WASHINGTON, DC – U.S. Senator Pat Roberts today said federal financial regulations are unmanageable, costly and divert resources community banks could be using to grow their businesses and serve customers.

Roberts made these remarks during the fourth in a series of floor speeches he is giving to highlight federal agricultural, environmental, health and financial regulations that damage different sectors of the economy. Roberts continues his efforts to ensure the Obama administration carries out the president’s executive order to review regulations harmful to the economy.

At issue are media reports where many of the agencies claim they are not subject to the president’s regulatory review because they already meet all of the commitments in the executive order.

In February, Senator Roberts introduced a bill called the “Regulatory Responsibility for our Economy Act,” or S. 358, to strengthen and codify the president’s Executive Order from January 18, 2011, to ensure the president’s order is carried out to review, modify, streamline, expand, or repeal those significant regulatory actions, that are duplicative, unnecessary, burdensome, or would have significant economic impacts on Americans. The legislation has 46 cosponsors.

The following is text of his prepared remarks:

“The financial services sector of our economy is the focus of substantial regulation. We all support common sense financial regulations. However, it is important that we not place undue burdens on our financial institutions, especially our community banks that are the backbone of Main Street and help finance the economic growth in our communities.

“While the economic crisis focused attention on the financial services industry, leading to passage of the Dodd-Frank Act, our nation’s community banks who were already shouldering an undue regulatory burden will bear a greater burden when the hundreds of regulations from this law are implemented.

“Community banks are often small businesses. On average, community banks have 37 employees, and approximately $154 million in loans and other assets. The majority of banks in Kansas have an average of less than 14 employees. Yet, they currently comply with 1,700 pages of consumer regulations alone. They must also comply with hundreds of additional pages of regulations regarding lending practices and other banking operations.

“According to a summary of the Dodd-Frank Act by Davis Polk, the Act mandates that 11 different agencies create at least 243 more regulations, issue 67 one-time reports or studies, and 22 new periodic reports. Many of these new rules are required to be issued in the next year or two. And, financial regulatory agencies have the discretion to issue additional rules on top of those required under Dodd-Frank.

“Regulators have already issued more than 1,400 pages of regulatory proposals. Up to 5,000 pages of regulation are expected. These actions will create additional and significant compliance costs that will impact the ability of every bank to serve its community.

“And these actions have real costs to banks. According to recent testimony before the House Oversight and Investigations Subcommittee by CBO Director Douglas Elmendorf, the Dodd-Frank Act is expected to impose nearly $27 billion in new private-sector fees, assessments and premiums. This amount includes more than $14 billion in new fees on banks.
 
“It is important to understand that banks do not oppose common sense regulations – they are necessary to ensure that banks are doing their jobs and that consumers receive the proper information and disclosures that are beneficial to them.
    
“The problem is that unlike bigger financial institutions, community banks do not have a large staff of attorneys or compliance officers to help them navigate wave after wave of new regulations. By one estimate, for the typical small bank, more than one out of every four dollars of operating expense is used to pay for the cost of complying with government regulation. And with Dodd-Frank, we can only expect that cost to go higher.

“They point to regulations that are duplicative or contradictory, but which they must comply with, even if the banker or the consumer does not view the regulation as having any value or benefit to the consumer.

“Such compliance efforts cost time and money. It is vital that federal regulators consider the total impact of all regulations, not merely each regulation in isolation, and work to reduce unnecessary regulatory burdens on an already heavily-regulated industry.

“With these concerns in mind, I would like to call attention to several regulations that highlight the impact of an overly burdensome regulatory environment. I encourage regulators to join the president’s effort to pursue solutions to regulations that make it difficult for community banks to serve their customers, support businesses in their communities, and help grow our economy. 

Dodd-Frank Act and Debit Card Interchange Fees  
“The Dodd-Frank Act requires the Federal Reserve to issue a rule for debit interchange fees. Basically, interchange fees, or swipe fees, are fees that a merchant’s bank pays to a customer’s bank when the customer uses their debit card.

“In December, I joined a bipartisan group of Senators in writing to Federal Reserve Board Chairman Ben Bernanke expressing our concerns with the interchange provision and to encourage the Federal Reserve to ensure that consumer interests are protected in rate standards that are set.

“Our letter outlines ‘concerns with the consequences of replacing a market-based system for debit card acceptance with a government-controlled system,’ as well as concerns that the provision ‘will make small bank and credit union debit cards more expensive for merchants to accept than those cards issued by larger banks and would likely put them at a disadvantage compared to large issuers.’

“During debate on the debit interchange amendment, supporters presented it as a pro-consumer provision, maintaining that the reduction in interchange fees would be passed on to the consumer. Yet there is nothing in the Dodd-Frank Act that requires retailers to pass on any savings from debit interchange fees to their customers. On the contrary, the debit interchange rule will likely result in higher bank fees, a loss of rewards programs, or banks may ultimately decide not to offer debit cards to their customers. Some of these steps are already being considered.

“Higher fees or limited choices as a result of such government price-control does not benefit consumers. That is why legislation that I am supporting calls for the Federal Reserve and other federal financial regulators to slow down, fully study this issue and carefully evaluate the 11,000 comments that they have received on this proposed rule.

“I am particularly concerned about the estimated costs of the debit interchange rule for community banks, which is not insignificant. Now, some say that community banks will not be impacted. I beg to differ.

“One community banker in a town of just 1,000, whose bank began offering debit cards a few years ago, tells me the cost of the interchange proposal will cost his bank $19,000 a year. Two other banks that serve multiple rural communities will see increased costs per year of more than $46,000 and $100,000 respectively. Other banks, including banks in my state, estimate the cost to be in the millions. Ultimately, loss of income for banks will mean less capital available to lend to borrowers.

Dodd-Frank and Mortgage Disclosure Requirements
“Taken together, existing regulations, and anticipated regulations as a result of Dodd-Frank, may well have the effect of making it more difficult and costly to provide mortgage loans to qualified borrowers, reduce lending capacity, and may push some lenders to simply stop offering mortgages.
 
“One example is the SAFE Act. It creates a nationwide mortgage licensing system and registry for mortgage loan originators. The registry is intended for use by regulators to identify mortgage brokers or lenders who seek to work in a state after being banned from working in a different state.

“Each mortgage loan originator will be required to register with the national registry, obtain a unique identification number and submit fingerprints for the FBI to conduct a criminal background check. Community bankers tell me their cost to meet the new requirements is roughly $1,000-$2,000 per loan officer. I know that might not seem like a lot of money to Washington regulators, but it’s a tidy sum in rural America.

“The cost of compliance will take time and money away from the business of lending, and may ultimately be passed on to the consumer in the form of higher prices for a mortgage loan.

Overdraft Payment Programs and the FDIC
“Finally, I want to mention recent guidance on overdraft payment programs put forth by the FDIC. Now at some point, most of us have had experience with overdraft programs, perhaps when we forgot to balance our checkbook.

“In the guidance, the FDIC stated, “the guidance focuses on automated overdraft programs and encourages banks to offer less costly alternatives if, for example, a borrower overdraws his or her account on more than six occasions where a fee is charged in a rolling 12-month period. Additionally, to avoid reputational and other risks, the FDIC expects institutions to institute appropriate daily limits on customer costs and ensure that transactions are not processed in a manner designed to maximize the costs to consumers.”

“While banks offer overdraft protection programs and take other steps to aid customers in avoiding overdrafts, many are concerned that this guidance put forth by the FDIC is overly prescriptive, imposes new regulations, and goes farther than amendments on overdraft put forth by the Federal Reserve.

“The FDIC recently provided additional clarification on this guidance that provides some flexibility about how banks reach out to customers, permitting them to contact customers by mail as well as in person and by telephone. However, the requirement that banks contact customers who incur six overdrafts in a rolling 12 month period remains a broad overreach of the FDIC’s authority, putting the burden on the banks, rather than the customer who ultimately bears responsibility for ensuring that they have sufficient funds in their account to cover transactions.

“In fact, one study shows that 77 percent of customers paid no overdraft fees in the previous 12 months. That same study also showed that for those 21 percent of customers who paid an overdraft fee, 69 percent said they were glad the payment was covered. This guidance seems to be a clear example of where an agency is overreaching, with little evidence of the need for or effectiveness of such additional guidance.   

“In closing, I again thank the president for taking a step in the right direction to review federal regulations that place undue burdens on our nation’s economic growth and recovery. I hope that financial regulators will join in this effort to examine rules and regulations that pose significant barriers to our community banks and their ability to serve their customers and contribute to the growth of their communities.”

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