[Congressional Record Volume 157, Number 50 (Thursday, April 7, 2011)]
[Senate]
[Pages S2217-S2219]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
FINANCIAL SECTOR REGULATION
Mr. ROBERTS. Mr. President, I appreciate the leadership, as best they
can, going into greater detail on the mutual effort to avoid a
government shutdown. I know all Members are vitally interested in this,
as is the American public. I do happen to agree--probably no surprise--
with the Republican leader in his description of the situation,
especially in regard to our national security, which I think is
exceedingly important.
I have asked for this time now to discuss a related subject. Some may
think it is not related but I think it is. It is related to a
government--or an economic shutdown, if you will, on many businesses
throughout the country, that is already occurring. This is something we
hear about from time to time from various industries or businesses or
occupations--almost everybody up and down Main Street. I would describe
it as a shutdown by regulation or almost strangulation by regulation.
That is what I wish to talk about for a moment.
I come to the floor to highlight another area where regulation is
having a negative effect on business in my State and all across the
country. To date, I have spoken about the impact of regulations on
health care and on agriculture and on energy. Today I am here to talk
about the regulation of our financial sector. I want to emphasize I am
talking about the impact of regulation on our community banks, those
banks in each of our towns, often home owned and operated.
Our community banks share the common concern I have heard from
businesses in all industries all across my State. The volume and pace
of regulations that are coming out of Washington are unmanageable and
they add to the costs and divert resources that would otherwise be used
to grow their businesses or serve their customers or help the economy
in its recovery.
As I have noted in previous remarks, I was very encouraged that
President Obama signed an Executive order. I credit him for that. He
directed the administration to review, to modify, to streamline,
expand, or repeal those significant regulatory actions that he called
duplicative and unnecessary, overly burdensome, or that which would
have had significant impact on Americans. He even, in an offhand
remark, said some of these regulations are actually stupid. I agree
with the President and I gave him credit for that.
I was originally encouraged by the President's commitment to a new
regulatory strategy. But after reviewing the Executive order I was left
with some concerns. Here is why. The Executive order states:
In applying these principles, each agency is directed to
use the best available techniques to quantify anticipated
present and future benefits and costs as accurately as
possible.
Nobody could possibly disagree with that. It is a good statement.
Where appropriate and permitted by law, each agency may
consider (and discuss qualitatively)--
I am not sure if I understand that in very clear language, but at
least I have been trying to figure that out, along with a lot of the
people who are on the receiving end of regulations. Then this is the
part which I defy anybody to comprehend. ``values that are difficult or
impossible to quantify, including equity, human dignity, fairness and
distributive impacts.''
As the Wall Street Journal captured in their response to the
President's editorial, ``these amorphous concepts are
[[Page S2218]]
not measurable at all.'' How on Earth do you make such a determination?
This language is, in fact, if anybody could understand it, a very large
loophole. Coupled with an exception for the independent agencies such
as the FDIC and the EPA, and the subagencies and other regulatory
agencies, it has the potential to result in no changes at all.
Here you have an Executive order but you also have an Executive order
that has a lot of loopholes in it. That is why I have introduced
legislation to put teeth into this Executive order. My bill is called
the Regulatory Responsibility For Our Economy Act, and it strengthens
and codifies the President's order. Like the Executive order, my
legislation ensures that the regulators review, modify, streamline,
expand, or repeal the regulatory actions that are duplicative,
unnecessary, overly burdensome, or would have significant impact on
Americans. But it requires that Federal regulations put forth do
consider the economic burden on American businesses, ensure stakeholder
input during the regulatory process, and promote innovation.
Today, 46 Members of this body have signed on as cosponsors. That is
a testament to the concerns that my colleagues are hearing from their
constituents about how the unrelenting tide of regulations now coming
from Washington is harming their businesses and our economy. It could
be described, actually, as another government shutdown, as I have
indicated, by strangulation.
Today I want to call attention to the impact of regulations on the
financial services sector, in particular the impact on our community
banks. I might add, in discussing this before on agriculture, energy,
and health care, we talked to the stakeholders involved in Kansas, the
people who are actually involved. It is their suggestions I am
repeating and that I have tried to encompass in my legislation.
The financial services sector of our economy is already the focus of
substantial regulation. I think everybody understands that. We all
support commonsense financial regulations. However, it is important
that financial regulations do not become undue burdens, especially on
our community banks that are the backbone of Main Street and finance
the economic growth in our communities. While I appreciate that many of
the agencies with responsibility for regulating the industry are
independent of the executive branch, I am hopeful that these agencies
are receptive to the President's effort.
While the economic crisis focused attention on the financial services
industry leading to the passage of the Dodd-Frank bill, our Nation's
community banks that are already shouldering an undue regulatory burden
will now bear a greater burden when the hundreds of regulations from
this law are implemented. Our Nation's community banks are often small
businesses. On average a community bank has 37 employees and
approximately $154 million in loans and other assets. The majority of
banks in Kansas have an average of fewer than 14 employees. However,
they currently comply with 1,700 pages of consumer regulations alone.
That is incredible. They must also comply with hundreds of additional
pages of regulations regarding lending practices and other banking
operations.
According to a summary of the Dodd-Frank act by Davis Polk, this
legislation mandates that 11 different agencies now create at least 243
more regulations; issue 67 one-time reports or studies and 22 new
periodic reports. Many of these new rules are required to be issued in
the next year or two, and financial regulatory agencies have the
discretion to issue additional rules on top of those and those required
under Dodd-Frank.
This is incredible if not unbelievable. Regulators have already
issued more than 1,400 pages of regulatory proposals. Up to 5,000 pages
of regulations are expected.
Many will be proposed by a new bureaucracy that is created in the
Dodd-Frank act, the Bureau of Consumer Financial Protection. Remember
that name. The acronym is CFPB, and it will undoubtedly suffocate a lot
of businesses. It will have broad authority to monitor, regulate, and
direct the activity of banks. These actions will create additional and
significant compliance costs that will impact the ability of every bank
to serve its community. These actions have real costs to banks.
According to recent testimony before the House Oversight and
Investigation Subcommittee, the CBO Director--the Congressional Budget
Office Director--Douglas Elmendorf, said the Dodd-Frank act is expected
to impose nearly $27 billion in new private sector fees, assessments,
and premiums. This amount includes more than $14 billion in new fees on
banks. Guess where that money is going to end up in regards to consumer
costs. Our community bankers and their customers are worried about the
impact of these new requirements. That has to be the understatement of
my remarks. They are frustrated, they are angry, they are upset.
Now, while not every regulation will apply to the community banks,
they tell me the rapid pace and volume of new regulations being put
forth are placing a strain on many banks' compliance capabilities and
are adding significantly to their operating costs. Many banks tell me
they are reevaluating whether they can afford to offer some products
and services such as mortgage lending. Yes, you have that right. If you
live in a small community, and you go to your local bank and you would
like to get a loan in regards to financing a mortgage, sorry, they may
be out of the business.
It is important to understand that banks do not oppose commonsense
regulations. They are necessary to ensure that banks are doing their
jobs and that consumers receive the proper information and disclosures
that are beneficial to them. The problem is that unlike bigger
financial institutions, our community banks do not have a large staff
of attorneys or compliance officers to help them navigate wave after
wave of these new regulations.
By one estimate, for the typical small bank, more than one out of
every four dollars--one out of four--of operating expenses is used to
pay for the cost of complying with government regulations. With Dodd-
Frank we can only expect that cost to go higher.
One community banker tells me they have five compliance officers out
of a staff of less than 100 employees. In speaking with compliance
officers, they tell me regulations that are being put forth to
implement a range of new requirements are being written too quickly,
without sufficient specifics and guidance for banks to implement as
intended.
They point to regulations that are duplicative or contradictory but
which they must comply with, even if the banker or consumer does not
view the regulation as having any value or benefit to the consumer--I
might add, even if they can understand it.
Such compliance efforts cost time and money and it is vital that
Federal regulators consider the total impact of all regulations, not
merely each regulation in isolation, and work to reduce unnecessary
regulatory burdens on an already heavily regulated industry.
With these concerns in mind, I would like to call attention to
several regulations that highlight the impact of an overly burdensome
regulatory environment. I encourage regulators to join the President's
effort to pursue solutions to regulations that make it difficult for
our community banks to serve their customers, support businesses in
their communities, and help grow our economy.
The Dodd-Frank act requires the Federal Reserve to issue a rule for
debit interchange fees. Basically, interchange fees are swipe fees that
a merchant bank pays to a customer's bank when the customer uses their
debit card. In December I joined a bipartisan group of Senators in
writing to Federal Reserve Board Chairman Ben Bernanke expressing our
concerns with the interchange provision and to encourage the Federal
Reserve to ensure that our consumer interests are protected in rate
standards that are set.
Our letter outlines ``concerns with the consequences of replacing a
market-based system for debit card acceptance with a government-
controlled system,'' as well as concerns that the provision will make
small banks and credit union debit cards more expensive for merchants
to accept than those cards issued by larger banks, and it would likely
put them at a disadvantage compared to the large banks that issue those
other cards.
In addition, the rule does not consider all of the costs incurred by
a bank in actually providing the service,
[[Page S2219]]
such as all the costs for fraud control and prevention, network
processing fees, card production, and issuance costs, and fixed costs,
including capital investments. These are all significant costs for many
banks and will be one of the factors they will have to look at when
considering whether they even continue to offer any debit card service.
During debate on the debit interchange amendment, supporters
presented it as a proconsumer provision, maintaining that the reduction
in interchange fees would be passed on to the consumer. Yet there is
nothing, nothing in this Dodd-Frank act that requires retailers to pass
on any savings from debit interchange fees to their customers. On the
contrary, the debit interchange rule will likely result in higher bank
fees, a loss of reward programs, or banks may ultimately, as I have
said, decide not to offer debit cards to their customers. Some steps
are already being considered.
Higher fees or limited choices as a result of such government price
controls does not benefit any consumer. That is why legislation I am
supporting calls for the Federal Reserve and other Federal financial
regulators to slow down and fully study this issue, carefully evaluate
the 11,000 comments that were received on this proposed rule.
I am particularly concerned about the estimated costs of the debit
interchange rule for our community banks, which is not insignificant.
Supporters of the interchange rule say our community banks will not be
impacted. Well, I beg to differ.
Consider what I am hearing from the community banks in my State of
Kansas. One community banker in a town of just 1,000, whose bank began
offering debit cards a few years ago, tells me the interchange proposal
will cost his bank $19,000 a year. Two other banks that serve multiple
rural communities will see increased costs per year of more than
$46,000 and $100,000, respectively. Other banks, including banks in my
State, estimate the cost to be in the millions. Ultimately, the loss of
income for banks will mean less capital available to lend to borrowers.
I also want to mention the concerns I am hearing about the patchwork
of mortgage disclosure requirements. Taken together, existing
regulations and anticipated regulations as a result of Dodd-Frank may
well have the effect of making it more difficult and costly to provide
mortgages to qualified borrowers, reduce lending capacity, and may push
some lenders to simply stop offering mortgages.
One example is the SAFE Act. It creates a nationwide mortgaging
licensing system and registry for mortgage loan originators. This
registry is intended for use by regulators to identify mortgage brokers
or lenders who seek to work in a State after being banned from working
in a different State. That sounds all right. However, each mortgage
loan originator will be required to register with a national registry,
obtain a unique identification number, and submit fingerprints for the
FBI to conduct a criminal background check.
So if you are in the business of trying to be a mortgage loan
originator, you are going to get fingerprinted. Our community bankers
tell me their cost to meet the new requirements is roughly $1,000 to
$2,000 per loan officer. I know that might not seem like a lot of money
to Washington regulators, but it is a tidy sum in rural America.
The cost of compliance will take time and money away from the
business of lending and may ultimately be passed on to the consumer in
the form of higher prices for a mortgage loan. That is what will
happen.
Finally, I want to mention the recent guidance on the overdraft
payment programs put forth by the FDIC. At some point most of us have
had experience with overdraft programs, perhaps when we forgot to
balance our checkbook. In the guidance, the FDIC stated:
The guidance focuses on automated overdraft programs and
encourages banks to offer less costly alternatives if, for
example, a borrower overdraws his or her account on more
than six occasions where a fee is charged in a rolling 12-
month period. Additionally, to avoid reputational and
other risks, the FDIC expects institutions to institute
appropriate daily limits on customer costs and ensure that
transactions are not processed in a manner designed to
maximize the cost to consumers.
So while banks offer overdraft protection programs now and take other
steps to aid customers in avoiding overdrafts, many are concerned that
this guidance put forth by the FDIC is overly prescriptive and goes
further than amendments on overdrafts put forth by the Federal Reserve.
Further, banks note that the guidance seems to contradict the intent
of the President's Executive order that requires agencies to propose or
adopt regulations only upon a reasoned determination that its benefits
justify its cost, recognizing that some benefits and costs are
difficult to quantify. Banks are concerned that the FDIC guidance is
based on outdated information and that the impact of the Federal
Reserve's rules on overdraft programs should be reviewed before moving
forward with additional guidance in this area.
So while the FDIC is not subject to the Executive order, I certainly
hope they would adopt the spirit of the order. In addition, when a
customer has a pattern of excessive use of automated overdraft
programs, the FDIC states that ``(banks) should contact their customers
about a more appropriate and lower-cost alternative that better suits
their needs.''
I can remember a bank scandal back in the House of Representatives.
If only that bank would have had this protection from the FDIC, none of
that scandal would have ever happened.
The FDIC recently provided additional clarification on this guidance
that provides some flexibility about how banks reach out to customers
and permits them to contact customers by mail as well as in person and
by telephone. However, the requirement that banks contact customers who
incur six overdrafts in a rolling 12-month period remains a broad
overreach of the FDIC's authority, putting the burden on the banks
rather than the customer who ultimately bears the responsibility for
ensuring that they have sufficient funds in their account to cover
their transactions.
In fact, one study shows that 77 percent of customers paid no
overdraft fees in the previous 12 months. That same study also showed
that for those 21 percent of customers who paid an overdraft fee, 69
percent say they were glad the payment was covered.
Another survey found that 94 percent of those surveyed said they
would want a transaction to be covered by their banks even if it
resulted in an overdraft fee. This guidance seems to be a clear example
of where an agency is overreaching, with little evidence of the need
for or effectiveness of such additional guidance.
In closing, I thank, again, Obama for taking the step in the right
direction to review Federal regulations that place undue burdens or our
Nation's economic growth and recovery. I hope financial regulators will
join in this effort to examine rules and regulations that pose
significant barriers to our small community banks and their ability to
serve their customers and contribute to the growth of their
communities.
I yield the floor, and I suggest the absence of a quorum.
The ACTING PRESIDENT pro tempore. The clerk will call the roll.
The legislative clerk proceeded to call the roll.
Mr. ALEXANDER. I ask unanimous consent that the order for the quorum
call be rescinded.
The ACTING PRESIDENT pro tempore. Without objection, it is so
ordered.
Mr. ALEXANDER. I ask unanimous consent to speak for up to 15 minutes.
The ACTING PRESIDENT pro tempore. The minority time has only 1 minute
30 seconds at this point and then the majority time has 30 minutes.
The Senator from Tennessee may proceed.
____________________