“And to the community banks, yes, they have been unfairly traduced, because they weren’t the problem. But they have to be careful not to allow themselves to be used by some of their big, big brothers.” — Rep. Barney Frank, July 27

In a speech to the National Press Club on Monday, Congressman Frank, chairman of the House Financial Services Committee, sounded empathetic toward community banks even as he promoted a proposed consumer financial protection agency, which many community banks oppose.

Frank said community banks “were not the perpetrators of the abuses; they will not be the subjects of the corrections.”  But ICBA has noted (e.g. in this association op-ed posted on the Grand Rapids State Bank blog) that a new agency would effectively punish community banks and their customers “for the deceptive practices of others.”

Responding to the objection that proposed regulation would yield “plain vanilla” products, Frank said: “I don’t think you can force people to offer a palatable product,” and offered this reassurance: “I would say, in particular to the community banks, they are very unlikely to see much change when this happens.”

Frank contended that community banks “should welcome this consumer financial protection agency, once they understand how we plan to do it. They are now suffering from unfair competition and reputational damage from a whole lot of unregulated people out there–check cashers and payday lenders and remittance senders. We plan to give the [proposed agency] authority over a number of currently unregulated entities.”

Responding to critics who cite CRA as a cause of the current crisis, Frank said: “Talk to the community bankers, the people who run the smaller, locally based banks, who justifiably object when people denounce banks and they get swept in, getting blamed for things they were not guilty of doing. If only institutions [that were] subject to the Community Reinvestment Act had made mortgage loans, we would not be in the crisis we are in today.”

Frank encouraged community banks to “work with us” on regulatory reform and to avoid being “used by some of their big, big brothers” to defeat new regulations.