These include rules issued by CFPB, which has  supervision and enforcement authority for various federal consumer  protection laws for depository institutions with more than $10 billion in  assets and their affiliates. For example, the depository institution  regulators also issued changes to the capital requirements applicable to  these institutions. Institutions Cited Mortgage and Anti- Money Laundering Regulations as Most Burdensome, although Others Noted Their Significant Public Benefits

Community bank and credit union representatives that we interviewed  identified three sets of regulations as most burdensome to their  institutions: (1) data reporting requirements related to loan applicants and  loan terms under the Home Mortgage Disclosure Act of 1975 (HMDA); (2)  transaction reporting and customer due diligence requirements as part of  the Bank Secrecy Act and related anti-money laundering laws and  regulations (collectively, BSA/AML); and (3) disclosures of mortgage loan  fees and terms to consumers under the TILA-RESPA Integrated  Disclosure (TRID) regulations. In focus groups and interviews, many of  the institution representatives said these regulations were time- consuming and costly to comply with, in part because the requirements  were complex, required preparation of individual reports that had to be  reviewed for accuracy, or mandated actions within specific timeframes. However, federal regulators and consumer advocacy groups said that  benefits from these regulations were significant. In some of our focus groups, and in some comment letters that we  reviewed that community banks and credit unions submitted to bank  regulators and NCUA as part of the EGRPRA process, representatives of  community banks and credit unions said regulators should take steps to  reduce the burdens associated with BSA/AML. They said that CFPB intends to review the  effectiveness of its guidance, but did not indicate when this review would  be completed. Mechanisms for Regulators to Address Regulatory Burden Include Mandated Decennial Reviews

Federal depository institution regulators can address the regulatory  burden of their regulated institutions throughout the rulemaking process  and through mandated, retrospective or “look back” reviews. Appraisals. But the banking regulators still received some  comments on the key mortgage regulations and the other regulations that  CFPB now administers. The notices described how CFPB planned to assess the  regulations. Reviews Have Not Considered Cumulative Effects of Regulations

Lastly, in the EGRPRA process, the federal depository institution  regulators have not assessed the ways that the cumulative burden of the  regulations they administer may have created overlapping or duplicative  requirements. However, congressional  intent in tasking the depository institution regulators with the EGRPRA  reviews was to ensure that they considered the cumulative effect of  financial regulations. Conclusions

New regulations for financial institutions enacted in recent years have  helped protect mortgage borrowers, increase the safety and soundness of  the financial system, and facilitate anti-terrorism and anti-money  laundering efforts. But the regulations also entail compliance burdens,  particularly for smaller institutions such as community banks and credit  unions, and the cumulative burden on these institutions can be significant. But  because CFPB has not been included in this process, the regulations for  which it is responsible were not assessed, and CFPB has not yet  provided public information about what regulations it will review, and  when, and whether it will coordinate with other regulators during EGPRA  reviews. Addressing these limitations in their EGRPRA processes likely would  make the analyses the regulators perform more transparent, and  potentially result in additional burden reduction. (Recommendation 1)
The Director of CFPB should issue public information on its plans for  reviewing regulations applicable to banks and credit unions, including  information describing the scope of regulations the timing and  frequency of the reviews, and the extent to which the reviews will be  coordinated with the federal depository institution regulators as part of  their periodic EGRPRA reviews. Appendix I: Objectives, Scope, and Methodology

This report examines the burdens that regulatory compliance places on  community banks and credit unions and actions that federal regulators  have taken to reduce these burdens; specifically:   (1) the financial  regulations that community banks and credit unions reported viewing as  the most burdensome, the characteristics of those regulations that make  them burdensome, and the benefits are associated with those regulations  and (2) federal financial regulators’ efforts to reduce any existing  regulatory burden on community banks and credit unions. Appendix II: Comments from the Consumer Financial Protection Bureau

Appendix III: Comments from the Board of Governors of the Federal Reserve System

Appendix IV: Comments from the Federal Deposit Insurance Corporation

Appendix V: Comments from the National Credit Union Administration

Appendix VI: Comments from the Office of the Comptroller of the Currency

Appendix VII: GAO Contact and Staff Acknowledgments

	GAO Contact

	Staff Acknowledgments

In addition to the contact name above, Cody J. Goebel (Assistant  Director); Nancy Eibeck (Analyst in Charge); Bethany Benitez; Kathleen  Boggs; Jeremy A. Conley; Pamela R. Davidson; Courtney L. LaFountain;  William V. Lamping; Barbara M. Roesmann; and Jena Y. Sinkfield made  key contributions to this report.
Why GAO Did This Study

In recent decades, many new regulations intended to strengthen financial soundness, improve consumer protections, and aid anti-money laundering efforts were implemented for financial institutions. Smaller community banks and credit unions must comply with some of the regulations, but compliance can be more challenging and costly for these institutions. GAO examined (1) the regulations community banks and credit unions viewed as most burdensome and why, and (2) efforts by depository institution regulators to reduce any regulatory burden. GAO analyzed regulations and interviewed more than 60 community banks and credit unions (selected based on asset size and financial activities), regulators, and industry associations and consumer groups. GAO also analyzed letters and transcripts commenting on regulatory burden that regulators prepared responding to the comments.

What GAO Found

Interviews and focus groups GAO conducted with representatives of over 60 community banks and credit unions indicated regulations for reporting mortgage characteristics, reviewing transactions for potentially illicit activity, and disclosing mortgage terms and costs to consumers were the most burdensome. Institution representatives said these regulations were time-consuming and costly to comply with, in part because the requirements were complex, required individual reports that had to be reviewed for accuracy, or mandated actions within specific timeframes. However, regulators and others noted that the regulations were essential to preventing lending discrimination and use of the banking system for illicit activity, and they were acting to reduce compliance burdens. Institution representatives also said that the new mortgage disclosure regulations increased compliance costs, added significant time to loan closings, and resulted in institutions absorbing costs when others, such as appraisers and inspectors, changed disclosed fees. The Consumer Financial Protection Bureau (CFPB) issued guidance and conducted other outreach to educate institutions after issuing these regulations in 2013. But GAO found that some compliance burdens arose from misunderstanding the disclosure regulations—which in turn may have led institutions to take actions not actually required. Assessing the effectiveness of the guidance for the disclosure regulations could help mitigate the misunderstandings and thus also reduce compliance burdens.
Regulators of community banks and credit unions—the Board of Governors of the Federal Reserve, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the National Credit Union Administration—conduct decennial reviews to obtain industry comments on regulatory burden. But the reviews, conducted under the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA), had the following limitations:
CFPB and the consumer financial regulations for which it is responsible were not included.
Unlike executive branch agencies, the depository institution regulators are not required to analyze and report quantitative-based rationales for their responses to comments.
Regulators do not assess the cumulative burden of the regulations they administer.
CFPB has formed an internal group that will be tasked with reviewing regulations it administers, but the agency has not publicly announced the scope of regulations included, the timing and frequency of the reviews, and the extent to which they will be coordinated with the other federal banking and credit union regulators as part of their periodic EGRPRA reviews. Congressional intent in mandating that these regulators review their regulations was that the cumulative effect of all federal financial regulations be considered. In addition, sound practices required of other federal agencies require them to analyze and report their assessments when reviewing regulations. Documenting in plans how the depository institution regulators would address these EGRPRA limitations would better ensure that all regulations relevant to community banks and credit unions were reviewed, likely improve the analyses the regulators perform, and potentially result in additional burden reduction.

What GAO Recommends

GAO makes a total of 10 recommendations to CFPB and the depository institution regulators. CFPB should assess the effectiveness of guidance on mortgage disclosure regulations and publicly issue its plans for the scope and timing of its regulation reviews and coordinate these with the other regulators' review process. As part of their burden reviews, the depository institution regulators should develop plans to report quantitative rationales for their actions and addressing the cumulative burden of regulations. In written comments, CFPB and the four depository institution regulators generally agreed with the recommendations.