Is regulatory relief coming for lenders, increasing consumer choice and helping hometown banks? We can hope.
One of the biggest problems that the Dodd-Frank rules have had since their passage is that despite legislative intent to apply to the largest lenders, regulators such as the Consumer Finance Protection Board (CFPB) have applied rules and regulations across the board to lenders of all size.
And when it comes to lenders, one size most certainly does not t fit all.
When the CFPB proposed a “Small Dollar Lending” rule, the original intent of this rule was to prevent certain types of predatory lending practices. But the CFPB took its solution to this problem and drove many traditional lenders away from making small, short-term loans to customers they may have known for decades. The law of unintended consequences continues to whittle away at hometown lenders who would prefer to stay open, despite the best efforts of the CFPB.
And as I’ve documented before, this is just the start of the list of problems, as lenders try to keep up with regulations as they try to stay in business in an atmosphere of regulatory overreach by the federal government.
However, at least partial relief may be within reach.
The House Financial Services Committee has developed the Financial CHOICE (creating hope and opportunity for investors, consumers, and entrepreneurs) Act, of which one of the key components proposed is Senator Mike Rounds’ reintroduction of the “Taking Account of Institutions with Low Operation Risk” or TAILOR Act, a bill to require federal regulatory agencies to take risk profiles and business models of institutions into account when crafting regulations.
So, how does Rounds’ TAILOR act help? In short, it demands that federal regulations on lenders are NOT one size fit all, and they must be “TAILOR-ed” to the size and nature of the lending institution in an effort to open up more capital to lending, and to reduce the federal regulatory burden on those institutions. The TAILOR act is at the top of a list of reforms that local lending institutions would like to see.
To be more specific, the TAILOR Act (H.R. 1116) would require federal financial agencies to consider the risk profiles and business models of the institutions they oversee when taking regulatory action. It would require those agencies to consider various costs and other impacts for those institutions, many of them based on organizational size and structure.
Why is this important? Because as I’d noted in a previous article, many bank closures are directly related to regulatory requirements placed on smaller banks by Dodd-Frank rules. And who is the most affected when these regulations are piled upon lenders? Excessive costs and regulatory hurdles continue to hurt consumers the most, where the impact of unnecessary regulations and disproportionate compliance hurt smaller lenders the most since the passage of the Dodd-Frank Act in 2010.
According to one article:
Of 200 small banks in 41 states surveyed in a 2014 study by the Mercatus Center at George Mason University, 90 percent said the Dodd-Frank rules that had been finalized up to that point were increasing compliance costs, and 83 percent said the rules had increased costs by more than 5 percent. Almost two-thirds of banks said they would be changing the “nature, mix and volume of mortgage products and services as a result of new regulations” while 10 percent said they anticipated discontinuing residential mortgages. And despite the fact that the Consumer Financial Protection Bureau was supposed to concentrate on banks of $10 billion-plus in assets, 71 percent of the small-bank respondents said the CFPB was affecting their business activities.
Two-thirds of banks? Numbers like that affect massive swaths of our country, especially in sparsely populated South Dakota. With more regulations came increased costs and fewer choices to consumers. Period.
Rounds’ TAILOR Act would ease the regulatory burden on financial institutions so they can focus their resources on taking care of their customers, rather than spending time and money on compliance, the costs of which are ultimately passed onto the consumer. The TAILOR Act also requires regulators to conduct a review of all the regulations issued by the agencies since the passage of the Dodd-Frank Act and revise them if necessary.
Fewer burdensome regulations, and the ability to offer more products at a reduced cost? Those are good things for South Dakota communities, and South Dakota businesses. And we wish Senator Rounds success in fixing the problem.