Last week President Trump signed two significant executive orders. One requires that if any federal agency wants to enact a new regulation, it must repeal two existing regulations that have a financial impact on the industry being regulated at least as great as the new regulation. The second executive order requires a review of the requirements of Dodd Frank. As to the requirements for new regulations, it is unclear if it applies to regulations that have already been enacted but are not yet effective, such as the prepaid card rules. It is also unclear if it applies to expansions of existing regulations such as the new HMDA rules. Hopefully in both cases the answer is yes.
If the administration is looking for financial industry regulations to delete or amend, here are some of my personal suggestions. First the privacy rules. We got along pretty well for over 225 years without a privacy rule. Now we have to give a convoluted disclosure that I am sure consumers neither read nor understand if they do read it. Why not make it simple? If a financial institution is going to disclose customer information, the customer has the right to opt-out by giving the customer a disclosure stating that the institution is going to do so. If not, what is the purpose of the disclosure? If the customer doesn’t like the fact that their information will be shared, he or she can open an account at a different institution.
How about reducing the Regulation Z and RESPA account opening disclosures to what is really meaningful? If I am a borrower, I want to know the amount I am borrowing, the interest rate, if loan is a variable rate and how it will change, the terms of repayment and the amount I will be required to pay to get the loan closed. I don’t care about what is or is not a finance charge. If I have to pay $500, I don’t care whether it is for an appraisal or points to the lender. It only matters that I have to pay $500.
How about the Bank Secrecy Act rules? If there is suspicious activity occurring in a customer’s account, I think the financial institution holding the account has an obligation to report it. On the other hand, what is the real value to the government in reporting large cash transactions? My guess is that financial institutions spend millions of dollars if not hundreds of millions of dollars every year in reporting large cash transactions. To what end? I seriously doubt that the government can make a case that the large cash transactions reporting has any value other than job security for the government employees that receive it.
Another great suggestion is HMDA. In my opinion, rather than expanding it, get rid of it. Its only purpose is to detect discrimination in real estate secured lending. Examiners examine financial institutions and if during an examination they feel that the institution may be discriminating, then their examination should be in more depth in that area. Financial institutions spend hundreds of millions of dollars annually in compliance gathering the required information, entering the information into their systems, checking to make sure that the information was entered correctly, and finally reporting the data. I will wager dollars to donuts that the value of the information to the government pales in comparison to the cost to the financial services industry of providing it.
I am a firm believer in regulations as long as they are reasonable. The financial services industry has shown that without regulation, some institutions will take unfair advantage of their customers. Regulation CC is a good example. Before Regulation CC, many financial institutions held the availability of deposits far longer than was necessary for the deposits to clear. On the other hand, there needs to be a cost/benefit relationship. Weigh the benefit of a regulation to the government or the consumer against the cost to the industry. Weigh in the benefit of the consumer, but keep it within the bounds of reason.
Our governance is in a state of flux that occurs very seldom. My guess is that most of our congress persons and senators don’t really understand the burden of some of the regulations. Now is the time to contact them and give them your thoughts and recommendations. If you don’t put your oar in the water don’t blame the boat for not moving.