Dodd Bill Bad for Small Business

Dodd Bill Bad for Small Business

Unnecessary Burdens to be Imposed on Community Banks and Credit Unions
American small businesses – the backbone of the U.S. economy1 and a critical job growth engine2 -- are predominately served by their local community banks and credit unions.3 As many Americans face difficulties finding employment,4 it is difficult to believe that Congress would enact legislation that would impose costly new regulations on community banks and credit unions that would curtail their lending to small businesses, especially since these institutions were not responsible for the current financial crisis.

SENATE BANKING COMMITTEE MAJORITY CLAIM: "Community banks are big winners in financial reform."5

FACT: Numerous provisions within the Dodd bill (S. 3217) would constrict the ability of community banks and credit unions to make loans to small businesses, increase their operating costs, impose new regulatory burdens, and create costly new government bureaucracies to micro-manage their lending.

Consumer Bureau’s Burdens and Bureaucracy – The Dodd bill creates a new government bureaucracy, the Bureau of Consumer Financial Protection, and gives it unprecedented authority to impose expensive government mandates6 and micro-manage community banks and credit unions. These regulations would unfairly increase the cost of lending to smaller companies because compliance costs can be unrelated to size of the institution. The Bureau could impose costly, time-consuming and micro-detailed reporting,7 examination reporting,8 and consumer access9 requirements above those already conducted by community banks and credit unions.
Community banks and credit unions would be subjected to layers of enforcement actions for any perceived violation by their prudential regulator (i.e., federal or state regulator responsible for overseeing the institution’s functions and ensuring safety and soundness of the institution), state consumer protection regulators, state attorneys general, and trial lawyers, including class action lawsuits.

Equally important, the new Bureau would impose rules separately from the safety and soundness mandate of the prudential regulator, putting community banks and credit unions in an unenviable position of having to comply with competing regulations. This has the possibility of undermining their solvency if the consumer protection requirements strain the safety and soundness of the institution (e.g., lowering available capital, imposing exorbitant new costs or closing off product lines).April 20, 2010

Additionally, the Dodd bill gives the Bureau the affirmative duty to monitor transactions at community banks10 and permits it to compel them to provide information at the time and manner of the Bureau’s choosing.11

Under certain conditions, the Bureau is also allowed to ban legitimate practices and completely reshape the product offerings of community banks and credit unions.12 For instance, the Bureau can wipe out pre-dispute arbitration,13 a practice used in numerous products of community banks and credit unions, to avoid costly litigation. This would be good for trial lawyers, but not good for community banks and credit unions trying to provide loans to small businesses.

Costly Loan Retention Requirements14 will shrink the securitization market and result in fewer securitizers, meaning community banks and credit unions will be forced to hold more loans on their books and have less capital to lend. Similarly, the bill requires loan originators to retain a portion of the asset being securitized,15 which will have the same effect: lowering the amount of capital available to lend for community banks and credit unions. Less capital to lend also reduces the fees generated for loans and thereby the revenue of community banks and credit unions, which will lead to higher consumer interest rates on other loans and products and lower interest rates to consumers lending to the institutions. A recent report estimates that a 5 percent credit risk retention mandate would immediately reduce credit availability by more than $125 billion a year.16

Unnecessary Regulator Change – The Dodd bill strikes the supervisory and regulatory role of the Federal Reserve over community banks and throws these institutions into the hands of new regulators17 even though oversight over community banks has never been identified as a problem. A replacement regulator’s unfamiliarity with a particular community bank may undermine regulatory functionality, thereby risking greater bank failures, or increase the compliance costs of community banks.

New Structural Burdens – While many community banks are private institutions, some are public companies. The Dodd bill requirements for shareholder approval for proxy access,18 executive compensation,19 independent compensation committees,20 and executive compensation disclosures21 will increase the cost of operations and negatively impact a community bank’s products and services.

Regulatory Preferences – The Dodd bill creates numerous new programs and regulatory structures that will benefit only the largest and most complex firms.22 Firms placed in the "too big to fail" category will obtain Fannie- and Freddie-like funding advantages in the marketplace. Moreover, the Dodd bailout provisions allow the FDIC to pay large firms much more than small banks in the guise of protecting the financial system.23 In the end, community banks will be competing against the combined effort and resources of big government and the big banks. April 20, 2010
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1 Report to the President: Small Business Financing Forum, released December 3, 2009, p. 4, http://www.financialstability.gov/docs/Small%20Business%20Financing%20Forum%20Report%20FINAL.PDF.
2 Small businesses employ more than 50 percent of all Americans and represent more than 99 percent of all commercial firms. C.R. "Rusty" Cloutier, on behalf of the Independent Community Bankers Association, January 13, 2010, p. 5, http://www.icba.org/files/ICBASites/PDFs/test011310.pdf; "Small businesses create about 65% of the net new private sector jobs every year," Statement of Karen Mils, Administrator, Small Business Administration, Supra note 1, p. 21.
3 More than 50 percent of loans under $100,000 are made by community banks. C.R. "Rusty" Cloutier, on behalf of the Independent Community Bankers Association, January 13, 2010, p. 5, http://www.icba.org/files/ICBASites/PDFs/test011310.pdf; "Community banks with less than $10 billion in assets made sixty seven percent of outstanding loans to small businesses," Independent Community Bankers Association Fact Sheet, March 2010, p. 2 http://www.icba.org/files/ICBASites/PDFs/cbfacts.pdf?sn.ItemNumber=1745 .
4 In March, the number of unemployed persons was little changed at 15.0 million, and the unemployment rate remained at 9.7 percent. Employment Situation Summary, Bureau of Labor Statistics, April 2, 2010, http://www.bls.gov/news.release/empsit.nr0.htm.
5 Fact Check: Community Banks Win Big With Financial Reform, Senate Committee on Banking, Housing and Urban Affairs, March 29, 2010, http://banking.senate.gov/public/index.cfm?FuseAction=Newsroom.PressReleases&ContentRecord_id=aa56eed0-a537-44e3-d7be-b5dfab28b7f9&Region_id=&Issue_id= .
6 Section 1031 of the Dodd bill (S. 3217), p. 1134.
7 Sections 1071 and 1072 of S. 3217, pp. 1260 and 1263, respectively.
8 Section 1026(b) of S. 3217, pp. 1110-1.
9 Section 1033 of S. 3217, p. 1140.
10 Section 1022(c)(1) of S. 3217, p. 1080.
11 Section 1022(c)(4) of S. 3217, pp. 1082-3.
12 Supra note 6.
13 Section 1028 of S. 3217, p. 1133.
14 Section 15G(c)(1)(B) of the Securities and Exchange Act as added by section 941(b) of S. 3217, p. 890.
15 Section 15G(c)(1)(E)(ii) and section 15G(d) of the Securities and Exchange Act as added by section 941(b) of S. 3217, pp. 891-2.
16 American Banker Association Report, April 2010.
17 Section 312(c) of S. 3217, p. 303.
18 Section 972 of S. 3217, pp. 932-3.
19 Section 951 of S. 3217, p. 899.
20 Section 952 of S. 3217, p. 901.
21 Section 953 of S. 3217, p. 908.
22 Section 113 of S. 3217, pp. 33-41; section 1151 of S. 3217, pp. 1365-71; section 1155 of S. 3217, pp. 1379-93
23 Section 210(d)(4) of S. 3217, p. 245; section 210(b)(4) of S. 3217, pp. 192-3; section 210(h)(5)(E) of S. 3217, pp. 258-9.

Source: Dodd Bill Bad for Small Business.pdf

NOTE: When we first learned of the Dodd Financial Bill, we had a bad feeling it would never be to help Small Business but would continue to help the big guy's who the Democrats in Congress and the White House are beholding for their campaign contributions. After reading this document from the Republican Policy Committee, looks like we were right. These are the facts of the Dodd bill as relates to Small Business.

Next time you hear a Democrat say they are for the little guy, laugh in their face because that couldn't be farther from the truth and this Financial Bill of Dodd's is just one more example in a long line that bills passed by Democrats that help their large donors. The Democrats truly are the Party of 'Pay to Play' as we are witnessing almost daily.