For three years, United Community Banks has been getting ready for the day it grew to $10 billion in assets and had to play by the same rules as much bigger banks.
That day has arrived, but now the rules may change.
The Blairsville-based bank hit $10.7 billion last year. Under the Dodd-Frank act, a financial regulatory law enacted after the Great Recession, it will soon have to meet tougher regulations on capital levels, consumer protections and other requirements.
“We’re ready,” said Rex Schuette, the bank’s chief financial officer.
President Donald Trump's aim to roll back Dodd-Frank could make some of the preparations for naught. Trump launched the effort last month with a broadly-worded executive order directing his administration to look for ways to cut regulation of the financial industry.
The fate of Dodd-Frank is not just an issue for bankers like Schuette. The 2010 law was one a landmark effort by Congress and former President Barack Obama to prevent a repeat of the 2008 financial meltdown.
The law’s main aim is to strengthen the banking system. It requires banks to have bigger financial cushions. It restricts banks from risky bets, such as trading on Wall Street using their own capital. It deters banks from risky behaviors such as colluding with appraisers and loan brokers to inflate home values and make fraudulent loans.
Such tactics and an overheated real estate market made Georgia the epicenter for failed banks after property values collapsed, especially in metro Atlanta. More than 80 banks failed in Georgia during the dark days after the financial crisis — more than in any other state.
Dodd-Frank also touches millions of Americans’ daily lives in dozens of ways.
It affects, for instance, fees retailers and customers pay banks for debit and credit card transactions. It influences how easy it is to get mortgages, and whether lenders have to disclose high fees and predatory terms. Credit reporting bureaus have to watch how they sell their services. And the law bolsters shareholders' sway over executive pay at the companies they invest in.
‘Bad actors out there’
Liz Coyle, executive director of Georgia Watch, is a fan of the law and one of its key creations, the Consumer Financial Protection Bureau. The consumer advocate said the federal agency has returned $12 billion in the last five years to customers who were defrauded by banks and other financial companies. It would be a shame, she added, for Trump and Congress to undo such protections.
“We know there are bad actors out there,” Coyle said. “Trump campaigned to be a champion for the common people, not Wall Street fat cats. This is his chance to prove it.”
But critics say Dodd-Frank rules have crimped bank profits by increasing costs and cutting into revenue.
“It really is extremely costly,” said Schuette, of United Community Banks. He said the bank has more than doubled its spending on consultants and compliance staff to get ready for tougher financial “stress” tests and anti-money laundering regulations the bank will soon face.
Because United Community is now viewed as a bigger, riskier bank under Dodd-Frank, its federal deposit insurance levies are increasing about 70 percent, to almost $7 million a year, said Schuette. Another Dodd-Frank rule, the so-called Durbin amendment, caps debit card fees at banks with more than $10 billion in assets. That will cost United Community half of its $18 million-a-year revenue from that source, he said. (The bank’s total revenue was $404 million last year.)
“I would like to see them rescind the Durbin amendment completely,” said Schuette. He believes the fee cap was added to the Dodd-Frank law as a favor to retailers. “I don’t think any of the big box retailers pass on any of the debit fee savings to consumers,” he said.
Opinions vary on whether the review ordered by Trump will lead to a dismantling or merely a revision of Dodd-Frank.
A re-write would require an act of Congress, and Senate Republicans don’t hold the 60 seats they would need to repeal the law or make big changes.
“I don’t think anybody is of the opinion that Dodd-Frank goes away,” said Joe Brannen, president of the Georgia Bankers Association. “It probably has some merit to leave most of those things in place and just focus on the things that are most egregious” to the banking industry.
A likely approach is lawmakers will try to “tweak” Dodd-Frank, said banking industry expert Chris Marinac. One change might be a higher threshhold to replace the $10 billion asset limit that triggers tougher rules, said Marinac, managing principal at Atlanta bank advisory firm FIG Partners.
Schuette thinks the threshold should be lifted substantially, “to $50 billion or even $250 billion.”
Hundreds of rules
Dodd-Frank is actually enforced through hundreds of detailed regulations based on the 848-page law. That’s where industry experts hope Trump’s administration could revise or remove scores of rules.
Even there, the public notice and comment process takes months and could invite legal challenges.
Because of one such pending challenge, Trump won’t be able to easily fire the director of the CFPB.
Bankers would like to see the CFPB “restructured,” said Brannen, to create a multi-person board to head the agency, diluting the power of its aggressive director, Richard Cordray. But that, also, would likely take an act of Congress that Democrats likely could block.
Despite such obstacles, observers say Trump’s arrival could already be affecting how strenously Dodd-Frank’s requirements are being enforced.
“The attitude of bank examiners has been very harsh for the last four or five years,” said Marinac. “Since the election, there has been a shift. It’s getting a little lighter.”
Coyle, of Georgia Watch, said she hasn’t heard that bank regulators are getting softer. “If that’s the case, that’s very troubling,” she said, adding that’s one reason the CFPB, which also oversees many activities by banks, needs to remain independent.
The CFPB is “not subject to political whims,” she said. “For now, fortunately, they’re still doing their job.”
Dodd-Frank cheat sheet
Here are some of the key provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The 2010 law is in the cross-hairs of President Donald Trump, who has pledged to do “a big number” on Dodd-Frank.
Consumer Financial Protection Bureau:Fans say the new bureau created by the law protects people from predatory loans and other abuses. To critics, it's government run amok.
Capital requirements: Core part of the law requires banks to have bigger money cushions against bad times or poor decisions. Advocates say banks are safer. Trump's take: His friends have "nice businesses and they can't borrow money."
Volcker rule: It blocks banks from risky activities such as betting their capital on Wall Street. Safer banks, say advocates. Wall Street hates its restrictions against formerly lucrative dealings with banks.
Too big to fail: Big banks face annual stress tests and the Federal Deposit Insurance Corp. can wind down failing banks, rather than Washington having to bail them out.
Durbin amendment: Caps fees bigger banks can charge merchants for customers' debit card transactions. Banks say they've raised fees on checking accounts and other services to compensate.
"Say on pay" rule: Shareholders get a non-binding vote on top executives' pay at public companies. It made companies nervous at first, but "no" votes are now rare.
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