CFPB regulatory trends and their impact on community banking

Recently, the Consumer Financial Protection Bureau has directed increased scrutiny on fees that banks charge for various financial products and services. While the news primarily has focused on big banks, the CFPB's recent attention may materially impact the profitability of community banks, which are depository or lending institutions that serve customers in smaller geographic areas..As an initial point, the Federal Reserve, for example, defines a community bank as a financial institution with less than $10 billion in assets. The CFPB's supervisory authority, on the other hand, extends to banks, thrifts and credit unions, or affiliates thereof, with assets exceeding $10 billion. However, the CFPB's stated aim — to ensure a fair yet competitive marketplace for consumer financial products and services — and its supervision of larger banks may impact smaller community banks, even where those banks are not regulated by the CFPB. .Since the U.S. Supreme Court's May decision upholding the CFPB's funding structure, the CFPB has aggressively enforced its existing rules, implemented new rules that apply to depository and lending institutions, and issued guidance on various issues in its recent supervisory highlights (e.g., "junk fees"; deceptive acts and practices; and credit and deposit account management). .In particular, the CFPB has issued a litany of rules as well as guidance pertaining to bank fees and specifically targeted what it deems "junk fees" (including overdraft and depositor fees). For example, the CFPB has indicated that it will focus on monthly maintenance fees, minimum balance fees, overdraft fees and cash advance fees related to deposit accounts. Likewise, the CFPB intends to scrutinize interest rates and fees for mortgage accounts as well as rates and cash incentives for auto loans. In short, the CFPB has made clear that it plans to closely monitor a good number of financial products regularly provided and serviced by larger banks. .Community banks, which are integral to the areas in which they operate (creating and fostering strong customer relationships and ties), offer a range of financial products to their customers, including deposit accounts and loan products. .Ultimately, the CFPB's recent efforts and focus on bank fees reveals a trend that may impact community banks. For example, certain larger banks have proactively eliminated overdraft fees entirely. While the CFPB may not oversee community banks, and notes that it meets with community banks and credit unions to assess the impact of its rulemaking, at a minimum, there is a signal that community banks should consider whether to review their existing fee structures to ensure compliance with existing rules and regulations. Smaller banks should also assess whether there are alternative revenue streams to combat the revenue shortfall that may ensue after the bank eliminates certain fees. .Natsayi Mawere is a partner in the financial industry group at Pittsburgh-based global law firm Reed Smith. Lou Bayles is an associate in the financial industry group.