Local bankers say they had nothing to do with the financial troubles resulting in America’s housing bust and recession; yet new federal regulations aimed at large banks may cripple them and hurt local communities.
In July of last year the “Dodd-Frank Wall Street Reform and Consumer Protection Act” was signed into law. It was designed to answer calls for a sweeping overhaul of America’s financial system as a way of preventing another near financial meltdown similar to that of 2007.
According to area bankers, one of the most troubling portions of the legislation is the “Durbin Amendment” added on to the Dodd-Frank bill to address credit and debit card interchange fees, presumably as a way of making them more competitive.
Banks that distribute credit and debit cards to consumers get a small payment, called an interchange fee, from banks that process transactions for merchants.
According to Jim Hamby, CEO of Vision Bank in Ada, this one measure alone will have a deeply negative impact. “Major retail trade associations pushed this through in the middle of the night,” Hamby said. “It puts a cap on interchange fees on debit and credit card transactions.”
Hamby said the cap on interchange fees will be so low the end result is it won’t cover the cost of providing the product and will cease being a profit center.
Furthermore, shoppers who use the cards will see no benefit because the money will be switched to retailers. “The consumer isn’t going to benefit,” he said. “It’s just a matter of who gets the money.”
Hamby said the changes may mean most community banks will have to discontinue other services, such as free checking accounts or begin charging for services that were previously provided for free. “Bank of America has already discontinued free checking and Citicorp is in the process of doing so.”
Jimmy Eppler, Citizens Bank CEO, agrees the Durbin amendment is a great relief to large retailers but not for small bank customers. With the resulting loss of income banks will have to replace the deficit with fees on other services that for years have been free. “Fraud losses are a huge expense for banks,” Eppler said, referring to credit and debit card transactions.
Eppler said he thinks the law of untended consequences is in play regarding financial reform legislation. “In a way it’s like healthcare reform,” he said. “I would like to see a show of hands of those (legislators) who actually read through it. People didn’t realize the consequences of this sweeping legislation.”
Yancy Spivey, president of Arvest Bank in Ada sees this recent legislation as a giant umbrella that makes all institutions, both those who contributed to the problems and those who didn’t, pay a heavy regulatory price. “There is so much added compliance that we have to add additional compliance people to our payroll. That raises expense with lower income. It makes us all pay the price,” he said.
Hamby said the American Bankers Association, Independent Bankers Association and the National Credit Union Association have all joined forces to ask Congress for a delay of two years to study the Durbin Amendment’s effects before it is enacted.