Agency's one-size-fits-all diktats ignore reality

With policymakers in Washington reconsidering reforms to financial services regulations implemented after the 2008 financial crisis, local communities like Delano, Mound and Buffalo have a lot at stake.

While Minnesota Lakes Bank and other community banks did not contribute to the meltdown on Wall Street a decade ago, Washington's response has had a negative impact on our ability to serve local communities.

Among the top concerns to reformers is the Consumer Financial Protection Bureau, an independent federal agency that is accountable to neither Congress nor the White House. The CFPB has churned out a flow of new financial regulations so complex and overwhelming that the bureau is ultimately harming those it is charged with protecting — individual consumers.

Reforming the CFPB to improve its accountability would go a long way toward reining in excesses and supporting stronger economic growth at the local level.

Community bankers know too well the negative effect of the CFPB on local lending. The bureau has issued a bevy of one-size-fits-all regulations that fail to adequately distinguish between Main Street community banks and Wall Street megabanks that policymakers intended to rein in after the crisis. These onerous rules have restricted mortgage lending at nearly three-quarters of community banks and have replaced customized, relationship-based loans with cookie-cutter bureaucratic standards — none of which serves consumers.

Meanwhile, the rising regulatory workload has exacerbated consolidation in the community banking industry, which has declined from more than 8,000 institutions in 2010 to fewer than 5,900 today, leaving fewer communities with access to responsible financial services providers.

The CFPB's complex regulatory framework poses a tangible threat to the local communities that depend on community banks — which bear a disproportionate burden from any regulation because of their smaller size.

Fortunately, reforming the CFPB is not as complex as the regulations the agency issues.

To promote tiered regulations that are tailored to the size-and-risk profile of regulated financial institutions, Congress and the White House should reform the CFPB consistent with a recent federal court decision that held the agency's governance structure to be unconstitutional. In PHH vs. CFPB, a federal appeals court ruled that the agency concentrates "enormous executive power" in its director.

The court's decision, which is under review, noted that whereas other agency heads serve at the pleasure of the president or lead boards of directors, the CFPB director is unaccountable and may regulate arbitrarily.

Replacing the CFPB director with a five-member commission would improve accountability at the bureau and ensure that a diverse range of opinions and backgrounds are brought to bear, leading to more balanced regulatory oversight and consumer protection. A commission-based governance structure is already in place at the Federal Deposit Insurance Corp., the Securities and Exchange Commission and other federal agencies that do not share the CFPB's checkered history of regulatory excess.

The CFPB should also be granted additional statutory authority to tailor its regulatory requirements to the unique circumstances of community banks and their customers. Meanwhile, subjecting the bureau to the congressional appropriations process — instead of funding it through a cut of Federal Reserve revenue — would further ensure that it is subject to reasonable oversight.

The U.S. system of governance is one of checks and balances — countervailing forces that restrict government institutions from accumulating excessive power. The CFPB's unbridled flurry of new regulations demonstrates a clear need for greater checks on its enormous executive authority.

Noah W. Wilcox is CEO and chairman of Minnesota Lakes Bank.