Six years ago, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act, and in doing so instituted many of the unintended consequences we’re seeing in the lending market today. Consumers aren’t benefiting as expected and community banks – which were not responsible for causing the financial crisis – are faced with burdensome, expensive regulations and requirements affecting how they serve their customers.
Community bankers play a critical role in our towns, helping homeowners, small businesses, and households all across Arkansas. We see our customers around the grocery store and we know their names. They turn to us for loans, mortgages, and financial support to launch or grow businesses. Our close, personal ties with our customers and communities are what make community banks so unique, but the overreaching Dodd-Frank Act has hindered our ability to continue providing the level of services our customers depend on.
As I’ve written about before, the Ability-To-Repay (ATR) rule issued by the Consumer Financial Protection Bureau has negatively impacted hardworking Arkansans. The ATR rule, which applies to consumer credit transactions secured by a dwelling, imposed new standards with little wiggle room to support many Americans. In fact, this rule has led to a drop in consumer credit approvals by community banks, by as much as 50%, affecting individuals young and old, with low and high incomes, and good character who might be slightly below one of the requirements to lend.
The Durbin Amendment, another provision included in Dodd-Frank, had little to do with Wall Street reform but has caused undue harm to community businesses and their customers. It mandated that banks implement redundant routing requirements for electronic payments and placed government price controls on interchange fees for debit transactions. To convince Congress to pass the law, retailers promised to hand off the savings they received from interchange fees to their customers in the form of lower prices. In reality, it has been nothing more than a merchant markup, with retailers pocketing six to eight billion dollars per year at the expense of their customers and small financial institutions.
Community banks with less than $10 billion in assets, which is the majority of banks, were supposed to be exempt from the interchange price control provision but they are suffering anyway. They are now saddled with onerous and costly requirements and increased responsibility to make up for the large gap in interchange fee revenue the non-exempt banks formerly received to pay for the complicated electronic payments network. Now small banks are sharing the burden as well, with some making changes to checking account balance requirements, raising fees, and reducing services in order to avoid shuttering completely.
Communities in Arkansas have been particularly hindered by these aspects of Dodd-Frank. I see its impact every day. Economic growth has been stifled and community banks are struggling to meet the government’s new demands. Getting rid of the stifling regulations of Dodd-Frank would be a first step toward reinstating the free market principles that used to fuel our community banks and the electronic payments system. Most importantly, it would allow community banks to better support their customers and give them the right tools to achieve their dreams.
It is long overdue that we look at Dodd-Frank under a microscope and work to reform the especially harmful parts of the act immediately. Congressman Jeb Hensarling from Texas recently introduced The Financial CHOICE Act, which would revamp Dodd-Frank and repeal a number of onerous regulations such as the Durbin Amendment. Congressman Randy Neugebauer, also from Texas, has emerged as a champion on these issues as well, and has introduced his own legislation to address some of them.
For six years now, we’ve heard about the negative impacts of Dodd-Frank on community banks and their customers. We’ve run this failed experiment of regulations and price controls for too long. There is real movement that could right some of the wrongs Dodd-Frank imposed on Arkansans and it’s time that Congress takes some action. Main street businesses and homeowners have waited long enough.