In an environment characterized by regulatory onslaught, it almost seems counterintuitive that federal regulators would ask financial institutions which regulations they’d like to toss. Yet earlier this month, they did just that.
The request was the first of several to come. It’s part of a review required by the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA). Passed in 1996, the law requires that regulations prescribed by the Federal Financial Institutions Examination Council, Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation, and Board of Governors of the Federal Reserve System be reviewed by those agencies at least once every 10 years. Federal regulators are supposedly rooting out those regulations identified as outdated, unnecessary or unduly burdensome, though they’ve placed limits on the scope of their review.
But if community bankers in Massachusetts – perhaps the most cautious and conservative bankers in the United States – could take their pick, which rules and regs would get the ax?
BSA, HMDA Would Make The Wish List
Several bankers interviewed for this article mentioned the Bank Secrecy Act as particularly burdensome. Though bankers can understand and accept the original intent as good, they feel the benefit does not outweigh the burden.
“It takes up a tremendous amount of employee time and has related software costs, and is constantly evolving, which means additional expense for the bank,” said Glen S. White, the chairman and CEO of Mutual Bank in Whitman. “Plus, individual examiners have their own twist or interpretation on the regulation, which naturally requires even more monitoring and reporting.”
The Home Mortgage Disclosure Act (HMDA) also earned the dubious distinction as an onerous rule for community banks to follow, one that Walter J. Dwyer IV, the president and CEO of North Middlesex Savings Bank, mentioned as particularly troublesome.
The problem there is the requirement to fill out no fewer than 30 fields for each HMDA event, with extremely little room for error. And by the way, a home equity line of credit used mainly to pay for a child’s college tuition could still count as a HMDA event if the borrower also used some of that money to put in new countertops, Dwyer said.
“You end up having the person doing it, the person checking the person doing it, and the person checking the person checking the person doing it, just because you’re so afraid of making a mistake. The bar is just so high,” said Julieann M. Thurlow, president and CEO of Reading Co-operative Bank.
“And that’s how you get $400,000 more in compliance costs every year,” she said, referring to the increase in compliance costs at her own bank since 2007.
That’s not small change for a small bank, either. As regulators hand out ever more rules and paperwork, it’s community banks who end up paying a heftier price just to stay in the game, said Robert J. Paulhus Jr., president and CEO of Clinton Savings Bank.
More realistically, community bankers are holding out hope that regulators might ease up a bit on Regulation D, which limits a customer to six monthly withdrawals from a savings or money market account, or that they’ll give some consideration to a Consumer Financial Protection Bureau (CFPB) proposal that would allow bankers to deliver privacy notices electronically.
Too Good To Be True
But you know the old adage: If something sounds too good to be true, then it probably is.
As Jon Skarin, senior vice president of legislative and regulatory police at the Massachusetts Bankers Association, pointed out, the last round of EGRPRA reviews in 2003 did not result in any regulations being repealed. Then the financial crisis happened, and that ultimately brought on an onslaught of new regulations, particularly concerning residential lending.
In this round of reviews, the regulatory agencies have already excluded from review any responsibilities that have been transferred to the CFPB, as well as any pending legislation, Skarin said. And, he added, regulators aren’t doing this out of the goodness of their hearts; they’re doing this because it’s required by law.
Bankers contacted for this story expressed arched-eyebrow skepticism and cautious optimism, but little else at either end of the spectrum. “I absolutely think that this will, at some level, result in some minor reduction in paperwork, except it’s not nearly going to keep up with the flood of additional regulatory burden we’re facing everywhere else,” Dwyer said. “I appreciate that they’re making the effort, but I really wish some of these legislators and examiners could walk a mile in my shoes and see really what it looks like in terms of the onslaught of paperwork."
Email: lalix@thewarrengroup.com
