Many in the financial and mortgage markets have long complained about the Dodd Frank Law and the Consumer Financial Protection Bureau or CFPB. They say that the new laws have damaged the economic recovery and lending.
This can be seen in the fact that since 2008, one out of four community banks are gone. That means 1971 banks have disappeared. And only a few new banks have opened. This means fewer loans are being made; there is less economic activity, and fewer business startups.
The economy has been slowly recovering in the last few years, but misguided laws such as Dodd Frank and the CFPB are restraining business growth.
While most experts do not want to see the entire law repealed, there are some major changes wanted under the new Trump Administration:
Bankers argue that the annual stress tests done by the Federal Reserve are too expensive, time consuming and subjective. Bank executives want stress testing to be more transparent. They also want more clearly identified testing criteria.
The CEO of PNC Financial Services Group stated recently that annual stress tests bring the bank's operations to a complete halt for weeks. He added that 40% of the work is for nothing and brings no benefits.
The Volker Rule prohibits banks from doing any proprietary trading in securities, which is where large profits can be made. Bankers stated that the regulation of this rule is handled by five government agencies. This makes paperwork much more onerous than necessary.
Banks are still allowed to market in commodities, and not allowing them to do the same with financial instruments hurts liquidity, which hurts investors and issuers.
They also argue that capital and liquidity rules are hazy. This makes their work very complex and can produce bizarre results. For instance, to comply with minimum capital and liquid asset requirements, banks also must limit lending to businesses. This has damaged the recovery.
Also, similar to stress tests, bankers state that capital rules are vague, are always changing and have selective enforcement.
Experts say the best thing to do would be to have the director of the agency share authority with a board, such as with the Federal Deposit Insurance Corporation. This could prevent the director taking too aggressive steps that hurt business. Some in the industry want the entire CFPB closed, arguing that it is strongly anti-woman and anti-minority in how it enforces consumer rules.
This is putting lenders in a strait jacket on home loans. This rule requires that the monthly payment in a qualified mortgage cannot be more than 43% of the borrower's income each month.
This is making buying a home much harder for low income families. It also limits the purchasing power of retirees who have assets but low retirement income. The rule also bans much financial help for home buyers. For example, buyers cannot pledge collateral to close a loan or to have a cosigner.
These international rules require higher capital requirements to allow banks to service customers' mortgages. Few banks do this today, but the rules that have been set for banks in Europe should not block ones in the US from servicing their clients. Many community banks do not service mortgage anymore due to these rules.
The Justice Department currently can target banks based upon the businesses that they serve. For example, Operation Choke Point tells banks they should dump certain customers, such as firearms companies, ammunition companies, and payday lenders.
Legal experts say that DOJ has no legal authority to crack down on banks that service customers who are engaged in perfectly legal operations.
Dodd Frank and the CFPB have significantly restrained economic growth in the US and should be seriously changed as soon as possible. If not outright repealed, the above changes should be made at minimum.
Even worse, Harvard researchers have determined that Dodd Frank has had a particularly negative effect on community banks owned by minorities who serve black clientele. Dodd Frank adds major compliance and legal costs; many small banks do not have the resources to pay for this, so they end up shutting down.
As for the CFPB, it was supposed to end bank fees, account minimums and so forth. But account minimums are still with us, high monthly fees are still charged, and many account holders now have to pay to use an ATM for every withdrawal.
It is our hope that Dodd Frank and the CFPB are greatly reined in, so that small businesses can get back to creating more jobs for the American people.
First Time Home Financing.com does not offer mortgages or direct financing. FirstTimeHomeFinancing.com is a website that offers information about house financing and does not guarantee 1st time home mortgage programs directly or indirectly through representatives or agents. FirstTimeHomeFinancing.com provides a news and information service by offering editorial content related to the housing and mortgage industry. This website has no official relationship with the Federal Housing Administration or the Department of Housing and Urban Development.
Copyright © 2000-2016 and Beyond - All rights reserved. FirstTimeHomeFinancing.com