Regulations are like a blob. They just keep growing and growing and growing. They become taller and wider as more is piled on more is piled on more. They never go away. They are like rats; they breed continuously; their growth cannot be controlled. That said, some regulation of the financial institution industry is necessary. If you look at each regulation, there is some crumb of control contained within it that is proper and valuable. Many regulations in their infancy came about because institutions were doing things that were not appropriate. An example is Regulation CC. Depository institutions, in some instances, were delaying the availability of deposited funds far beyond what was necessary. But as the regulations grew and expanded, they went far beyond reasonable consumer protection. When you look at the entire blob of all of the regulations combined, it is ridiculous.
Let's look at Regulation DD. For 200 years, we got along fine without Truth in Savings. Without the regulation, bankers were telling their customers the terms of their accounts before the accounts were opened, and everyone was happy. No one was jumping up and down screaming that information had been misrepresented. Is there some information that should be provided to a consumer before opening an account like the interest rate and the fees? Sure. But does the consumer care about, or even understand, the interest crediting and compounding frequencies or when deposits will be credited to the account? I don't think so. Let's throw out the existing regulation, figure out what is really important, and limit the regulation to that.
Let's do a cost/benefit analysis of each regulation. Every part of every regulation costs the financial services industry something. Often the something is significant; sometimes it is not. On the other hand, parts of many regulations accomplish virtually nothing relative to the protection of the public. Let's get rid of what is costly but produces insignificant benefit. Take HMDA for example. The financial services industry spends hundreds of millions of dollars each year collecting and reporting information and trying to comply. To what end? It gives jobs to thousands of bureaucrats analyzing the information, but does it identify any significant instances of discrimination? In recent years, I have seen very few discrimination charges brought against financial institutions by regulators, so apparently not. So, what are we going to do? Increase the reporting requirements. More, piled on more, piled on more. If examiners think that a financial institution is illegally discriminating, let the examiners dig through the files to see what is going on. Increasing the reporting requirements only further exasperates the cost/benefit disparity that already exists.
The Consumer Financial Protection Bureau is really proud of the new TRID regulations, but do they really accomplish anything? Does the consumer have any useable information that he or she did not have before? Actually, the problem with the old rules was that they disclosed so much that they were confusing. Now because they disclose more, they are even more confusing because they intermix valuable information with minutiae. If you are borrowing money, do you really care what credit reporting company the lender is using and how much it is paying for the credit report if you don't control either? I don't think so. What you are interested in is the terms of the interest rate, the repayment of the loan and how much it will cost to close. Whether the dollar being charged is a finance charge or not really doesn't matter; a dollar is a dollar either way. Rather than coming up with the TRID rules, the regulators should have thrown out all of the then-existing rules and started over by identifying what is really important and focusing on that.
And then there is all of the surplusage that is in the regulations. Under CRA, has any financial institution gotten credit for giving a branch to a female owned financial institution? I doubt it.
One of the problems with the new breed of regulations is that the writers think that all consumers have difficulty in understanding the regulations and that all bankers will act in a hostile manner. First, consumers are no smarter or less intelligent than the regulation writers, and bankers are no more honest or dishonest than the public in general. Most regulations exist because bankers were taking advantage of their position. Certainly, regulation is necessary; on the other hand, if there is a problem that can be fixed with a scalpel let's don't use a chain saw.
Wouldn't it be wonderful if each year we could pick out one regulation to throw out and then select a committee of consumers and financial institution representatives to come up with a reasonable replacement? Sorry, I just woke up. Dreams don't last forever.