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Regulation and Compliance > Federal Regulation

Interchange Fees, CFPB Dominate Discussion at Dodd-Frank Hearing

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The Subcommittee on Financial Institutions and Consumer Credit held hearings Wednesday on the effect Dodd-Frank will have on small businesses and financial institutions.

Witnesses railed against the Durbin amendment, which would reduce the swipe fees that small businesses pay on every credit and debit card sale, and expressed continued concern about the Consumer Financial Protection Bureau's role. Establishing price-controls for interchange fees, the witnesses argued, would severely limit banks' profitability, stifle innovation and lower productivity.

John Buckley, president and chief executive officer of Gerber Federal Credit Union, expressed pleasure that the Financial Stability Oversight Council would have some veto power over rules proposed by the CFPB, but argued that that power should be strengthened.

Witnesses almost unanimously agreed that regulations imposed by Dodd-Frank would be overly burdensome. The lone voice of dissent came from Peter Skillern, executive director of the Community Reinvestment Association of North Carolina, who called the Act "small business friendly."

"Small businesses are facing a tougher credit market and slower recovery," Skillern told members of the Subcommittee; he said the Act "stands up for the little guys" in the industry, and will provide a "level playing field" for small financial services companies to compete with megabanks and non-regulated financial services companies.

"Most importantly, Dodd-Frank provides a more stable financial system for small banks and small businesses by mitigating the systemic risks and lending abuses by megabanks and unregulated financial institutions that catalyzed the financial crisis," he said.

His fellow panelists disagreed. Albert Kelly, president and chief executive officer of Spirit Bank, on behalf of the American Bankers Association, said that the health of the banking industry is closely linked with the economic strength of the nation's communities.

"Banks are working every day to make credit available," Kelly said. "Those efforts, however, are made more difficult by regulatory costs and second-guessing by bank examiners." The cumulative burden of Dodd-Frank's rules would demand a massive consolidation on banks' parts, he said.

Buckley, of Gerber Federal Credit Union who spoke on behalf of the National Association of Federal Credit Unions, pointed out that credit unions did not cause the financial crisis, and actually helped "blunt the crisis" by continuing to lend to credit-worthy consumers Furthermore, credit unions are already heavily regulated by the Federal Credit Union Act.

"The additional requirements in Dodd-Frank have created an overwhelming number of new compliance burdens, which will take credit unions considerable time, effort, and resources to resolve," he said.

William Cheney, president and chief executive officer of the Credit Union National Association, put it simply: "You cannot simplify regulations by creating new rules." Cheney agreed with Buckley on credit unions' already well-regulated status. The new regulations instituted by Dodd-Frank will lead to credit union consolidation.

"Some have called this a “crisis of creeping complexity” because it is not any one particular regulation, mandatory information collection, or required form which makes it impossible for smaller credit unions to continue to exist," he said. "Instead it is the steady accumulation of regulatory requirements over the years which eventually add up until a straw breaks the camel’s back."

Chris Stinebert, president and chief executive officer of the American Financial Services Association, told the Subcommittee that finance companies aren't afraid to be regulated; rather, they don't want to be regulated like depositories, "because they simply are not banks." When a finance company defaults on a loan, the only entity harmed is the company itself, "because it’s their money that they are lending, not yours and mine," he said. Furthermore, non-bank finance companies have been working with state regulators for decades, giving those regulators unique experience that allows them to identify potentially risky emerging issues, practices or products before anyone else. Federal regulators, he said, with their bank-centric experience would be at a disadvantage without that knowledge.

"Preserving access to affordable credit must be the goal of every lawmaker, federal or state," he concluded.

James MacPhee, CEO of the Kalamazoo County State Bank and chairman of the Independent Community Bankers of America, called community banks the primary source of credit for people in rural areas, small towns and suburbs. He concurred with Buckley, stating that community banks did not cause the financial crisis, and argued that the impact of a law as broad as Dodd-Frank would be difficult to characterize.


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