House hears how Dodd-Frank may affect small businesses

In a March 2, 2011, House Financial Services hearing entitled The Effect of Dodd-Frank on Small Financial Institutions and Small Businesses, witnesses testified regarding the potential impact of recent financial reform legislation on small businesses and financial institutions with less than $10 billion in assets. Said institutions are exempt under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which includes the Durbin Amendment regulating debit interchange. "When the House and Senate passed the Dodd-Frank Act, supporters continually purported that small financial institutions, like many I represent, were exempt," said Rep. Shelley Capito, R-W.Va., in a statement. "As the provisions of Dodd-Frank are going through the rule-making process, I am starting to hear concerns from small institutions about the unintended consequences that could adversely affect them." Capito is the Financial Institutions and Consumer Credit Subcommittee Chairman.

Another intended purpose for the hearing was to examine whether regulations implementing the law will impede job creation and economic activity. As it stands, the Dodd-Frank Act requires regulators to write over 240 rules and execute more than 60 studies that impact financial and nonfinancial institutions across the United States.

Credit unions speak out

During the hearing, witnesses representing small financial institutions, community banks, credit unions, the U.S. Chamber of Commerce and the National Association of Home Builders testified before the subcommittee. O. William "Bill" Cheney, President and Chief Executive Officer of Credit Union National Association testified at the hearing. "Further study on this issue of the impact of debit interchange on small issuers and consumers is essential," he said. "Ultimately, the board should be directed to issue a rule that includes meaningful enforcement authority for a two-tier system to protect small issuers and to set standards for assessing interchange rates that take into consideration all of the operational costs associated with offering debit cards to consumers."

After the hearing, John Magill, Senior Vice President, Legislative Affairs for CUNA, said, "We appreciate the fact that they thought of an exemption for small community banks and credit unions, but we just don't think that it will work. A debit card transaction costs credit unions anywhere from 35 to 44 cents, depending on the size and how many debit cards that are offered. If the new rules only allow 12 cents, all you can consider are the transactional costs, not fraud or all the other costs."

Magill also mentioned that Sen. Rand Paul, R-Ky., advocated repealing the Durbin Amendment. "Repeal is not going to fly," Magill said. "We don't think that's realistic. We're delighted to have that bill out there as a marker at least."

However, Magill indicated he was encouraged because Sens. Jon Tester, D-Mont., and Bob Corker, R-Tenn., backed by a bipartisan group of Senate colleagues, were planning to introduce legislation that could delay Durbin Amendment interchange fee regulation by as much as two years. Sources suggested that Chairman Capito could introduce such legislation in the House for consideration.

According to Magill, a majority of the 7,300 federally insured credit unions CUNA represents will not be able operate for pennies on the card like some of the larger banks. "Time is of the essence, and we are hopeful that Congress will follow through quickly, because if not, it's a train wreck waiting to happen for credit unions and other small institutions if it's not fixed," he said.

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