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CFPB rides again: Fiserv to pass costs to banks

The Consumer Financial Protection Bureau was created to protect consumers from the “bad-guys” in the financial services business that try to trap or otherwise treat consumers unfairly.

Ordinarily that should exclude most community banks and the services they provide.

Apparently it doesn't.

“The way it's turned out so far is the Bureau identifies a product or service it already perceives as bad and begins its “analysis” with a negative mind-set,” OBA President Roger Beverage said. “In this case the Bureau started off with a negative perception about the mechanics of bank overdrafts programs, how they work to screw consumers. So far at least there doesn't seem to be any interest in finding out about how these overdraft programs are used by and affect customers of community banks.

“Going after mountains of information in the files of data processors without paying for it seems to be punitive rather than fact-finding. Remember, the Bureau has virtually no limits on the funds it can require from the Federal Reserve to operate. It just seems to me that the cost of its current witch hunt should be borne by the Bureau, not independent third parties, and certainly not by banks.”

Beverage recalled that during the debate on Dodd-Frank, the representation made by the bill's authors, Senate Democrats and the president was that it was not intended for and would not have an impact on community banks. Not so as it has turned out.

“We were assured that the (CFPB) would not impact community banks below $10 billion,“ Beverage said. “While it's true that the Bureau does not have independent examination authority over community banks, the impact it's having and has had on our banks in just about every other way possible from the get-go has been overwhelming.

“Now they've come up with yet another way to add costs to our member banks' operations. This is insane, but it's real nevertheless. Thanks to Ginny O'Neill at the ABA for helping me work through trying to understand what is happening under what authority and why.”

By way of background, the Bureau has been collecting data on overdraft protection plans from the nation's largest banks for some time under its market monitoring authority and obligations under section 1022(c)(4) of Dodd-Frank. Not satisfied apparently that it was getting the whole picture, in November it ordered the three major financial services core processors for community banks to provide data about community bank overdraft programs. The three processors include Fiserv, FIS Global, and Jack Henry.

Without going into extensive detail, the Bureau's order means that a lot of data must be mined by each processor about overdraft program services that servicer provides to community banks and other depository institutions. The information requested does not disclose names of banks, customers, or amounts involved.

“We've learned that Fiserv informed its bank clients that the costs the company incurs in responding to this order will be passed along to them,” Beverage said. “So far the other two core processors have made no such announcement and have already provided information to the Bureau.”

A number of banks have called the OBA to express their concern about what this move by FiServ may mean.

“The first question is whether § 1022 of Dodd-Frank actually provides authority for this directive,” Beverage said. “I understand that the Bureau has very broad authority, but this seems to be just a bit over the line, especially if all three processors plan to pass their costs along to member banks.

“(The Bureau's authority) is apparently much broader than I thought if it grants the Bureau this kind of authority allowing it to access information from independent third parties. The Bureau's order also raises serious questions about Section 1022 that relate to issues of due process and whether its approach in this instance is constitutional,” Beverage noted. “It also raises questions about who bears the costs of implementing its order. If it's ultimately going to be the bank, is it an 'unlawful taking' of property without some form of due process? I just don't know, but it is something I'm going to examine.”

Beverage pointed to the language of the statute itself pointing out that nowhere in Dodd-Frank does it authorize any form or process allowing any recipient of any order to challenge that directive.

“In this case, there is no process set forth anywhere in the statute to enable FiServ or one of its customers to challenge the Bureau's directive,” Beverage said. “The language is so broad that the Bureau can demand whatever information it wants, from any industry participant, without regard to the cost imposed on that participant or for the impact the demand will have on other entities, like banks and their customers.

“At least when you go to court as a prosecutor to get a subpoena or a search warrant, the recipient still has a legal process available through which he or she may challenge that subpoena or search warrant. That's not the case here and it's just wrong.”

OBA Chairman Paul Cornell also noted some key matters that need to be addressed.

“Isn't the Bureau itself capable of getting this information, without 'deputizing' a non-bank service provider?” he asked. “My understanding is that the order involves a directive to provide some 60 data elements about each of its bank client's system settings. That's going to require hundreds of man hours and impose significant costs on the processor just in terms of the value of the employees' time that this exercise will take. Those costs are likely to be passed on to the consumer.

“It just baffles me that people in Washington can't seem to grasp the reality that there are costs as well as complexities associated with any and all new directives issued by federal bank regulators, all of which will ultimately be borne by the customer. The way the world works is that more unnecessary or inapplicable community bank regulation leads to higher costs and considerably less access to the necessary credit for consumers that's needed if we're going to get this economy really rolling again.”

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