Bank Merger Regulatory Guidelines: CFPB Pushes for Consumer Protection Focus

Revised federal bank merger review guidelines may be coming soon, and the industry is bracing for potential changes that could bolster the role of the Consumer Financial Protection Bureau (CFPB) and introduce new criteria focusing on consumer protection. 

An update to the guidelines was mandated by a July 2021 Biden Administration Executive Order, and the deadline for issuance of the update passed more than 18 months ago. 

Controversial Kick-Off Involving CFPB. The initial request for comments regarding the potential update caused a bank regulatory firestorm in late 2021. Two members of the Federal Deposit Insurance Corporation (FDIC) Board – current FDIC Chair Martin Gruenberg and CFPB Director Rohit Chopra – published a written request on the CFPB’s website soliciting comments on updating the bank merger review guidelines. This publication stated that the posted request for comments was an FDIC Board action, despite being published on the CFPB’s website (rather than the FDIC’s website) and despite being published without the approval or consent of then-Chairman of the FDIC Jelena McWilliams. 

The same day of this CFPB posting, Chairman McWilliams published her own notice on the FDIC website disavowing the validity of the CFPB-published request for comments. However, Chairman McWilliams abruptly resigned later that month, and Gruenberg was subsequently named Acting FDIC Chairman and later Chairman. 
 
Then, in early 2022, the FDIC and U.S. Department of Justice (DOJ) published formal requests for comments regarding the proposed update of the bank merger guidelines. The Office of the Comptroller of the Currency (OCC) has since indicated that it is working with the other federal bank regulators on the updated guidelines. 

Potential Expansion of Bank Merger Regulatory Standards. The following is a list of steps the regulatory authorities appear to be considering for their revisions to the bank merger review guidelines:

• “Convenience and Needs” Factor. The Bank Merger Act (12 U.S.C. 1828(c)) requires the federal banking agencies to consider the “convenience and needs” of the communities impacted by a proposed bank merger. This factor has historically been addressed by review of criteria such as proposed branch closings, changes in product and service offerings and Community Reinvestment Act (CRA) ratings.
  
  However, the CFPB implied in a 2021 summary by Chopra that the “convenience and needs” merger standard could also include: (i) a formal procedure for submission and review of reports from state and federal consumer protection authorities (i.e., the CFPB, state attorneys general and state consumer protection agencies) on the consumer compliance record of merger applicants; and (ii) a standard that applicants deemed to “routinely violate consumer protection laws” should not be allowed to expand by merger.
  
  Also, comments submitted to the FDIC on the bank merger guidelines have encouraged consideration of bank merger applicants’ efforts to address needs of the “unbanked” in the applicable communities as part of the “convenience and needs” standard.
   
• Formal CFPB Review of Bank Mergers. As part of the “convenience and needs” standard, the FDIC is requesting comment on the possibility of a formalized CFPB role in evaluating bank merger applications. Based on the initial CFPB posting of the request for comments, this CFPB role could be limited to a review of only bank mergers involving a bank with over $10 billion in total assets – the threshold for CFPB examination authority over the bank.
   
• Increased CRA or Public Benefit Standards. Currently, bank regulators generally require a merger applicant to have at least a “Satisfactory” CRA rating on its most recent exam. However, according to its request for comments, the FDIC is now considering whether to add further CRA-based requirements to this litmus test – perhaps a higher rating requirement of “Outstanding” or perhaps a more general and subjective “public benefit” analysis not limited to CRA exam ratings.
   
• Pricing and Fees Standards. The DOJ has expressly stated that it plans to “increasingly address” issues such as fees, interest rates and customer service in its competitive factors reports to be submitted to the bank regulators for evaluation of proposed bank mergers.
  
  Of course, the CFPB has, since 2021, been pursuing an aggressive regulatory agenda targeting alleged “junk fees” charged by banks. Interestingly, a 2022 CFPB issuance blamed the proliferation of such fees on a lack of “competitive processes that ensure fair pricing.”
  
  If these DOJ and CFPB perspectives are melded together in updated bank merger review standards, they could result in a new regulatory avenue to target fees and rates that the DOJ and the CFPB consider inappropriate.
   
• Remedy Expansion. Under the current regulatory standards, if a bank merger is determined not to meet the applicable requirements, the application is rarely denied outright. Instead, the most common remedy to avoid improper market control by the resulting institution (i.e., antitrust concerns) is the required divestiture of branches.
  
  However, several commenters on the recent FDIC issuance advocate putting conditions on certain bank merger approvals by using: (a) legally binding commitments by the bank applicants to the regulatory authorities imposing a continuing duty for the bank to take certain actions or meet certain standards, which could facilitate “public benefit plans,” and (b) regulator-mandated public benefit agreements with local community groups.

Outlook and Summary. The federal regulators likely have differing opinions on whether to include the types of changes summarized above into the revised set of bank merger review guidelines. Those differences of opinion may have contributed to the long delay in getting the guideline revisions done. Not surprisingly, on Aug. 9, 2023, a group of Senators called out the Federal Reserve (the “Fed”) in a letter for not moving promptly enough with the other regulators to issue the bank merger guidelines update.

In other words, the 2021 FDIC Board rhubarb over this bank merger guidelines reboot may have morphed into a thorny issue entangling the various federal bank regulatory authorities: FDIC, Fed, OCC and, of course, CFPB. However, the political climate in the current administration may drive a meeting of the minds soon.