Republican lawmakers today escalated their criticism of the U.S. Consumer Financial Protection Bureau over estimates that its first rule would require nearly 7.7 million employee hours of work to comply.
Senator Richard Shelby, the top Republican on the Senate Banking Committee, took aim at a rule published Jan. 20 on remittances, charging it is inconsistent with the agency’s stated goal of lowering costs for consumers.
“The bureau’s remittance transfers rule, however, suggests that lowering costs is not high on its priorities,” Shelby, from Alabama, said at a hearing with Richard Cordray, the bureau’s director.
Cordray countered that the new rule would cost 25 cents per hundred dollars of remittances, which are cash transfers across international boundaries.
“It’s a small price to pay that there have never been any consumer protections for people who send money overseas,” Cordray said. “These people deserve consumer protections.”
The consumer bureau has attempted to allay concerns about costs, particularly the regulatory burden on smaller community banks and credit unions. At a hearing in Congress last week, Cordray said the bureau was seeking public input on changes to the remittance rule to ease the impact on smaller firms.
Small banks “don’t really need to take on these burdens for not doing it in the normal course of business,” Cordray told lawmakers from a House Oversight subcommittee. “What I pledged to the community bankers and credit unions is that we will consider our regulatory work in that way.”
Cordray said at the Senate hearing that the bureau will create two advisory committees, one for community banks and another for credit unions.
Since Dodd-Frank was passed in 2010, Republican lawmakers, nearly all of whom opposed the law, have been warning of the burdens it would impose. In addition to the remittance rule, regulators have estimated that the Volcker Rule limiting banks’ proprietary trades could require more than 6.5 million hours of employee compliance work, and a requirement to draw up “living wills” to assist federal regulators liquidating a bankrupt firm might need more than 1.6 million hours.
Shelby, from Alabama, has pressed regulators to implement rigorous cost-benefit analyses for each rule and has introduced legislation that would prohibit regulators from finalizing rules without proving they would benefit the economy.
President Barack Obama and congressional Democrats defend the Dodd-Frank Act, which tightens oversight of the financial markets in the wake of the credit crisis that led to the 2008 collapse of Lehman Brothers Holdings Inc. Dodd-Frank also created the consumer bureau, and Obama bypassed Republican opposition by using a recess appointment earlier this month to install Cordray as its director.
The 473-page remittance rule, released on Jan. 20, was praised by consumer groups for adding transparency to the international remittance industry, which has been accused of charging exorbitant fees and defrauding customers. The Federal Reserve wrote and proposed the rule, which is required under Dodd-Frank, and the new agency finalized it.
Western Union Co. (WU) and Moneygram International Inc. (MGI) are the biggest players in the U.S. market for remittances, cash transfers made across international borders. The global market totaled $440 billion in 2010, according to the World Bank.
The proposal requires firms to tell the customer the fees being charged, the exchange rate being applied and the total amount the person on the other end will receive. It has been praised by Americans for Financial Reform, an umbrella group of labor unions, consumer advocates and civil rights lawyers, for providing “clarity and confidence” for consumers.
The bureau estimated the rule would create an ongoing compliance burden of about 61,000 hours annually for the 155 large banks and credit unions supervised by the bureau. It would require a total of about 1.4 million hours for money transmitters supervised by the bureau, according to estimates included in the rule. The rule estimated that 67,000 money transmitters would be affected by the rule.
Some of the burden would be caused by a requirement that companies develop new fraud-protection tools from scratch, according to Paul Dwyer of Viamericas Corp.
“We want to work well with our new federal regulator, but they’ve erred so far in protecting some theoretical consumer rights, they’ve thrown out the baby with the bathwater,” Dwyer, the chief executive officer of the Bethesda, Maryland-based remittance company, said in an interview.