Community Banks, Dodd-Frank and the Financial CHOICE Act

Author: Anita Pennathur

Release Date: August 4, 2017

MEDIA CONTACT: Jim Hellegaard

BOCA RATON, Fla. (August 4, 2017) – Community banks contend that the costs of compliance and the layers of paperwork related to Dodd-Frank have seriously constrained the ability to serve their local communities. Bankers of argue that the reporting requirements of Dodd-Frank are too onerous for smaller banks with limited staff resources.

One survey shows that costs of compliance have increased in 90 percent of smaller banks, leading many to either discontinue or reconsider their product offerings. The Consumer Protection Financial Bureau (CPFB), created through Dodd-Frank, proposes homogeneous products and services to protect consumers; however creating standardized products can be at odds with the “know your customer” mantra under which most community banks operate. Local banks use local “soft” information to tailor products for their clients, yet using the rules designed by the CPFB does not allow for any leeway in underwriting decisions based on knowing the client’s needs and the local economy.

According to a 2015 study, community banks provide 77 percent of agricultural loans and 50 percent of small business loans. The qualified mortgage rules constrain the ability of community banks to lend and fuel growth and recovery for their local customers.

​In the spotlight now is H.R. 5983, the Financial CHOICE Act, introduced by Representative Jeb Hensarling (R-Texas) in September 2016 to undo the regulations under Dodd-Frank. The House of Representatives passed this Act on June 8 in an effort to repeal and replace Dodd-Frank, but it’s currently stalled in the U.S. Senate. Based on the premise that Dodd-Frank unduly burdens community banks, the Financial CHOICE Act addresses regulatory relief for community banks. Arguing that one of the consequences of Dodd-Frank was that the costs of compliance were passed on to customers in the form of increased prices or limited credit availability, the Financial CHOICE Act provides a number of regulatory relief provisions to benefit community banks. ​

These provisions should reduce compliance costs and allow community banks to devote more of their operating budget for meeting customer needs.

Anita Pennathur is a professor of finance and Stone Fellow at Florida Atlantic University’s College of Business. The opinions expressed in this article are those of the author and do not reflect or represent the opinions of Florida Atlantic University.


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