Bank Lawyer's Blog

Congress Concerned About Choke Holds

Apparently, there's been some bipartisan gagging induced by Operation Choke Point and parallel throttling of the online payday lending by the OCC and the FDIC. According to the American Banker, a group of Republican and Democrat legislators wrote a letter to the OCC and the FDIC that their efforts to ostensibly "crack down" on online lending fraudsters were causing the sensitive souls in Congress "grave concern."

"Banks should not be forced to throw out legitimate customers they have successfully banked for decades," the letter states. "Regulators should instead directly target predatory actors who are breaking existing laws and resist any broad approach that causes undue consequences on an entire industry."

Yes, that would be the logical course of action if the regulators were actually concerned about targeting only criminal elements within the business of payday lending. However, a broader crackdown makes sense if, as some payday lending industry representatives (and various cranks like this one) believe, the goal is stamp out a business that ideologues at the federal level believe violates their refined ideas of "social justice." The've already driven banks out of the business of deposit advance loans and are doing their best to hammer the tax refund anticipation loan business to bits, and why stop with those sordid outliers? If the legality or illegality of a business is irrelevant to the discussion, then "fraudsters" is merely a pretext for a regulatory crackdown.

The latest congressional letter — spearheaded by Rep. Blaine Luetkemeyer, R-Mo. — states that efforts to stamp out fraud are praiseworthy, but that legitimate, licensed businesses are also being hurt by the government's actions.

"Banks that have terminated these services," the letter states, "are reflecting blanket concerns about heightened regulatory scrutiny as opposed to engaging in appropriate, risk-based determinations based on individual customer circumstances."

The letter does not cite any specific licensed companies that have been harmed, but it claims that examiners from the Fed and OCC are playing a role in discouraging banks from processing lawful transactions.

The Fed said it will respond to the letter and the OCC declined to comment. Expect both agencies to respond in a manner similar to the response of the DOJ when it received a similar letter of concern from Republican congress persons. It met with congressional representatives, refused to characterize the results of the meeting in any manner, and issued the reply that the DOJ "is committed to pursuing any evidence of financial fraud, particularly fraud that harms consumers and threatens the integrity of the financial system." In other words, "we heard you and will supply you with numerous buckets full of sand and a sufficient supply of mallets with which to pound it."

I don't expect the war on politically incorrect lines of business to abate until at least after the 2016 election, and then only if a Republican is elected to the White House. Until that time, the DOJ and the CFPB, aided and abetted by those at the top of the regulatory food chain in D.C. who share their sensibilities, will do their best to wipe out payday lending and other targeted businesses that provided high-cost credit to borrowers who present higher credit risks, or, at least, make it so unprofitable that access to such credit will be limited and consumers who would otherwise use it will seek "extra-judicial" sources, which will be the only ready sources left in the game. Banks who process payments for such businesses or otherwise "bank" them will subject to continued enhanced scrutiny and duress in an effort to make it so uncomfortable for them to bank these "untouchables" that they will drop them as customers. By choking off access to the banking system, the businesses will be effectively driven out of business, as have many of the tribal online payday lenders via the same tactics.

That's the way it's done in a world where the federal government officials get to pick winners and losers among businesses that are otherwise legal, but full of "potential fraud."

Et Tu, Maxine?

Now Richard Cordray knows how Robespierre felt when The Convention turned on him.

Top Democrats on the House Financial Services Committee are asking several watchdog agencies to provide more information about federal regulators' employment policies and practices with regard to minorities and women.

Nine members of the panel signed joint letters March 24 to the inspectors general of several financial regulators and the Treasury Department asking them to look into the issue.

[...]

Democrats are also seeking the Federal Reserve Board's inspector general (which also oversees the CFPB), to look into the consumer bureau's performance appraisal process and how its Office of Minority and Women Inclusion has been involved in that process.

"We request that the Office of Inspector General (OIG) immediately exercise its independent oversight authority over the bureau's operations, to detect whether any personnel practices and policies have created an unfair or discriminatory workplace for minorities and women employed at the CFPB," states the letter sent to Inspector General Mark Bialek of the Federal Reserve, which was released Wednesday. "Allegations of discriminatory behavior at the bureau, in perception or practice, must be investigated thoroughly to ensure that no individual, coalition or group of individuals undermines the agency's vital mission of ensuring the fair and equitable treatment of consumers from all backgrounds."

The letters were signed by Reps. Maxine Waters, the Financial Services Committee's top Democrat; Al Green, D-Texas; Carolyn Maloney, D-N.Y.; Emanual Cleaver, D-Mo.; Ed Perlmutter, D-Colo.; John K. Delaney, D-Md.; Kyrsten Sinema, D-Ariz.; Joyce Beatty, D-Ohio; and Denny Heck, D-Wash.

King Richard will be lucky if that motly crew doesn't send him to the guillotine, or worse: socializes him.

A CFPB spokesman said that the CFPB welcomed the investigation. I understand Leon Trotsky said the same thing days prior to his opponents sticking an icepick through his eardrum.

The "beauty part" of this investigation is that it's only one in an expected dog pile of investigations. Since Democrats are are leading the charge, the rest of the Republican-dominated House is happy to jump on the bandwagon.

Separately on Wednesday, the House Financial Services Oversight and Investigations Subcommittee announced a hearing April 2 to look into the CFPB's performance evaluation process and complaints filed by employees. All of the Democrats who signed the letters are members of this subcommittee.

Since Congress is all about the infliction of unintended consequences, let's hope an unintended consequence of this witch hunt is the impositions of some checks and balances on this unchained violator of diversity, inclusiveness, and the protection of the brain-fogged. We'll be following this investigation all the way to its white-washed conclusion.

Making The CFPB Less Opaque

A Congressman from Wisconsin has opened up a potentially horrific possibility for the CFPB: transparency.

A leading Republican on the House Financial Services Committee introduced a bill to open the Consumer Financial Protection Bureau up to face the same scrutiny as every single other commission, regulatory body and government body with the exception of the CIA and the Federal Open Market Committee.

The bill, introduced by U.S. Rep. Sean Duffy, R-Wis., would apply the Federal Advisory Committee Act to the CFPB and its advisory councils.

"What is the CFPB doing that is on par with the CIA? It makes everyone want to ask, 'what exactly goes on in these meetings?'” Duffy said.

Predictably, the CFPB is aghast at the prospect that their secret rituals (which, we are certain, involve not only exotic forest creatures, but also various forms of gymnastics apparatus, the singing of Gregorian chants, and the excessive use of the word "abusive") might be exposed to the light of day.

CFPB Director Richard Cordray has said the meetings are closed to the public because the Federal Advisory Committee Act, a sunshine law passed in 1972, does not apply to the Bureau.

“Why deny the public the right to observe these meetings?” U.S. Rep. Robert Pittenger, R-N.C. asked Director Cordray at a January hearing.

Because, Bob (if I may be so bold as to call you "Bob"), as everyone knows, vampires exposed to daylight spontaneously combust.

"If the CFPB is not going to take steps to maintain the transparency it claims it is committed to, we will take the legislative steps for them. My bill, H.R. 4262, mandates that FACA must apply to all of the CFPB's advisory committees. The people have a right to know what their government is up to, and the government has a responsibility to provide that transparency," he said.

This is all political theater, since no such bill has a chance of passing the Senate this year, even if Duffy, et al., steer it through the Republican-dominated House. I guess this is "laying down a marker," like a dog does with a fire hydrant. It lets the other dogs know that you claim the territory and that you'll keep coming back until your opponents get the point. It's setting the table for what might be more realistic to enact in 2015.

Expect the CFPB to fight this "reform" every chance it gets. While it loves shining the burning light of day on its intended victims, it prefers that spf 45 sunblock be applied to itself.

CFPB: Zombie Killer

Just as nature abhors a vacuum, the CFPB abhors any area of the economy where it's not rooting out evildoers and saving innocent consumers from perils they may not realize endanger them. One of the vacuums that the CFPB is rushing to fill is the land of "Zombie Foreclosures." According to National Mortgage News' Kate Berry, the CFPB sees this as the badlands where straight shooters like the CFPB need to "clean house."

Some borrowers are being harmed when a mortgage servicer starts a foreclosure but then fails to complete it, leaving borrowers on the hook for the mortgage debt, taxes and maintenance even though they may have already moved out, said Laurie Maggiano, the CFPB's servicing and secondary markets program manager.

"The CFPB is beginning to look very closely at abandoned properties and zombie foreclosures," Maggiano said Tuesday at a conference sponsored by the Federal Reserve Bank of Cleveland. "There is direct borrower harm if a borrower believes a foreclosure on their property has been conducted and they are no longer responsible, and months or years later find out that they are, that there was never a foreclosure and they have large financial responsibilities that they never knew about."

These loan servicers! They trick the borrowers into moving out of their unpaid-for homes with threats of foreclosure, and even commencement of foreclosure proceedings, then they "go dark" and, behind the non-paying borrowers' backs, let the houses sit vacant. Why do they do this? Apparently, because, like The Joker in "The Dark Knight," they believe in chaos theory, especially when they're the agent of chaos.

Do I really look like a guy with a plan? You know what I am? I’m a dog chasing cars. I wouldn’t know what to do with one if I caught it. You know, I just… do things.

Consumer advocate Peter Skillern thinks this whole gambit by loan servicers is rotten to the core.

Servicers typically flood defaulted homeowners with as many 250 letters and phone calls telling them their home is going into foreclosure, says Peter Skillern, the executive director of Reinvestment Partners, a Raleigh, N.C., nonprofit. But they usually fail to notify the borrower when the foreclosure is stalled.

"They are pushing the borrower out of the home, which results in abandonment," Skillern says. "Servicers need to make sure they are accurately communicating the status of the foreclosure process to the borrower."

Yes, so the borrowers, who haven't been making their mortgage payments, in some cases for years, can remain in, or return to, the houses "rent free" while continuing not to pay their loans. This assumes that with someone living in the house, the occupant will transform it from what the article alleges is a property with respect to which "the cost to repair a home is more than the property is worth" into a credit to the community. Even if they can't make their mortgage payments, they'll repair it. Honest.

For the last several years, we've been discussing the problem of broken cities blaming lenders for their decades of bad decision-making. The areas where homes are being abandoned by lenders are not areas that got to be in the condition they're in because of "Zombie Foreclosures" initiated by lenders who just mess with borrowers because "they just do things." Moreover, while knowingly or even recklessly initiating foreclosure proceedings or otherwise bombarding borrowers with foreclosure notices and then traveling to Neptune, never to be heard from again, would not fly with etiquette experts, the borrowers are not the only, or even the primary, folks being "inconvenienced." Unless the borrowers suddenly resume paying the freight on their mortgage loans, all that wasted effort is likely to results in costs borne by the owners of the loans (or the securities backed by the loans). If this is a problem worthy of CFPB wrath, then the investors ought to be looking into this major "abuse," as well.

Cashing Out on BankUnited

The recent news that the original private equity funds that backed one of the FDIC-assisted broke-back-bank deals of the latest banking "crisis" are finally, after five years, cashing out the last of their remaining ownership may fill the FDIC with even more "seller's remorse" than it allegedly experienced previously when it decided that it had been way too generous with the buyers of BankUnited. As I discussed four years ago, some wags complained that the assistance deal was too lucrative for the acquirers, due, the wags surmised, because the crafty Wilbur Ross and his fellow PE all-stars "outfoxed" their FDIC counterparts.

I don't think that the FDIC was "outfoxed." Rather, Ross and his compatriots (led on the management side by John Kanas, who will remain at the helm of the the bank after the original investors leave the stage) were into the game early, when the risks were high, the rules flexible, and the FDIC uncertain as to where the sweet spot might be between giving away just enough to entice buyers to buy, but not so much that critics in the peanut gallery would do what the FDIC does to officers and directors of the failed banks: second-guess them with the benefit of hindsight. As a result, Ross and his fellow investors negotiated better terms than those who came later. As the FDIC became more comfortable with its understanding of the field of potential bidders and what they would or would not accept, the deal terms negotiated became less lucrative for the acquirers.

An unfortunate consequence of this criticism of the FDIC, as well as of public bragging by some notable PE investors who also got into the game at the beginning (not Ross) about the sweet deals they'd swung, was that the FDIC decided to clamp down on private equity bidders for failed banks, making the conditions on PE bidders onerous enough that Ross and others simply opted out of the process and turned their attention to other investments. That eliminated competition for other assisted transactions and may have ended up costing the FDIC money in the long run. That's pure speculation, but not unreasonable speculation.

There will be some who will sneer at the fact that Ross and company are making more from the deal than they originally expected. As I said four years ago,

Of course, we appear to be living in an era where a number of people think it ought to be illegal for capitalists to prosper, especially in the banking system, and even more especially where the downside risk is covered by the FDIC. I understand the reasons for that sentiment. I simply don't share it.

I still don't share it. Risk takers recapitalized a broken bank, turned it from a high-flying outlier into a solid franchise, saved the jobs of many workers who otherwise would have been hitting the pavement, and performed in accordance with the deal they cut with the government. The FDIC experienced a substantially lower loss than it would have if it had not done the deal. The investors made out well. So, let's all criticize both parties for not doing a deal that wouldn't have been done at the time it was done. That makes sense.

My only regret is that the FDIC didn't do more BankUnited-like deals. Then again, as I've said before on this blog, I sustain myself not by eating solid food, but by taking a straw and sucking the sweat from the brow of the proletariat. Of course I'd feel that way.

Let's Be Reasonable

Attorney Ari Karin has pondered the implications of recent enforcement action by the federal government against large loan servicers, and he's drawn some interesting conclusions. Writing an opinion piece in National Mortgage News, he makes an observation that will ring true with many community bank officers and directors.

Practically, these actions suggest that as opposed to specific standards that must be met, a generalized standard of care is being developed. In other words, up to this point lenders had specific actions and goals that were required. A lender could compare its actions and performance to specific standards to determine its level of compliance.

It appears that we are witnessing the development of a generalized "reasonableness" threshold where lenders will now need to evaluate themselves based upon the processes and procedures of their competition. This obviously creates additional pressures on companies' compliance infrastructures because simply meeting minimum statutory requirements may not be sufficient in the future.

Rather, the more surrounding companies implement practices to protect consumers and avoid defaults and other problems, it could impose liability for companies lagging behind their competition. In that regard, meeting minimum statutory requirements would not be enough—lenders would need to measure themselves against their competition in regards to their compliance performance and review their own conduct from a generalized reasonableness perspective.

Put another way, a lender's compliance would essentially be viewed in hindsight, creating the need to predict possible outcomes and review them in advance to determine that their actions are generally reasonable at the time.

Reasonableness is in the eye of the beholder. When that eye is a jaundiced one, lodged in the skull of a bank regulator, what a lender might regard as "reasonable" is likely to be a world away from what the regulator views as "reasonable." Moreover, Karin's observation that judgments as to "reasonableness" will be made with the benefit of hindsight is chilling, if the judgments made with respect to many officers and directors of failed community banks constitute a taste of what lenders and servicers, bank and non-bank, provide a road map.

Looking at the most recent FDIC lawsuit against former officers and directors of a failed bank, we see that the defendants are typical of a class of unlucky former officers and directors who made commercial real estate loans, especially acquisition and development loans, during the years leading up to the Great Recession: the CEO; the senior executive officer in charge of commercial lending; and two directors who served on the bank's loan committee.

The lawsuit alleges the four recommended and/or approved commercial real estate loans and loans for land acquisition, development and construction that violated “prudent, safe and sound lending practices” and Bradford Bank’s own loan policy. Marsiglia and Mitchell served on the bank’s loan committee.

The lawsuit alleges that in seven loans from July 2006 to October 2007, borrowers were approved for loans they did not have the capacity to repay or were for amounts too high given the value of the underlying real estate. Some borrowers were approved for “speculative” land acquisition, development and construction loans “despite the known economic downturn at the time of loan approval,” the lawsuit said.

"Despite the known economic downturn at the time of loan approval." "Known" with hindsight, of course. At the time the decisions were made, they appeared to the people who made them as "reasonable." Now, we know better, don't we?

Moreover, as the former head of the FDIC during much of this mess, The Care Bair, admitted publicly, even demi-gods residing on the slopes of Mount Olympus failed to anticipate the length or depth of the downturn. Yet, with hindsight, the defendants were negligent and breached their fiduciary duties because their decisions were not "reasonable" in anticipating what "none of us saw coming."

Big loan servicers, welcome to our world. It's located on the far side of the looking glass.

As a side note: any director who decides to serve on a bank's loan committee needs to receive combat pay, a psychiatric examination, or both.

The Road To Hell Is Unchecked and Unbalanced

When the American Banker broke the news last week that the CFPB, a proponent of hammering banks and other financial services businesses with the "disparate impact" doctrine in order to find discriminatory effect where no discriminatory intent, was itself allegedly guilty of disparate treatment of minority employees of the CFPB, a number of readers wrote me to ask when I was going to jump on the bandwagon of focusing a spotlight of snark on one of my favorite punching bags. I think the facts, and the numerous statements of current and former employees cited by Rachel Witkowski are sufficiently eloquent without need to embellish the damnation they provide. As one industry observer quoted in the article stated, everyone will be jumping all over the CFPB's hypocrisy. Why jump on the dog pile when its already teeming with pitbulls?

My problem with the CFPB's conduct isn't that it's filled with hypocrites. After all, I'm a lawyer, one who toiled for years in the cesspool of Big Law, where, in many firms, hypocrisy is not only common, it may be an asset. At least, it may be an asset if your end game is to be the largest road apple in a bushel basket full of them. Not that every big law firm is full of them, but a number of them are. And you road apples know who you are.

The CFPB is full of those grossly flawed creatures known as human beings. They have biases, prejudices, and blind spots, just like the rest of us. They also make occasional misjudgments due to the fact that they're not gods, like, for example, Zeus or Alec Baldwin. Like any other federal bureaucracy, the CFPB will, from time-to-time, be governed by people who, like Anita in West Side Story, want to "stick to their own kind," even when they don't consciously acknowledge that bias, even (or perhaps most especially) to themselves. There even will exist (as some anonymous employees allege) "bullies" at the senior levels, the kind of guys who the jocks used to stuff into their lockers in high school, and who are spending the rest of their neurotic lives taking their nerd-like rage out on the rest of the human race, especially upon those lower than they are in the organizational food chain.

No, my problem isn't with the hypocrisy or other character defects of human beings. Rather, my problem is related to something that one employee quoted by Ms. Witkowski touched upon.

Employees give the agency credit for addressing some employee complaints. It has, for example, resolved concerns involving out-of-pocket travel expenses. However the prevailing sentiment among the dozen employees and former staffers who agreed to talk is that the CFPB's senior staff still lacks necessary checks and balances.

"I joined this agency because I wanted to do good and help the community, but it didn't turn out that way, and now people are just trying to save their hides," says the third employee. "Yeah, it's a new agency and will have some growing pains, but they [supervisors] do what they want, and I do think they need to have someone watching over them."

Yes, the entire agency needs someone "watching over it." However, Elizabeth Warren, the self-proclaimed originator of the concept of the CFPB, and her enablers, deliberately concocted the structure of the Bureau so that it did not have effective checks and balances. The idea for an oversight commission to run the Bureau instead of a single director who can be removed only for cause was rejected, and the scheme consciously removes the budget from normal Congressional appropriation processes. These characteristics are intended to limit any outside influence on an "agency" that would be run by people who were committed to the goal of protecting "fog brained" American consumers from predations of the inherently evil financial services industry, predations that the "fog brained" are too befuddled to discern, even with the clearest of disclosures. Unlike any other federal government financial services agency, this entity was intended to rule effectively unmolested by the elected representatives of the people.

What we're seeing in the CFPB is what we've seen in other agencies. The people running it aren't any better, albeit not any worse, than the people who run other agencies or, tellingly, than the people who run the businesses that are subject to the CFPB's regulatory oversight. However, in the case of the CFPB, where are the "checks" to curb the abuses of the Bureau that are applicable to both "the regulated" and to the other financial services regulatory agencies of the federal government?

[sound of crickets chirping]

No, I expect the CFPB managers will suffer from character flaws, hypocrisy included. What concerns me is what concerned James Madison when he wrote The Federalist #51 226 years ago: the need for checks and balances on the branches of the federal government.

Ambition must be made to counteract ambition. The interest of the man must be connected with the constitutional rights of the place. It may be a reflection on human nature, that such devices should be necessary to control the abuses of government. But what is government itself, but the greatest of all reflections on human nature? If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary. In framing a government which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed; and in the next place oblige it to control itself. A dependence on the people is, no doubt, the primary control on the government; but experience has taught mankind the necessity of auxiliary precautions.

In the case of the CFPB, the "auxiliary precautions" are notably absent, or, at least they don't exist in sufficient number or strength to reign in the failings of its ruling class. Until they do exist, much mischief is possible from these less-than-angels.

A Kerfuffle Fades To Black

The forced placed insurance kerfuffle we last discussed three years ago appears to be winding its way to an unhappy ending for loan servicers in the way many claims against loan servicers, lenders, and big businesses of all kinds end in our over-lawyered land: paying huge sums to class action palintiffs' lawyers to make them go away.

To refresh our collective memories, forced placed insurance is property insurance that loan servicers buy when the borrower fails to keep the property insured. As we discussed previously, the practice has been around for decades, and makes sense in terms of protecting the collateral for home loans when the borrower fails to do so. However, as we said in our last post, government officials and the trial lawyers who follow them like orcas in a tuna boat's wake have been worked up over certain close relationships between force placed insurance companies and loan servicers. Commission splits, referral fees, and other alleged "kickbacks" have raised the ire of the righteous, who claim that the entire arrangement is a rip off of the borrower, who ends up having a very high premium added to the unpaid balance of his debt, a premium that would not be so high if servicers weren't profiting from the misery of the deadbeats downtrodden who don't pay their insurance premiums or, in many cases, their loans.

At any rate, after wading through the sludge of civil litigation for a while, servicers are starting to settle. Wells Fargo is the latest. Not that they think that they did anything they should have been sued for, mind you.

"While we believe the lender-placed insurance purchased on behalf of these borrowers was issued in accordance with the terms of the mortgages and applicable laws, we have decided to settle these cases to avoid protracted litigation,” Tom Goyda, a spokesman for Wells Fargo, told HousingWire. “We continue to support our lender-placed insurance services, which provide continuous insurance protection for real property customers when their voluntary insurance lapses.”

They continue to believe in it, but according to Housing Wire, they and the insurance companies are paying homeowners back about 11% of the amount of premiums. That is not chicken feed. Well, for the late John Candy's chicken, it might have been, but for a normal-sized chicken it's a big bag of cornmeal. The linked article also mentions that Chase paid $300 million in a settlement, and Citigroup another $110 million. How much of that actually made it into the pockets of affected homeowners is not related. You can bet your bottom dollar that the plaintiffs' lawyers made out like bandits very well.

My sentiments on this issue haven't changed much in the past three years. As I said in my previous post:

As I've indicated in other posts, I'm no fan of many of the practices of the loan servicers. However, as is the case with loan modifications, the root cause of this particular problem becoming a problem in the first place is the fact that borrowers don't comply with the loan terms they've negotiated. They are in default of the covenant in their mortgages to keep in place homeowners insurance that protects not only themselves, but the lender. The failure to keep such insurance in place gives the lender the contractual right to obtain the force-placed insurance or, for that matter, to declare the loan in default and foreclose. You don't want the servicer ordering expensive force-placed insurance? Pay your insurance premiums.

As I also said at the time, I am more sympathetic to loan investors, since the higher costs for insurance are ultimately borne by them, especially with respect to loans that borrowers don't repay. I thought that aspect of the problem could be better handled by changes to the servicing agreements.

I realize that my sentiments appears to be that of a small minority. The majority sentiment in this country appears to be that loan servicers are all public utilities that exist not to provide a valuable service to loan owners, but to provide low-cost public services to home owners. Any attempt to make money from the process is inherently suspicious and indicates an unreformed reactionary attitude out of line with the the concepts of liberty, equality, and fraternity that ought to motivate all of the citizens of the republic as they work together for "the common good," as determined by Elizabeth Warren and her running buddies.

Under the prevailing view, these servicers are getting just what they deserve. As are the class action lawyers who sue them.

That's A Fact, Jack

It has been a common theme among community bankers and their supporters for the past few years that the crushing regulatory burden in the post-Franken-Dodd era is hurting small banks' bottom lines. Since nay-sayers like the CFPB are allegedly fact-driven, perhaps they'll actually believe that the mantra has a basis in fact now that a university study supports it.

America’s small community banks are reeling under the compliance burdens of the Dodd-Frank Act and the vast majority of them are having to spend more money to comply with the law’s regulations, according to a study by George Mason University.

The study found that 83 percent of the nation’s community banks said that their compliance costs have increased by more than 5 percent because of Dodd-Frank.

Banks have had to hire new employees or outside personnel to help them comply with the law, said the study by the Mercatus Center at GWU.

“The increased regulatory burdens have led small banks to reconsider their product and service offerings, including considering whether to stop providing residential mortgages and overdraft protection. Many small bank customers, who will have difficulty locating convenient alternatives, will feel the indirect effects of Dodd-Frank,” the study said.

“The median number of compliance staff for the banks in our survey increased from one to two, and more than a quarter of respondents plan to add another compliance person.”

The study also cites Franken-Dodd's 850 pages of text and its evil-seed spawning of over 19,000 pages (and counting) of rules as ipso facto evidence of "crushing burden." On the other hand, I suppose bankers who actually read all that wouldn't be staying up all night with worry because the sheer ennui induced by that much sausage ogling would put even the most over-caffeinated banker into a coma.

 The American Banker's Paul Davis thinks that crushing regulatory burden is taking a back seat to community banks worries about being beaten up by their bigger brethren.

Compliance remains a concern, but exemptions and last-minute changes to various rules and regulations have certainly helped to ease the sting at smaller institutions. Numerous attendees at the Independent Community Bankers of America's annual conference here [Honolulu] are expressing more frustration about the pressure they face from their bigger brethren.

Well, if you're going to fret about being stomped on for being tiny, you might as well tremble in Honolulu.

The article cites problems in competing on pricing, with bigger banks buying market share by offering rates that smaller banks can't match. However, it's my view that the economies of scale that benefit big banks are even more critical given the increased costs of compliance. Banks need to combine because it costs too much to operate to be profitable as a small banks, and a large chunk of those costs are compliance costs.

Regulatory burden is driving consolidation.

Reforming the CFPB: Kabuki Theater

The recently passed (by the House) Consumer Financial Freedom and Washington Accountability Act aims to replace the CFPB's single director with a 5-member commission appointed by the President and confirmed by the Senate, and to bring the CFPB's budget under Congressional control, like other federal agencies. Predictably, supporters of the CFPB are up in arms that the CFPB might become accountable.

U.S. Rep. Maxine Waters, D-Calif., rose in opposition to CFPB reform.

“The CFPB has been immensely successful in protecting consumers. Enforcement actions more than $3 billion refunded to 9 million consumers,” Waters said.

She further said the change to the leadership structure to a five-member commission would increase bureaucracy and weaken the bureau.

"The CFPB has ensured that all consumers have fair and transparent access to consumer financial products and services.  It has written important mortgage rules that prevent lenders from engaging in the risky and irresponsible practices that led to the collapse of the housing market and fueled the 2008 global financial crisis," Waters said. "But Republicans don’t believe that we should have a consumer advocate in government – they would prefer these unscrupulous actors continue to take advantage of consumers without interference. And the simple fact is that H.R. 3193 would accomplish this goal – obstructing the CFPB’s ability to protect consumers from deceptive marketing, unlawful debt collection, lending discrimination, overcharged fees and other illegal activity."

Waters, a woman who once threatened in a hearing to "socialize" the American oil companies (she meant to say "nationalize") and who added a provision to Franken-Dodd that created 20 Offices of Diversity in various federal regulatory agencies, now opposes a five-member commission because it adds bureaucracy. If she were a tad more self-aware, you'd be justified in accusing her of hypocrisy. Given her legendary grasp of the English language, she might think you were accusing of her being a large land mammal that lives in river water.

Maxine wasn't the only bleating voice that rose to oppose a bill that now travels to its doom in the Democrat-controlled worm-hole of the Senate. Gary Kalman, EVP of the ironically-named Center for Responsible Lending, was also quick to utter public warnings that the act would have as deleterious effects on the world as does global warming/climate change/alien body-snatching.

“HR 3193 is a blatant attempt to undermine this successful new consumer watchdog,” Kalman said. “In its three years of existence, the CFPB has returned over $750 million to consumers. The agency has mandated an addition $2 billion in foreclosure relief and fined entities that violated consumer laws $81.5 million.”

Housing Wire reporter Trey Garrison mentioned a gaping hole in Mr. Kalman's assertion.

It’s not entirely accurate that the CFPB has returned money to consumers, but rather to states governments and attorneys general, some of which actually goes to consumers.

Does that mean Waters's assertion that $3 billion has been "refunded to consumers" might also be something less than the whole truth and nothing but the truth so help you [insert name of deity, moral principle, or giant rodent of your choice here]? If this stuff keeps up, someone in Washington, D.C. might actually tell a lie. That will be a dark day for this nation.

The arguments of the bill's opponents seem to boil down to the fact that structural changes to the Bureau to provide more oversight and accountability, especially in view of the Bureau's unprecedented powers to, in the wrong hands, do much mischief, should not be made because the Bureau has been "effective." In other words, the ends justify the means and to hell with the notion of checks and balances otherwise built into the American government. That's a very convincing argument if you're a totalitarian. The contention that individual liberty shrinks as the power of the federal government grows, and that power corrupts and absolute power corrupts absolutely, are worn out ideas of a past era that the truly progressive can ignore in order to serve the higher cause of the ideologically "pure." They intend to do what they think is the right thing by whatever means necessary.

The arguments are grandstanding, as is, in many respects, the passage of the law by the House. It was passed along party lines by a Republican-controlled House and will be rejected along party lines by a Democrat-controlled Senate (and would be vetoed with no hope of overturning the veto, by a Democrat in the White House). All this is election year politics, appearance trumping effective governance.

Still, these incidents provide us with blog fodder, and for that small blessing, we are grateful.