If we are going to have a zillion government agencies, we might as well have one more. Actually, that is not what I really want because if there were such an agency, the entire TriComply staff and myself would probably be out of a job. But, if there were such an agency, the following is the type problem it could deal with. When a third party causes damage to a financial institution, it is responsible for the damage that it has done.
For example, consider the data breaches at Target and Home Depot. Apparently, the credit and debit card information of millions of their customers was compromised. Who is to blame? Target and Home Depot. If the security of their information had been better, the breaches would not have happened; but it wasn’t, and they did. But who took the hit? Certainly the retailers have a short-term reputation problem, but if Home Depot sells a better hammer at a lower price than its competitors, that is where I am still going to shop.
The institutions who issued the cards are the ones who really took the financial hit. If there were unauthorized transactions on the cards before the institutions were notified by their customers that their cards had been compromised so that the institutions could hot card the cards, the financial institutions were left holding the bucket. Then, when they were notified they had to reissue cards to all of the customers whose information was compromised. I don’t know for sure what it costs to reissue a card, but I am guessing that the all in cost is probably about $15. My new BFPB would require the retailers to reimburse the financial institutions for their losses.
Also, the BFPB would protect institutions from the government itself. The federal government requires financial institutions to do a lot of things that benefit no one other than the federal government. The Bank Secrecy Act is the best example I can think of. It benefits no one other than the bureaucracy, which reads all of the reports and does little with them. The banking industry spends hundreds of millions of dollars every year on BSA compliance. If the government is going to fine an institution for failing to fulfill all of the requirements of BSA, then, it ought to compensate an institution when it does get it right. How about the government paying $25 for every cash transaction report and $100 for each suspicious activity report that an institution files? If the government had to pay for BSA compliance then maybe some smart guy in Washington would figure out that the government isn’t getting much bang for its buck and rethink the whole thing. But “smart guy in Washington” may be an oxymoron. That would be a job for the BFPB.
In a similar vein, I am all in favor of our servicemembers getting every break possible, and I think that giving them a break on the interest rate on their loans is a great idea. Moreover, in today’s rate environment, I don’t think that a reduction in their rate to 6% is enough. Why not reduce it to prime? But why should the banking industry take the hit? If the government thinks that servicemembers’ rates should be reduced, why doesn’t the government pay for the reduction? Too often, the burden of these great governmental ideas is foisted onto the banking industry just because it is an easy target. The job of the BFPB would be to act as a bulletproof vest for the industry. We may still take some hits, but the force would be blunted.
Unfortunately, Santa Claus and the Bankers Financial Protection Bureau are both fairy tales. I see nothing on the horizon for bankers’ stockings other than coal and switches. But then my colleagues and I are as greedy as the next guy. To enhance our job security, we will continue giving the CFPB ideas for new regulations knowing that there is no BFPB to protect the bankers.