It was intended to protect consumers from abusive practices by financial services. It was intended to promote financial stability of the U.S. by improving accountability and transparency in the financial system, ending too-big-to-fail banks and protecting the American taxpayer by ending bailouts. But nearly seven years after Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act, it remains a regulatory nightmare for both consumers and banks.
For banks, Dodd-Frank has resulted in approximately 24,400 pages of proposed and final rules since 2010. The new regulatory atmosphere and increased compliance costs have driven banks to merge in unprecedented numbers. In Texas, which has one of the healthiest economies in the nation, we have lost 159 banks since the law was enacted … and the number is growing. The too-big-to-fail banks, on the other hand, continue to thrive.
For consumers, not only are there fewer banks serving them, translating to diminished access to capital, but increased compliance costs have prompted banks to reduce the services they can offer. The fees banks charge have also increased. Remember free checking? Before Dodd-Frank, 75 percent of banks offered free checking. That number has since been cut in half. Those affected the most are low-income consumers who don’t have sufficient levels in their checking accounts to avoid paying fees.
Applied for a mortgage lately? It is now more difficult than ever for Texans to obtain home loans. While banks have money to lend, new Truth in Lending Disclosures and other regulations have increased the amount of paperwork for consumers as well as banks. Community banks can no longer rely on traditional methods of a borrower’s character, cash flow, collateral value and different elements of income to make you a loan. In short, the self-employed and small businesses are directly impacted.
Some community banks have stopped providing mortgages altogether. Others are only making loans to customers whose loans fit into the “Qualified Mortgage” designation. These customers aren’t being denied mortgage loans because they can’t afford them; rather, the community banks that would normally offer them simply aren’t in the business of lending anymore.
Texas’ own Jeb Hensarling, chairman of the House Financial Services Committee, has a solution that will accomplish the intended goals of Dodd-Frank: end too-big-to-fail once and for all and ensure accountability in the form of tough penalties for financial fraud. His Financial CHOICE Act, which would replace the failed Dodd-Frank Act, relieves financial institutions from burdensome regulations in exchange for meeting higher capital requirements.
Among the provisions:
- Provide a Qualified Mortgage safe harbor to mortgage loans held in portfolio. This would enable more qualified borrowers, including retirees and the self-employed, to obtain a mortgage.
- Tailor supervision to banks’ risk profiles and business models.
- Reform the Consumer Financial Protection Bureau (CFPB). Currently, the CFPB has no oversight or financial accountability. While there is a place for consumer protection, this out-of-control agency has no spending limits and needs to have an oversight commission and congressional budget oversight.
- Demand Wall Street accountability through enhanced penalties for fraud and deception.
- End too-big-to-fail and bank bailouts.
The adoption of Hensarling’s Financial CHOICE Act is a win-win for Texas consumers, homeowners and small business owners. His plan is simple: Focus on re-igniting America’s entrepreneurial spirit by increasing financing options and reducing regulatory barriers to small business so more Americans can create, build and innovate. The banks of Texas believe Hensarling is right on track!
The Texas Bankers Association is the oldest and largest state bankers association in the nation. TBA represents 95 percent of banking institutions of all asset and deposit sizes.
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