I spoke recently with the President of a community bank who had a meeting scheduled with his congressman. He wanted my suggestions on changes to recommend to Dodd Frank, which I thought might be of interest to the rest of our readers.
First, I would have the Consumer Financial Protection Bureau (CFPB) run by a five member board made up of both consumer representatives and representatives of the financial services industry. I would limit the CFPBʼs authority to passing and amending regulations. Enforcement would be by the various other regulators. I would have the CFPB cease giving consumer advice, such as how to save for retirement or when to start taking social security. Also, I would require a cost/benefit analysis on all regulations. What is the benefit to the public versus what is the cost of the regulation to the financial services industry? If they want to err on the side of the public, that is fine, but some regulations cost the financial services industry millions of dollars a year with little consumer benefit.
In that vein, rather than increasing the HMDA reporting requirements, I would eliminate HMDA altogether. Financial institutions spend millions of dollars a year obtaining the required information, recording it, checking its accuracy and then checking it again. But on the flip side, I have seen very few discrimination actions initiated because of HMDA data. Without HMDA data, it might take examiners a little more time on some examinations, but that time pales in respect to the time financial institutions spend in compiling and reporting the data.
At the same time, rather than expanding the Community Reinvestment Act reporting, I would repeal the Community Reinvestment Act. The environment in which it was passed is far different than it is today. Back then, there were some unit banking states, principally Texas and Illinois, and in other states a bank had to obtain a certificate of convenience and necessity to open a new branch. Today, bank branches are almost as prolific as service stations. There are few areas today that are under banked and the competition for loans is far greater than it was. The cost of CRA to the financial services industry is huge and I am not sure that it accomplishes very much in an era with so many government programs available to lower income individuals.
I would remove the artificial affordability standards of Regulation Z. One size fits all seldom fits everyone and that is certainly the case here. A family with two children making $300,000 a year may be able to dedicate 43% of its income to its housing expense, but I don't think that same family making $30,000 a year can do so. The ability of a borrower to repay a loan is a safety and soundness issue and that is where the issue should be dealt with and not on an arbitrary basis.
I would take a hard look at the BSA reporting requirements. Again, from a cost/benefit perspective, I think the financial services industry is spending millions of dollars in reporting and our law enforcement agencies are getting little benefit from it. I do not know for certain that this is the case, but I strongly suspect that it is. I believe that everyone has a responsibility when it comes to preventing crime and protecting our national security. I just want to make sure that we are not throwing money down the drain that could be better used elsewhere to achieve that goal. I think that FinCEN should be required to justify all of the reporting that it requires from financial institutions, taking into the account the cost of that reporting. Some is probably worthwhile, but I suspect that a great deal of the reporting is not.
The next congress will probably be pretty exciting. I think that legislators appreciate input from their constituents on issues that they are considering. Don't suffer in silence. Let your legislators know your feelings on the matters that are before them.