Another Example of How Regulators Make It Impossible for Banks to Do Business

American Banker Magazine recently ran a story titled "Consumers Are Now Banks' Greatest Regulatory Threat." The very fact that a reputable industry publication could run a story with that title is itself a telling indication of just how intrusive the Consumer Financial Protection Bureau (CFPB) and other regulators are in the running of banks today.

The story is based on the creation of a public database run by the CFPB to collect consumer complaints about specific institutions directly from the consumers. If the CFPB so chooses, it can then increase regulatory scrutiny on that institution, potentially leading to enforcement action against the bank.

The CFPB sees the measure as a tool to more closely monitor a bank's compliance, but also as a way to force banks to provide better customer service and problem resolution.

The recent actions the CFPB took against U.S. Bancorp (NYSE: USB  )  were a result of this database, a fact the CFPB has used as a public relations success story, lauding the program's effectiveness.

The magazine points to TD Bank (NYSE: TD  ) at length for being a model for other banks to follow. They highlight TD Bank's designated social media group with an integrated problem resolution system. The system is so robust that if a customer tweets a complaint about a long wait at a drive-through teller window, management has the ability to video conference into that branch to assess the problem and fix it.

That is all well and good for banks like TD Bank with north of $800 billion in total assets. With that kind of scale, they can afford to hire teams of people to manage social media and implement cutting-edge software to integrate Twitter feeds to back office systems to track, manage, and respond to complaints.

But how in the world can smaller banks expect to succeed in this system? Is it right for the CFPB to regulate customer service? To me, it's way too far-reaching and an unreasonable burden for banks to bear.

What's next for the CFPB? Having a regulator in every branch ensuring that all the tellers are smiling when they greet a customer?

As an investor in banks, the current regulatory environment is quite troubling. Unfortunately for investors like you and me, the current attitude coming from Washington, D.C. is to micromanage the financial institutions in this country -- from the forms they use to originate mortgages to how they handle customer complaints.

I'm not interested in investing in a company being micromanaged by bureaucrats; I'm interested in investing in conservative, well-managed banks run by bankers interested in serving their communities and providing consistent, reasonable returns to shareholders.

Those banks are becoming harder and harder to find.

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  • Report this Comment On September 18, 2013, at 2:40 PM, jdmeck wrote:

    CFPB needs to go. Another waste of taxpayers money.

  • Report this Comment On September 18, 2013, at 3:07 PM, Johny205 wrote:

    The headquarters in DC that the CFPB moved into, the former OCC builing, is being remodeled. Since the CFPB doesn't have a budget, they are spending more money on the renovation than a luxury suite. It ends up being about $50,000 for every person that works there. The architect firm is the same firm that designed the crazy sky scraper in Dubai that spins around. The CFPB stated that it is an old building and needs updates, such as phone lines and stuff--I'm sure the OCC ran their operation without any phone lines! What a joke this organization is, all these regulations are doing is adding more costs to consumers. Community banks now spend about 12% of their budget on regulation compliance, even though community banks had nothing to do with the financial crisis.

  • Report this Comment On September 18, 2013, at 5:47 PM, HoosierNative wrote:

    I haven't seen the publication, but I would agree that TD Bank is the ideal model. I have been a customer with them for only 2 years and I find them to be fantastic. I don't know what their "social media group" is. If it is Facebook, Twitter, and the like...well that is not me.

    Now if only Wells Fargo (whom I inherited via Wachovia which I loved) would only find a way to actually work WITH their customers instead of being rude, hateful, negative, uninformed, and/or generally jackasses.

  • Report this Comment On September 20, 2013, at 12:57 PM, lostdollar wrote:

    Having been a customer of all the Big 6 Canadian banks at one time or another there is no doubt in my mind that TD is far and away the best of the bunch. My experience is that 'customer service' is something that is mouthed but not actioned at the other banks.

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