Arkansas bankers meet with a Dodd-Frank regulator

The head of the U.S. Consumer Financial Protection Bureau, Richard Cordray, met with about 15 Arkansas bankers on Monday night in Arkansas to discuss concerns related to the Dodd-Frank financial law.

According to several bankers in attendance, the meeting was well-received but apprehension remains.

“I appreciate Mr. Cordray taking the time to come to Arkansas and visit with our citizens and bankers,” said Speaker of the House Davy Carter, R-Cabot, who is also a regional president with Centennial Bank, a subsidiary of Conway-based Home Bancshares.

The meeting was co-hosted by Carter and Arkansas Attorney General Dustin McDaniel (D), who solicited Cordray to venture to the state to hear bankers’ concerns on the rules and regulations impacting community banks.

The Consumer Financial Protection Bureau is an outgrowth of the Dodd-Frank law, which was passed at the urging of President Obama in response to the near collapse of several large U.S.-based banking operations in 2007-2008.

Key provisions of the Act, which are expected to be more fully articulated later this year and next, also include:
• Creation of a consumer interest “independent watchdog” housed at the Federal Reserve;
• Establishment of capital requirements designed to end the “too big to fail” possibility among the big banks;
• Creation of an “advance warning system” to identify systemic problems before they become big problems;
• Elimination of loopholes that allow the “exotic instruments” that helped fuel the financial meltdown in 2008; and,
• Development of new accountability and transparency rules for credit rating agencies.

The law was designed to increase examination and enforcement of banks and other financial service companies with more than $10 billion in assets. However, regulations will also increase for banks under the $10 billion level.

One of the most controversial portions of the law involves the creation and administration of the Consumer Financial Protection Bureau, which has broad-ranging powers to intervene in the financial industry on behalf of consumers and to more closely regulate banks. Smaller banks, under the $10 billion threshold, have complained since the law’s enactment that the bureau has the potential to overregulate the community bank industry, which had little to do with the financial crisis that led to the Great Recession.

“Our bankers and business leaders want a level playing field when it comes to federal oversight,” McDaniel said. “I have said repeatedly that community banks in Arkansas should not have to pay for the sins of conglomerates like Goldman Sachs, or else such overregulation may keep our banks from helping to grow the state’s economy.”

The banking group discussed a variety of issues that Arkansas banks are dealing with in order to comply with Dodd-Frank rules. Many regulatory issues have yet to be determined.

For instance, State Sen. Bruce Maloch, D-Magnolia, who is the COO of Farmer’s Bank & Trust of Magnolia, said his $780 million bank just exceeds an annual 500-home mortgage loan provision that causes him to play under a different set of rules related to maximum interest rates. Other community banks – which have slightly less mortgage activity – are exempt from the new regulations creating what Maloch described as an “unlevel playing field.”

“His immediate response to my concern was that 500 may be too low,” Maloch said. “He [Cordray] said they would give some consideration to the issue.”

Larry Wilson, CEO of Jacksonville-based First Arkansas Bank & Trust, has been an ardent critic of many aspects of Dodd-Frank. Wilson said he was pleased about Cordray’s participation in Arkansas and hoped for some positive changes to occur in soon-to-be-written regulations. However, Wilson said that there may be a limit as to how much Cordray can actually do within the parameters of the law.

“Director Cordray demonstrated that he was a very good listener,” said Wilson. “He mentioned that the details of Dodd-Frank somewhat limit their ability to make wholesale changes. They may be able to tweak some issues. I think in 2014 they will see that the ramifications of Dodd-Frank are going to slow the economy and they’re going to need to make some changes. … I think the law is going to limit credit availability for the consumers that they’re charged in protecting.”

John Womack, chairman and CEO of Arvest Bank’s central Arkansas operations, said he was appreciative that Cordray conducted the listening tour. Bentonville-based Arvest is the only state chartered bank that exceeds $10 billion in assets and therefore has additional compliance requirements with Dodd-Frank regulations, including a rigorous bank exam to be conducted by the Consumer Financial Protection Bureau.

“I thought it was a very cordial meeting,” Womack said. “I appreciate him at least reaching out to talk to the banks. There’s still a lot of things that are unknown, even to them I think.”

Carter, who will oversee the merged operations of Centennial Bank’s $280 million acquisition of Jonesboro-based Liberty Bank, echoed the appreciation for the face-to-face visit.

“During the meeting each attendee was given an opportunity to share his or her concerns regarding Dodd-Frank and other measures with the director,” he said.

“Although these regulations still remain a material concern for banks in Arkansas, it was encouraging to hear the director say that his department is open to some rule changes that make sense for Arkansas banks, and that he was committed to keeping an open line of communication during this process.”

At McDaniel’s request, Cordray also visited with a roundtable of consumer advocates who shared concerns about online payday lenders, mortgage-servicing abuses and illegal debt collection tactics.

“I was pleased to join Attorney General McDaniel to hear from community groups, banks, and elected officials about the work they are doing to help Arkansas consumers,” Cordray said in a statement released by McDaniel. “State and local leaders are on the front lines of consumer protection, and we at the CFPB value the insight we gain from these meetings.”