Just last week the White House was claiming that the crushing regulatory burden of the Dodd-Frank Act wasn’t harming community banks – not one bit.
Community bankers, credit union leaders and small business owners told us that’s absolutely not true.
Today’s report from Bloomberg (Headline: Bank Mergers Heading for Seven-Year High, Pushed by Costly Rules) once again exposes how feeble the White House’s spin is:
Here’s an irony: U.S. regulators looking to avoid bailouts of too-big-to-fail banks have passed so many rules that regional and local lenders are combining to stomach the costs.
The result: Banks are bulking up.
Mergers and acquisitions by U.S. banks surged last year to about $18 billion, the highest level since 2009. This year, firms are set to fly past that mark, according to data compiled by Bloomberg. In nine of the 10 biggest deals completed in 2016, banks selling themselves cited heightened regulatory burdens as a driver, Securities and Exchange Commission filings show. The extension of low interest rates is compounding that pressure by eroding profits.
The regulatory pressures forcing small banks to sell can have an unfortunate effect on local economies, said Bill Hickey, a principal and co-head of investment banking at Sandler O’Neill.
“They’re the pillars in their communities,” Hickey said of the lenders. “When a community bank goes away, that generally is not a good thing.”
“Regulation has been a story of unintended consequences and bureaucrats rarely getting anything right,” said Jeff Davis, managing director at Mercer Capital, a business valuation and advisory firm.”
Like Captain Renault, Americans are shocked – SHOCKED – that a report by the White House says a law supported by the White House doesn’t hurt community banks, no matter what.
Well, over the last few years Republicans on the House Financial Services Committee have asked community bankers, credit union leaders, and small business operators what THEY think about the Dodd-Frank Act. After all, as our nation loses one community financial institution each day, they are the ones who have to somehow comply with Dodd-Frank’s crushing regulatory burden.
Here are some of their voices:
“Community banks are resilient. We have found ways to meet our customers’ needs in spite of the ups and downs of the economy. But that job has become much more difficult by the avalanche of new rules, guidances and seemingly ever-changing expectations of the regulators. This—not the local economic conditions—is often the tipping point that drives small banks to merge with banks typically many times larger. The fact remains that there are 1,200 fewer community banks today than there were 5 years ago—a trend that will continue until some rational changes are made that will provide some relief to America’s hometown banks.” - Tyrone Fenderson, President and CEO of Commonwealth National Bank
“Managing this tsunami of regulation is a significant challenge for a bank of any size, but for a small bank with only 17 employees, it is overwhelming. Today, it is not unusual to hear bankers—from strong, healthy banks—say they are ready to sell to larger banks because the regulatory burden has become too much to manage. Since the passage of Dodd-Frank there are 80 fewer Texas banks. These banks did not fail. Texas has one of the healthiest economies in the country – we call it the Texas miracle. These were community bankers – and I have talked to many of them personally – that could not maintain profitability in an environment where the regulatory compliance costs are increasing between 50 and 200 percent.” - Dale Wilson, Chairman and CEO of the First State Bank of San Diego
“The regulatory costs are overwhelming…Virtually everyone in our bank now is involved to some extent or another in complying with regulations, and so it has taken away from their ability and their resources to work with both existing customers and also to go out and solicit new customers, helping other people get businesses off the ground.” - John A. Klebba, President and CEO, Legends Bank
“The growing regulatory burden on credit unions is the top challenge facing the industry today. All credit unions and their members are being impacted. This burden has been especially damaging to smaller institutions that are disappearing at an alarming rate. The number of credit unions continues to decline, as the compliance requirements in a post Dodd-Frank environment have grown to a tipping point where it is hard for many smaller institutions to survive. Those that do are forced to cut back their service to members due to increased compliance costs.” - Peggy LaMascus, President and CEO of Patriot Federal Credit Union
“To put the question of size in further perspective, consider that each of the four largest banks in the United States has total assets greater than the combined assets of the entire credit union system. The rules that the CFPB has promulgated so far have not taken this disparity -- and disproportionate burden -- into consideration as much as we feel it can or should under the law. This is one of the primary reasons that small financial institutions are disappearing at an alarming rate.” - Patrick Miller, President and CEO of CBC Federal Credit Union
“In recent years, Centennial Bank has experienced a sharply increasing regulatory burden. The nature of our business has changed from lending and investing in our communities to compliance with ever-changing rules and guidance… In the past 10 years our compliance costs have grown from approximately five percent of overhead to 15 to 20 percent today. I believe this increase in regulatory burden has contributed significantly to the decrease of 1,342 community banks in the U.S. since 2010.” – David Williams, Chairman and CEO of Centennial Bank
“Among some of the provisions of the Dodd-Frank Act, the new CFPB perhaps carries the most risk for community banks. We are already required to spend significant resources complying with consumer protection rules. Every hour I spend in compliance is an hour that could be spent with a small business owner or a consumer.” - Greg Ohlendorf, President and CEO, First Community Bank and Trust
“As I see it from my standpoint, we will see community banks continue to decline. We simply cannot afford the high costs of federal regulation. And as one banker I will tell you this, my major risks are not credit risks, risks of theft, risks of some robber coming in with a gun in my office; my number one risk is federal regulatory risk. And I have a greater risk of harm to my bank, my stockholders from the federal government than I have anything else in this whole world. That is obscene. ” - Les Parker, Chairman, President and CEO, United Bank of El Paso de Norte
“Over the last several years, banks have faced increased regulatory costs and will face hundreds of new regulations with the Dodd-Frank Act. These pressures are slowly but surely strangling the traditional community banks, and handicapping their ability to meet the credit needs of their communities.” - Matthew H. Williams, Chairman and President, Gothenburg State Bank
“As one who has worked in community banks for over four decades, I maintain that despite policymakers’ good intentions in implementing regulations, they are ultimately detrimental to banks’ ability to grow and create capital in other communities and to build communities through job creation.” - Ignacio Urrabazo, Jr., President, Commerce Bank
“There is no doubt that the increasing amount of new laws and regulations that credit unions face have become overwhelming. As the credit union president, I spend many hours reading each new law and regulation. I can’t afford to hire lawyers to interpret them for me. Most of these laws and regulations are created to address a problem caused by organizations other than credit unions. Yet, the regulators continue to impose the same requirements on small credit unions as they do on the largest financial institutions in the country. This just doesn’t make sense.” - Maria Martinez, President and CEO, Border Federal Credit Union
“The greatest challenge facing many credit unions is cumulative impact of the rapidly growing number of regulatory burdens in the wake of the financial crisis. While any one single regulation may not be particularly burdensome, the layering of new regulation on top of old and outdated regulation can completely overwhelm small financial service providers like credit unions. Unfortunately, every dollar spent on compliance, whether stemming from a new law or outdated regulation, is a dollar that could have been used to reduce cost or provide additional services or loans to members.” - Ed Templeton, President and CEO, SRP Federal Credit Union
“We are regulating community banks particularly down to the point where there is barely room to breathe. That is not how you get the economy going. And that is not how you lend money out.” - Tim Zimmerman, President and CEO, Standard Bank
“The amount, intensity and uncertainty of new Federal regulations, chiefly the Dodd-Frank Act, have forced banks to allocate an enormous amount of time and resources to compliance, and away from our primary mission of serving our customers.” - Todd Nagel, President, River Valley Bank
“To community banks like mine, regulation is a disproportionate expense, burden, and a real opportunity cost. My compliance staff is half as large as my lending staff. This is out of proportion to our primary business: lending in our communities to support the local economy.” - Salvatore Marranca, President and CEO, Cattaraugus County Bank
“The bigger banks can absorb it, the smaller banks can’t. I would not be surprised to see half of the community banks in this country go out of business if we don’t give some relief from Dodd-Frank for them. I think that Dodd-Frank is a terrible piece of financial legislation. It didn’t address any of the causes of the crisis that we just went through. It won’t prevent the next crisis. It heaped volumes and volumes of regulations…It’s hurting the people who need the money the most. It’s hurting small business. I think it is impeding economic growth.” - Bill Issac, Former FDIC Chairman and Chairman of Fifth Third Bancorp
“Each new rule requires significant time and money and builds upon volumes of existing regulations. This is putting an enormous strain on our staffs, and for community banks, which are disproportionately affected due to their more limited resources, diminishing revenue streams, and with limited access to capital—it is becoming a nearly insurmountable burden. When you add to this the more than two dozen proposals established under Dodd-Frank for a whole new class of regulation – mostly to be issued by yet another regulator– combined with the uncertainty and legal risks—it is plain to see how difficult it can be to achieve the right balance between satisfying loan demands and regulatory demands.” - William Bates, Jr., Executive Vice President and General Counsel, Seaway Bank and Trust Company
“Community banks have been the life blood of this country, and they’re responsible for more small business successes than any other resources including government programs. What’s troubling to me and to my bank is the impact of government regulation that has been based not upon common sense but on politics.” - George Hansard, President, Pecos County State Bank
“If Dodd-Frank is allowed to stand and proliferate as a monster regulatory overhaul, only the largest institutions will be able to navigate its requirements, and the community institution model will continue to diminish. The cost of regulatory compliance is simply staggering. I’m not talking about efforts to keep an institution out of trouble; I’m talking about a well-meaning community institution that has no intention of being unfair to members of their own town. These smaller institutions spend a disproportionate amount of money and time to just meet the reporting and manpower requirements of this new regulatory overkill.” - Cliff McCauley, Executive Vice President, Correspondent Banking, Frost Bank
“Most banks in the Midwest did not participate in the underwriting practices that contributed to the recent recession. Sadly, however, we are paying for the past through costly new regulatory burdens, anxious examiners, and customers that are unwilling to borrow. These remedies are hitting all hearts of our financial statements, as costs are going up, opportunities to earn revenue have been curtailed, and the amount and cost of capital we need is increasing.” - G. Courtney Haning, Chairman, President and CEO, Peoples National Bank
“We know that there will always be regulations that control our business – but the reaction to the financial crisis has layered on regulation after regulation that does nothing to improve safety or soundness and only raises the cost of providing credit to our customers. As a banker, I feel like Mickey Mouse as the Sorcerer’s Apprentice in Disney’s famous cartoon Fantasia. Just like Mickey with bucket after bucket of water drowning him, new rules, regulations, guidances, and requirements flood in to my bank page after page, ream after ream.” - William Grant, Chairman, President and CEO, First United Bank & Trust
“The role of community banks in advancing and sustaining the recovery is jeopardized by the increasing expense and distraction of regulation drastically out of proportion to any risk posed by community banks. We didn’t cause the recent financial crisis, and we should not bear the weight of new, overreaching regulation intended to address it.” - Samuel Vallandingham, Vice President and CIO, First State Bank
And, like clockwork, left wing Democrats found the nearest possible microphone to trot out stale talking points about “Wall Street” and criticize the plan before they even knew what was in it.
Just like President Obama, we’re in “myth-busting” mode. Here are some of their fact-free whoppers – and reality.
Claim: Senator Elizabeth Warren claimed the Financial CHOICE Act is nothing but a “wet kiss” for Wall Street full of “giveaways.”
Fact: The Big Banks on Wall Street oppose the Financial CHOICE Act (as the New York Times reported here). And PoliticoPro reports that while big banks aren’t supporting the Financial CHOICE Act, “small banks, however, did not hesitate to get behind the plan.”
We remind Senator Warren that the CEO of Goldman Sachs said his big Wall Street firm would be “among the biggest beneficiaries” of Dodd-Frank and the CEO of JPMorgan Chase said Dodd-Frank benefits Big Banks by creating a “bigger moat” – “deterrents for small financial institutions to jump into new business lines and steal market share.”
Claim: Rep. Maxine Waters purported that the Financial CHOICE Act “gives Wall Street a ‘get out of jail free’ card”
Fact: The Financial CHOICE Act imposes the toughest penalties in history for financial fraud, self-dealing, and deception to protect consumers and strengthen markets. It demands real accountability from Wall Street. (Side note: It’s the Obama Justice Department – with its prosecutorial discretion and power – that has treated Wall Street as Too Big To Jail.)
Claim: Senator Sherrod Brown claimed that we are attempting to “make life easier for mega bankers and tougher for ordinary Americans.”
Fact: To use the Senator’s terminology, “mega bankers” are opposed to our plan. Why? Because Democrats gave them a competitive advantage with Dodd-Frank. Today, Big Banks are the only ones with the manpower and resources to navigate Dodd-Frank’s regulatory maze. Community financial institutions don’t have the same luxury, which is why we’re losing an average of 1 per day.
And Senator Brown’s attack seems hypocritical since the Financial CHOICE Act takes a similar approach to one he proposed regarding capital standards.
By the way, Senator: It’s Dodd-Frank that has made life “tougher for ordinary Americans.”
Before Dodd-Frank became law, 75 percent of banks offered free checking. By 2015, just 37 percent of banks offered free checking. “Not in the 12 years Bankrate has been studying it have so few banks offered real free checking -- a checking account with no monthly fee, regardless of your balance or whether you do direct deposit.”
According to the Federal Reserve, when fully phased in, one-third of black and Hispanic mortgage borrowers will be hurt by Dodd-Frank’s Qualified Mortgage rule based solely on its rigid debt-to-income ratio; and one out of every five borrowers who borrowed to buy a home in 2010 will not meet the rule’s underwriting requirements.
Claim: White House Press Secretary Josh Earnest claimed the Dodd-Frank Act ensures “taxpayers will not be on the hook for bailing out the big banks.”
Fact: The Orderly Liquidation Fund was created by Dodd-Frank and its sole purpose is to bail out Too Big To Fail banks. Here’s a pro-tip Josh, if it looks like a bailout and acts like a bailout, it’s a bailout.
Claim: “[T]here should be no more confusion about which party is on the side of big banks and large financial interests on Wall Street.” – White House Press Secretary Josh Earnest
Fact: You got that right. Unlike the failed Dodd-Frank Act, the Financial CHOICE Act will provide economic growth for all and bank bailouts for none.
You’d be hard-pressed to find a consumer willing to pay more and wait longer only to receive a worse result. But that is what’s passing for consumer protection these days in the eyes of the CFPB and its new proposal to outlaw arbitration.
For the non-lawyers in the room, arbitration is a form of dispute resolution where parties agree to settle a claim with the help of an independent mediator, rather than hiring a lawyer, joining a class action lawsuit and waiting – sometimes for years – before our overcrowded court system can hear their case. But the CFPB is trying to prohibit this more cost effective alternative and the many benefits it offers consumers.
Without arbitration, consumers will be relegated to joining class action lawsuits, which is actually much worse for consumers according to a recent study from—wait for it—the CFPB. That’s right, the Bureau’s own 2015 study shows that only 13% of class actions are settled on a class-wide basis. And among the consumers eligible for relief in those 13% of cases, only 4% ever receive one red cent from the settlement. In other words, class action lawsuits benefit just 0.5% of the class members…ONE-HALF OF 1%.
Yet, that is what the federal government wants to force on consumers.
So what’s all this really about? Money.
This CFPB rule is nothing but a big, wet kiss for trial lawyers who will reap the benefits of more litigation and exorbitant payoffs from class action lawsuits.
Seriously though, does anyone think that we need more litigation in America today?
The Bureau’s proposed rule would significantly increase costs, time-to-resolution, and the burden on our judicial system.
It may be a great deal for trial lawyers (like Saul), but it’s a bad deal for consumers.
1. The Administration just published a rule to “protect consumers” which sounds great at first…
2. But then we realized that it’s 1,000 pages long. 1-0-0-0 pages…
3. And it doesn’t actually protect consumers at all.
4. The truth is this rule limits consumers’ choices and will make financial advice more expensive and less available – which is just wrong.
5. American consumers are already hurting and Washington bureaucrats shouldn't make it harder and more expensive for them to plan for retirement, send a child to college or open up their own small business.
6. And when the Administration’s own experts warned this rule could hurt more than help, the political appointees basically said, facts, schmacts.
7. There is good news though – we have a BIPARTISAN solution to stop this harmful rule. You can read more about that here.
8. We WILL fight to protect the retirement security and investment choices for all Americans.
9. And we WILL NOT let the Obama Administration deny millions of hardworking Americans access to reliable, affordable investment advice.
BONUS GIF: Thank you for reading.
We WILL fight to protect the retirement security and investment choices for all Americans. #4MainStreet
This rule will limit consumers’ choices and make financial advice more expensive for those who need it most. #4MainStreet
Washington shouldn’t make it harder for Americans to plan for retirement, send a child to college or open a small business. #4MainStreet
The Debt Clock // Treasury Secretary Jack Lew testifies as the national debt continues to climb.
The Hoosier // Rep. Luke Messer (R-IN) prepares to question a witness during a March hearing.
The Gipper // Chairman Jeb Hensarling waits near a portrait of a young Ronald Reagan as he prepares to address the Conservative Political Action Conference.
“Maximize Pressure on Congress” // Secretary Jack Lew answers questions about a blistering new report that revealed the Treasury Department misled the public about the debt limit in order to “maximize pressure on Congress."
Article I // Chairman Jeb Hensarling participates in a panel discussion with Senator Mike Lee (R-UT) about their project to restore Congress’s Article I powers.
We are not fans of Dodd-Frank and we’re doing something about it.
Under Dodd-Frank (a.k.a. Washington’s Financial Control Law), Wall Street’s “too big to fail” banks have gotten even bigger, while community banks that had nothing to do with the financial crisis are being crushed under bureaucrats’ one-size-fits-all regulations. The harm to consumers has been very real.
We can do better.
In the coming months, Republicans on the Financial Services Committee will advance a bold alternative that will offer greater opportunity to all and demand more accountability from Washington and Wall Street.
Our better approach will toughen penalties for those who engage in wrongdoing and defraud consumers. It will end taxpayer-funded bailouts and empower consumers with more choices, not more red tape.
It will help level the playing field and grow the economy from Main Street up.
Instead of out-of-control bureaucrats and job-crushing regulations, we’ll offer working families more freedom and more opportunity, so they can achieve financial independence, raise their standard of living, and earn success.
And that is no joke.
Happy April. Stay tuned for more updates on our work.
WASHINGTON -- February may be the shortest month of the year, but the Financial Services Committee made every moment count – hosting 8 hearings, 1 markup, and passing bipartisan legislation to modernize federal housing programs, stop executive overreach and provide regulatory relief for Americans on Main Street.
7 photos from the Month of February:
The Debt // Federal Reserve Chair Janet Yellen makes her first public comments since the Fed’s decision to raise interest ratesand since the national debt eclipsed $19 trillion.
The Markup // Chairman Jeb Hensarling (R-TX) leads a markup of the Committee’s Budget Views and Estimates for Fiscal Year 2017.
The Consumer // Robert Sherill, a small business owner and former drug dealer, shares how his story of redemption wouldn’t have been possible without the help of a small dollar loan.
Agreement // Housing and Insurance Subcommittee Chairman Blaine Luetkemeyer (R-MO) and Ranking Member Emanuel Clever (D-MO) share a moment of levity during a recent hearing.
Ash Wednesday // Rep. Mick Mulvaney (R-SC) questions Federal Reserve Chair Janet Yellen on Ash Wednesday.
Holding Them Accountable // Rep. Andy Barr (R-KY) poses tough questions to a CFPB witness about the Agency’s regulatory overreach.
Robert Sherill was a drug dealer. He was young and he made some serious mistakes. In his own words, “When I needed money, I sold drugs.” Eventually his crimes caught up with him and after several years in prison, he emerged resolved to build a better life for himself.
The only problem was that no one would take a risk on Robert. He couldn't get a job. He couldn't get a loan. He couldn't even get a bank account. The deck was stacked against him. It was against these odds that Robert decided that if he was going to turn his life around, he needed to start his own business.
Enter a local small dollar lender who understood Robert’s situation and designed a financial product to fit his needs.
“The payday loan I got...was a lifeline,” said Robert. “It enabled me to start a business.”
Robert understood the loan needed to be paid back. He understood how much it would cost. And he made a decision that was right for him.
Today, Robert’s business employs 20 people and is still growing. He is a member of his local chamber of commerce and of the Better Business Bureau. He is a productive member of his community, but it all may have been for naught if he couldn’t access a small dollar loan.
That’s why the CFPB’s attempt to shutdown small dollar lenders through regulatory fiat is so disturbing. It threatens to cut off the roughly 51 million American consumers who are unbanked or underbanked from accessing what may be the only type of credit available to them.
What the CFPB is attempting is nothing less than a Washington power grab. It is decreasing consumer choice, increasing the cost of credit, and reducing credit availability to the most vulnerable Americans.
Republicans know that the greatest consumer protection is competition and choice.
If we promote more choices, then we can create more opportunities for low and moderate income Americans like Robert to rise up and build better lives for themselves. And if we don't -- if Washington is allowed to limit Americans' financial freedoms and choke off access to small dollar lenders -- then stories like Robert's will become a lot less likely.
The consequences of this regulatory overreach are very real, as demonstrated by Robert’s response to a lawmaker who asked where he may be today if he hadn’t had access to the credit to start his small business: