Regardless of who wins Nov. 8, top executives at two Upstate community banks and the S.C. Bankers Association agree that their industry needs relief from federal regulations. They are referring primarily to the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act and the Consumer Protection Financial Bureau started by President Barack Obama in response to overly aggressive lending practices a decade ago.
Bankers are optimistic that the regulations will be changed after the general election but that is uncertain.
The Democratic Party Platform says, “We will also vigorously implement, enforce, and build on President Obama’s landmark Dodd-Frank financial reform law, and we will stop dead in its tracks every Republican effort to weaken it.”
The Republican Party Platform says, “Community banks should be relieved of excessive regulations. We support removing roadblocks and regulations that prevent access to capital.” The GOP platform also says “the worst of Dodd-Frank is the Consumer Financial Protection Bureau, deliberately designed to be a rogue agency” and not accountable to anyone other than the president.
“From 13,000 community banks in 1985, only 1,900 remain,” The Republican’s national agenda says ”the majority of agricultural loans and small business loans are made by community banks … From start-ups foregone to home loans not made, Dodd-Frank’s excessive regulation and burdensome requirements have helped contribute to the slow economy we all endure today under President Obama and the Democrats.”
A report by the American Action Forum, a conservative, Washington, D.C.-based think tank, said the thousands of pages of rules in Dodd-Frank’s sixth year has cost financial institutions more than $36 billion. With rules still being rolled out, the regulations intended to protect consumers have required an investment of 73 million hours of employee time at financial institutions, the report shows.
Treasury Secretary Jack Lew said in a July statement that the Consumer Protection Financial Bureau has collected $11 billion from financial institutions for consumers. A bureau statement said it has handled more than 900,000 consumer complaints about financial services and products.
In Spartanburg, First South Bank CEO Barry Slider described the post-Great Recession regulations as “mountains of paperwork. It is impossible to read it all.” He said the bank has four employees assigned to make sure the regulations are followed.
“If they find out you have filled out a blank incorrectly the fines are unbelievable,” Slider said.
When the government first released “guidances” on the new regulations in 2009, First South stopped offering residential mortgages, Slider said. He said unlike big banks, small banks don’t have their own legal staffs and are less able to pay fines.
Slider said if the bank made 10 single family resident mortgages a year, got $2,000 from each one and made one mistake such as failing to mark a block on a document, an oversight having “no impact at all on the customer or the bank,” that will be a $10,000 fine. We completely abandoned one of the income producing elements. The government just forced me out of a service that we normally provide. How many other banks did the same thing?”
Slider said he has worked in banking for 40 years, started First South Bank in 1996 and since 2009 “have been the worst seven years of my banking years.”
“I really don’t want another four or eight years of the same thing,” he said.
Larry Miller, CEO at First Independence Bank in Greenville, said all banks have been impacted “to some degree by Dodd-Frank and the Consumer Protection Financial Bureau.
“I do believe there needs to be a re-examination of the act, given the size of it,” Miller said. “It is so comprehensive. We really don’t know the full effects of it yet.”
Miller said Dodd-Frank regulations are still being rolled out.
“Up to this point we have been able to be pretty nimble and give additional responsibilities to people we already have here,” Miller said of Independence Bank that opened in 2005. “We have not had to go out and hire extra people…We have been flexible enough with our IT (information technology staff).”
Miller said one major problem is the regulations treat all banks the same, regardless of size.
“I think there is a clear distinction between the too big to fail and then the medium-sized banks and the small community banks,” Miller said. “If you try to bring stabilized or standardization processes that are in the banks and make them all the same you are really cutting at the heart of what the community banking philosophy is. And that is that we have been able to tailor - make individually - for our consumers and for our commercial clients, business plans for them. We have been able to work with them and we haven’t had to put them in a box and that’s my concern, that the standardization or stabilization of everything across the board, from the too big to fail banks down to the community banks…I think the community banks get hurt by that because it takes away our creativity and if it does that then I think our costs may be reflective of that.”
Miller said larger banks can “absorb those costs. For smaller banks, scale is an issue and it’s hard to absorb those costs. if it isn’t reformed in some way I think you are going to see more consolidation of assets continue where smaller banks are brought into larger banks because at some point you have to sit back and ask yourself, ‘How relevant can I be in the market if we are all stabilized and standardized and put in the very same box?’”
He said mortgage lending has been standardized with new steps required in the process of qualifying a borrower. He said failing to follow each required step opens the lender to being “in violation of truth in lending and you can be sued by the borrower.”
“That’s standardization,” Miller said. He said even longtime customers he knows have the means to pay must go through all of the steps and “if we don’t conform to it and you end up not qualifying we violate truth in lending and you can come back and sue” the bank.
S.C. Bankers Association Director Fred Green said “there is always concern about what is next” with the CPFB. They are the only agency of the United States that has no oversight and unlimited budget.”
Green said there is “legislation that looks to address some of the nonsensible kinds of issues of Dodd-Frank on community banks,” like applying the same standards for them as for large banks.
“Right now, everybody is painted with the same brush,” Green said.
Green said the banking industry wants to be optimistic about the next president and Congress acting to change the regulations but “it probably falls on the side that we don’t know.”