Dodd-Frank may hurt community banks, consumers

Tom Feltner

Tom Feltner

While the contentious, 2,300-page Dodd-Frank Act, which enacted a massive overhaul of the financial system, remains a challenge for big banks and community banks alike, some industry participants expect the compliance burden to overwhelm smaller institutions.

Philip Ellis, senior counsel at California-based Manufacturers Bank, an institution with $2.1 billion in assets, said that the legislation is harmful to both community banks and their customers, reports.

Ellis pointed to the CFPB’s rules on remittance transfers, saying that the rules will force smaller banks out of the market, leaving non-bank firms like Western Union and larger banks as the only provider for the service and limiting consumer options.

The rule, which was finalized last February, would require remittance transfer providers to provide up-front disclosures to the consumer regarding taxes, fees and exchange rate information. In response to small bank concern regarding the new rules, regulators raised the exemption threshold to 100 transfers per month, but some bankers said that the threshold is still too low.

“Even some of the small banks say they often send 100 to 125 a month,” Robert Rowe, the vice president and senior counsel for the American Bankers Association, said, according to American Banker. “Part of it was how they defined a remittance: it’s any consumer-related wire transfer. We had originally suggested a hundred a month, or narrow the definition to what people more traditionally call a remittance.”

L. Cary Whaley III, a vice president for the Independent Community Bankers of America, said that the group was disappointed in the final rule.

“Our concern is that, with a safe harbor set as low as 100 transactions, what happens when you reach 101?” Whaley said, American Banker reports. “Institutions that then hit that ceiling will cease offering consumer initiated international payments. We would have like to have seen a threshold that was a little more sustainable. That way it would encourage community banks to grow their volume to the point that the income sustains the expense.”

While many financial industry participants see Dodd-Frank as overreaching and expansive, others find some benefits in the legislation. Tom Feltner, the director of financial services at the Consumer Federation of America, said that Dodd-Frank’s focus on the consumer is beneficial.

“The industry stands to gain a lot of clarity,” Feltner said, according to “[Dodd-Frank] stands to strengthen the industry by making sure that consumers are aware of their credit options, [and] that those credit options are safe and sustainable.”

Feltner also said that the CFPB levels the playing field “in terms of supervision and regulation of the industry,” adding that non-bank firms like payday lenders are required to follow the same rules as banks, creating “real benefits for the financial services sector.”

Dodd-Frank also established the Financial Stability Oversight Council, which will be chaired by the U.S. Treasury secretary and oversees firms deemed as “systemically important.”

Wayne Abernathy, the executive vice president for financial institutions policy and regulatory affairs at the American Bankers Association, expressed support for the FSOC, saying that the regulatory body evaluates accounting rules that contributed to the recent financial crisis to determine if they pose a threat to financial stability, reports.