Frank D. Scott, Jr.: Dodd-Frank’s Ability-To-Repay Rule Not In Best Interest Of Working Arkansans

After four years of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), one of the most overreaching financial regulatory reforms in my lifetime, consumers are still feeling its unintended wrath.

Community banks, who truly know their customers, were not the catalyst of the 2008 financial crisis. Consequently, they were drafted into a cumbersome regulatory reform without truly being brought to the table to seek their insights on conservative underwriting standards and calculated risk management that prevented them from being contributors to our nation’s housing and financial catastrophe. After four years of implementing this legislation, the Consumer Financial Protection Bureau (CFPB) was established and it’s still working to complete the writing of all the rules and regulations.

As State Bank Commissioner Candace Franks eloquently stated last week before a U.S. Senate committee: “A community banker knows the entrepreneur opening a new business around the corner. A community banker also knows the local real estate market and the home buyer seeking a mortgage loan,” she said. “These relationships allow community bankers to offer personalized solutions designed to meet the specific financial needs of the borrower.”

Rules and regulations are needed to maintain fair practices for both businesses and consumers. However, when regulations impede the forward movement of consumers to pursue the “American Dream” – Homeownership – it’s time to speak up.

Ability-To-Repay (ATR) is a rule issued by the CFPB. This rule applies to any consumer credit transaction that is secured by a dwelling, including real property attached to a dwelling except for Home-Equity Lines of Credits and Timeshares. I won’t take up too much time to explain the intricacies of the rule; however, please know the ATR rule has caused severe impacts and constraints to hard-working Arkansans.

Here are a few true-stories on the negative effects of the ATR rule for working Arkansans:

First, community banks, specifically in rural markets, are seeing their consumer credit approvals rates dramatically drop more than 50% to customers they know and see everyday in their communities. These community bankers see their customers in the local grocery store, community center, parks, etc. The drastic drop is a result of new reform measures such as verifiable income (by a 3rd Party), credit score standards, and appraisal standards for unique properties (like a farm).

Second, community banks are having to deny individuals and couples with low loan-to-value, good character, and six-figure incomes looking to purchase and/or build their dream homes because of slightly below standard credit scores caused by previous life circumstances and medical issues.

And finally, elder members of our communities who are in need of home improvement loans are experiencing challenges themselves to meet concrete ATR standards.

Historically, community banks would have the flexibility to meet their customers where they are in life and find financial solutions to their problems. But the ATR rule takes away those options for consumers.

After sharing these stories, I hope our state’s members of Congress are listening to identify opportunities to bring consumers and community banks to the table to work out beneficial solutions to the painstaking effects of the ATR rule with the CFPB.

Let’s all work to cease regulatory reforms that go so far that they create unintended consequences for the very consumers they seek to protect.