impact, of a potential merger. The comment period ended in May.
Fair housing advocates have argued that the assessment of mergers’ community impact, required in the Bank Merger Act, element has been largely ignored in the evaluation of bank mergers.
While primacy should be adapted to each financial institution’s needs, the industry needs standardization, which can only start with data. One of a bank’s greatest assets is the intelligence they have from a client’s transaction data.
Presented by: William Mills Agency
The ABA, in its response to the FDIC request for input, said that there are already regulations that govern how mergers are evaluated and that “specific agency responsibilities are well defined, with appropriate consideration of [Community Reinvestment Act] performance among them.”
Banking regulatory agencies factor in a bank’s past CRA performance, which shows how well banks serve low- and moderate-income borrowers. But while there is no example of a bank merger failing due to poor CRA performance, multiple banks have failed their CRA exams and subsequently completed successful mergers.
“A separate role for the CFPB would therefore be superfluous to existing considerations, inconsistent with the Bank Merger Act, and beyond the scope of the CFPB’s own authorizing legislation,” the ABA said.
The Bank Policy Institute (BPI), the Consumer Bankers Association and the MidSize Bank Coalition of America in a joint letter to the banking regulator echoed that message.
The trade groups said that there may be “special situations” where the FDIC should consult the CFPB, such as in matters pertaining to enforcement actions against potential applicants.
However, the trade groups say that there is “no statutory basis” for federal bank regulators to consult with the CFPB on whether any merger satisfies the convenience and needs standard.
In the trade group’s view, participation by the CFPB in the application process “would extend beyond the role that Congress delineated for the CFPB.”
“When Congress established the CFPB in the Dodd-Frank Act, there was no suggestion in the statute or legislative history that the CFPB should have any sort of concurrent role respecting mergers, or even be accorded a special right of comment,” the trade groups said in their letter.
However, some outside of the banking industry, like the liberal think tank Center for American Progress, argue that the CFPB should have a more prominent seat at the table for bank merger reviews.
The CAP said that federal banking agencies have “placed insufficient emphasis on [the convenience and needs factor] despite significant evidence that bank mergers have negative effects on consumers and communities.”
“We believe the CFPB should weigh in on every bank merger involving institutions it examines or mergers that would create a CFPB-examined bank (i.e., banks with more than $10 billion in assets),” the advocacy group said.
The group said that consumer compliance in recent years has “evaporated as a constraint on bank mergers” and that the CFPB has “the expertise and examination data to evaluate whether merging banks have properly complied with consumer financial protection laws.”
The FDIC’s request for comment coincides with renewed attention to bank mergers and redlining.
In his July 2021 order, President Biden asked banking regulatory agencies and the Department of Justice to make a plan for the “revitalization of merger oversight.”
The order said that over 10,000 banks have been shuttered in the past four decades in minority communities, partly due to mergers and acquisitions. The closing of these banks has impacted low-income communities, the administration said.
Concurrently, senior officials from the DOJ, CFPB and the OCC have said rooting out “modern-day redlining” is a top priority for the administration. In December 2021, a disagreement between the CFPB and the FDIC over the FDIC’s bank merger bylaws resulted in the ouster of its chair, Jelena McWilliams.
In a sign that there may be changes ahead, Lisa Cook, the first Black woman to serve on the Board of Governors of the Federal Reserve System, recently abstained from voting on a bank branch opening application. Community groups have said that the bank failed to provide small business and consumer lending services to African American communities in Southern Dallas.