Regulation: How Much is Enough, Too Much?

On June 5thJelena McWilliams was sworn in as the 21st Chairman of the FDIC. As head of one of the nation’s bank regulatory agencies, she has a tough road ahead of her. Arguably the most crucial topic today, as Dodd-Frank is being dismantled, is where should regulation draw the line?

The ultimate goal should be to allow banks to do business and, dare we say, to make money. Yes, we want our banks to be profitable; but we want them to do so in a fair manner that does not risk the FDIC deposit insurance fund. It sounds simple, but it’s not.

We are not going to get into the politics of it. What we will say, is what we have always said, “You can’t regulate greed.” No matter how many regulations are put in place, someone will find a way around them for their own profit. Wells Fargo has been the poster child for that of late, but it isn’t the only one.

In recent years, the Consumer Financial Protection Bureau (CFPB) and/or the Department of Justice (DOJ) have issued severe actions against several banks. The following were among them:

  • American Express Centurion Bank (now American Express National Bank) and American Express Bank, FSB, both of Salt Lake City, UT (August 2017) were ordered to pay more than $95 million for charging higher fees and interest rates to cardholders in Puerto Rico and the U.S. Virgin Islands than to those in the 50 states. More than 200,000 customers were reportedly affected over a 10 year period.


  • TCF National Bank, Wayzata, MN (January 2017) was sued for allegedly tricking customers into opting-in to overdraft fees (see related article Opting-In Can be Costly—JRN 30:23 dated June 14, 2013). According to the CFPB, roughly 66% of TCF NB’s customers had opted in, a rate more than triple that of other banks. TCF NB eventually won a partial dismissal of the charges.


  • Fifth Third Bank, Cincinnati, OH (March 2013) was ordered to change its pricing and compensation structure and to pay $18 million to African-American and Hispanic borrowers who had been harmed by the bank’s discriminatory autolending and an additional $3 million to those hurt by deceptive credit card marketing. (There are ten other credit card lenders with similar actions regarding illegal and deceptive marketing.)

That action (and others) lost its teeth after Congress and the President agreed last month that the CFPB had overstepped its authority with regard to  auto lenders and compliance with the Equal Credit Opportunity Act (ECOA).

At  the same time, Congress passed S.2155 and the President signed the Economic Growth, Regulatory Relief, and Consumer Protection Act into law on May 24th. The following week the Federal Reserve Board, the FDIC Board the OCC, the Commodities Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC), jointly proposed changes to the Volcker Rule.

The Volcker Rule, in a nutshell, prohibits banks from proprietary trading. But the nut was hard to crack. The proposed changes are an attempt to simplify the rules and make compliance easier, more efficient and, hopefully, more objective. The proposal does NOT attempt to make proprietary trading legal and banks will still be prohibited from owning or controlling hedge funds and private equity funds. There are only 220 banks that reported trading assets on their books at March 31, 2018. (The 50 with the highest percent of trading assets to total assets are listed on page 7.)

Those in favor of proposed changes include McWilliams’ predecessor, Martin Gruenberg, Federal Reserve Governor Lael Brainard and former Fed Chairman Paul Volcker, himself. The 90 year old issued the following statement:

“I welcome the effort to simplify compliance with the Volcker Rule. What is critical is that simplification not undermine the core principle at stake—that taxpayer-supported banking groups, of any size, not participate in proprietary trading at odds with the basic public and customers’ interests. I trust the final rule will strongly maintain that position by, as intended, facilitating its practical application.” – Paul Volcker May 30, 2018

Public comments will be accepted on the proposal for 60 days after its publication in the Federal Register.