Banker’s CEO: Protection act lacks security

Louisiana Bankers Association CEO Robert Taylor told members of the Bayou Industrial Group on Monday in Thibodaux that the Consumer Financial Protection Agency Act that was passed by Congress could be punishing the wrong institutions following the Wall Street and housing market meltdowns of 2008.

The 2,319 page piece of legislation was originally intended to put restraints on those lenders who got borrowers into financial trouble with balloon loans and sub-prime packages that customers could not afford. But as with many laws, Taylor suggested, the buried details could mean trouble for local banks and small business in the long run.

The CFPAA n sponsored by Rep. Barney Frank, D-Mass. n creates an oversight body directed to making sure the financial industry does not take advantage of consumers. It would also regulate financial products and services, and encourage stricter standards regarding truth in lending practices.

The problem, according to Taylor, is that Congress has now taken aim at all financial institutions although the failures of AIG n an insurance corporation n as well as Freddy Mac and Fannie Mae n each government-backed entities n and select mortgage brokers such as Countrywide, were the ones making questionable deals and not the 7,800 local, independent banks across the country.

Taylor told the assembly that the home lending crisis was concentrated in Florida, Georgia, Arizona, Nevada and California where the vast majority of bad mortgages were held, but that the rest of the country paid for bad loans as well.

“Most of these loans that led to the crisis were not done by banks or savings and loans,” Taylor said. He added that the federal government does not regulate brokers or Fannie Mae and Freddie Mac.

“Part of what happened was that bank regulators were not doing their jobs. [Now] bankers are acting rationally by responding to regulators,” Taylor said.

He stressed the federal government itself should be considered responsible for part of the problem by having promoted for decades the idea of home ownership regardless if a consumer could afford it. In turn the federal government accepted sub-prime and other bad loans to fulfill its agenda.

“The banks that were not at fault are going to be the ones looked at more closely,” Taylor said, as the noted that the result will be continued tight lending to individuals and small business.

Taylor said that the biggest problem with new banking legislation is that most people do not understand it. “You would think a bill that long would be pretty detailed. But the fact is Congress has given [this] banking agency tremendous authority. So the industry is waiting to see what they are going to do. A lot of the content is unrelated to the meltdown,” he said.

“There are going to be 243 new regulations resulting from this and it establishes 22 ongoing periodical reports. The banks are going to have new opportunities to pass on information so the government can slice it and dice it. Usually what happens up in Washington is that is used against us,” Taylor said.

Bankers, because of the new legislation, will be more in the information collection business for the federal government according to Taylor. “This [act makes] a brand new government entity in the federal reserve [with] no controls from Congress. It’s really independent. What’s going to happen is that eventually all of the federal law that deals with consumer protection will fold into this new federal agency,” he said.

“What we want to see is how the [new regulations] are going to apply to [those who were at the center of this crisis] and how the Consumer Financial Protection Agency] is going to make sure [problem lenders] are compliant,” Taylor said. The CFPA, Taylor said, will be writing new regulations for banks.

Because of the housing meltdown lending has become tighter and many small business have not attempted to take out loans because of financial uncertainty.

This banking expert said that two biggest things Congress did not think about were how banks make loans, and that escrow and insurance must now be included with the bank note.

Taylor said these elements will make lending and borrowing more difficult and will slow business activity. “This is causing loans not to be made,” he said. “The issue is not the availability of cash. The real question is, ‘How do I get small business confident enough to borrow money?’”

Taylor stopped short of stating that passage of the CFPAA was just feel good legislation so lawmakers could say they did something but does not help the banking industry. “I think the bill has good elements to it,” he said. “But in the past a majority of banks already exceeded standards. The banking industry has been heavily regulated for a long time. It’s gotten a lot worse and will continue to get worse.”

Supporters clam it is a measure of security for consumers, while critics contend it is an issue of government invading the practices of private enterprise.

Taylor said like any piece of legislation, this one has both positive and negative elements. He also expressed a need for independent bankers to be actively involved to protect the interests of the financial industry.

“It really makes a difference on not just the bank but the customers of banks. I would imagine that some of you in here have been customers of banks and have experienced some of the issues that are directly related to what is going on in Washington,” Taylor said. “So, I would encourage you to be active and protect yourself. If you don’t do it no one is going to do it for you.”