[Congressional Record (Bound Edition), Volume 157 (2011), Part 4]
[Senate]
[Pages 5372-5374]
[From the U.S. 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 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

[[Page 5373]]

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, 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,

[[Page 5374]]

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.

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