US consumer protection: developing a mutually beneficial model for consumers, regulators, and banks

Governance, Regulation and supervision
/ Banking

Bank Governance Leadership Network, March 2013

“There are areas of overlap for the banking agencies and the CFPB [Consumer Financial Protection Bureau], and there are other areas where it may not always be clear where safety and soundness concerns stop and consumer protection begins … Compliance supervision will continue to be a major business line at all of the regulatory agencies.” 

—Thomas Curry, Comptroller of the Currency 

The fundamental importance of customers has been a major topic of the Bank Governance Leadership Network (BGLN) since its inception. At the 2009 inaugural summit, the issue was raised in the context of restoring trust in the industry. At the 2011 summit, participants discussed serving customers and clients profitably during the transition to the newly established CFPB in the United States. And at last year’s summit, there was discussion on how banks were losing control of the consumer agenda due to stronger consumer protection regulation, particularly as the CFPB moved out of start-up mode and the Financial Conduct Authority (FCA) was being formed in the United Kingdom.   

Today, banks increasingly believe that the enhanced regulatory focus on consumer and conduct issues will have a greater impact on retail banking than higher capital requirements and ring fencing will have on investment banking. One bank chairman remarked recently, “The fundamental assumption has become that banks are pariahs, that they sell things to these poor unsuspecting customers, and that the value of add-on products is limited.” One director predicted, “It is clear there will be more [consumer protection] regulation, it will be heavier handed, and that there will be higher expectations on the board.”

On February 25, 2013, Tapestry Networks and Ernst & Young welcomed 15 participants to New York for the BGLN’s 24th meeting. Joining 10 bank directors and executives from major global banks were three regulators: Sally Belshaw, Office of the Comptroller of the Currency (OCC); Sandra Braunstein, Federal Reserve (the Fed); and Steve Kaplan, CFPB. Richard Hunt, from the Consumer Bankers Association, joined the dialogue, and Paul Saltzman, of The Clearing House, joined for the discussion of the state of politics surrounding large banks in the United States. The conversations, which focused mostly on large banks, generated several major insights: 

  • The current regulatory environment creates significant challenges in consumer protection

  • More intensive consumer issue supervision could negatively impact products and services

  • Boards must become increasingly active in consumer issues