Regulation: An Opportunity to Get It Right

News
April 21, 2017

As reforming the Dodd-Frank Act takes center stage in Washington, it is important for federal lawmakers to hunker down and get this one right. Consumers and bankers alike stand to benefit from reform, but balance is key.

When it comes to financial policy, a balanced approach to reform is essential to a healthy banking sector, and preserving consumer choice and access to credit. These days financial regulation is so convoluted it rivals ObamaCare in its complexities, and navigating Congress is like finding your way out of a corn maze.

As reforming the Dodd-Frank Act — a 2,300 plus page behemoth of a bill — takes center stage in Washington, it is important federal lawmakers hunker down and get this one right because a poorly designed plan could prove disastrous. Consumers cannot afford an overzealous or lackadaisical approach to reform: balance is key.

Where We Are
To date, the banking industry has invested upwards of $40 billion dollars post Dodd-Frank in implementing internal safeguards and compliance programs to better the financial lives of consumers. Wholesale repeal of Dodd-Frank would undermine these efforts. Bankers would be left spinning their wheels trying to keep up with evasive regulatory checkpoints. Once again, all at the expense of American consumers.

Don’t get me wrong, Dodd-Frank is far from perfect. As is the case with all policy, financial laws and regulations must be periodically reviewed to ensure they are meeting their intended purpose and the needs of those
they govern.

Where We Must Go
To modernize and improve Dodd-Frank, repealing a provision of the law known as the Durbin Amendment, which was snuck into the bill at the eleventh hour with no debate or study, is a good starting point. This provision promised consumers billions of dollars in savings in the form of lower prices through a government-backed price control on bank interchange fees. However, this provision failed to deliver for consumers.

According to a survey by the Federal Reserve Bank of Richmond, only 2 percent of merchants reduced prices two years after passage of this regulation. Furthermore, 23 percent of merchants actually increased prices. Instead of providing consumers with an increase in cash flow, retailers saw an influx of cash— having pocketed $42 billion over the past six years — which was originally promised to consumers.

But wait, that’s not all. Consumers have lost out on many beneficial bank products as a result of this disastrous regulation, including free checking, and debit card reward programs. Per the Richmond Fed, the availability of bank-sponsored free checking accounts dropped from 74 percent to 52.8 percent — a near 21 percent decrease — after the Durbin Amendment was passed. Not surprisingly, bank interchange revenue, which helped fund these accounts, fell by 27 percent when comparing one year before and after the law’s enactment. Consumers deserve better, and righting the ship on financial regulation should include repealing the
Durbin Amendment.

While reversing the Durbin Amendment’s harmful effects is needed, establishing a five-person, bipartisan commission at the CFPB is essential to maintaining fair and balanced enforcement of consumer protection laws. Now, the issue goes much deeper than the Bureau’s governing structure; it goes to the heart of how regulation is crafted, implemented, and enforced by regulatory agencies. If we want consumers to benefit from a balanced, deliberative, and thoughtful approach to regulation, a commission-based leadership structure overseeing consumer protection laws is in the best long-term interest of the industry
and consumers.

Unlike the vast majority of other federal regulatory agencies, the CFPB is headed by a single individual who has jurisdiction over 15,000 separate entities — more than all other federal bank supervisors combined. Subjecting consumers, industry, and the economy to regulatory uncertainty, the CFPB’s governing structure produces many pain points for those concerned about the agency’s overall success. Shifts in political leadership are all too common in Washington, which expose the CFPB’s leadership and policy direction to a whipsaw effect. A newly installed CFPB Director can upend entrenched consumer protection laws with ease. As Senator Elizabeth Warren always says, personnel is policy. A commission-based governing structure will provide the industry and consumers with stable, balanced leadership for generations to come.

How We Get There
Consumers and bankers alike should be encouraged by the Trump Administration’s stated commitment to economic growth. His appointment of individuals with consumer-facing business experience to high-level cabinet and regulatory posts is a breath of fresh air in Washington, D.C. With the heads of the OCC, FDIC, Federal Reserve and CFPB seeing their terms expire in the next two years, President Trump will have significant clout in shaping financial policy through these leadership appointments. It is imperative President Trump promotes quality picks to fill these vacancies.

While regulatory appointments are key, to truly achieve balance in regulation Congress must act. With Financial reform measures currently working their way through Congress, there will be an opportunity to advance policies that take both consumers and the health of the financial services industry into consideration. While there is much to be done, full repeal of Dodd-Frank will cause more harm than good. Repealing the Durbin Amendment and creating a five-person, bipartisan commission at the CFPB would go a long way to restoring balance to our regulatory system.

How We Benefit
Today, many consumers have a mixed view of banks. But as we know, banks provide millions of consumers with products and services they want and need. From financing a family home to a graduate degree to a car to get to work, banks help consumers realize their dreams. If Dodd-Frank is reformed in a meaningful, balanced manner, banks would be standing at the ready and be fully capable of investing additional capital into their local communities. Consumers would once more benefit from banking’s strong, robust presence in the economy.

The time to act is now.