At the end of December, the Government Accountability Office published its annual report on the impact of the Dodd-Frank regulations on community banks and credit unions. For its analysis, the GAO selected nine Dodd-Frank regulations that were expected to affect community banks. Based on interviews with community bankers and regulators, the GAO found “an increase in compliance burden,” a decline in non-mortgage loans, and “moderate to minimal initial reductions in the availability of credit.”
The GAO summarized its findings as follows:
“With regard to select Dodd-Frank Act rules expected to have impacts on community banks and credit unions, community banks, credit unions, and industry associations GAO interviewed cited an increase in compliance burden associated with these rules. This included increases in staff, training, and time allocation for regulatory compliance and updates to compliance systems. Some of these industry officials also reported a decline in specific business activities, such as loans that are not qualified mortgages, due to fear of litigation or not being able to sell those loans to secondary markets. The results of surveys we reviewed suggest that there have been moderate to minimal initial reductions in the availability of credit among those responding to the various surveys and regulatory data to date have not confirmed a negative impact on mortgage lending.”
The GAO report emphasized the increased burden caused by the CFPB’s mortgage-related rules, including increased costs to comply with mortgage disclosure requirements and new rules relating to escrow accounts, appraisals, and mortgage servicing. Some regulators and industry participants were concerned that these rules might result in a decrease in mortgage lending or, in some rare cases, could cause community banks to exit mortgage lending altogether. In addition to mortgage-related issues, some community bank representatives cited increased compliance burden associated with credit rating removal, remittance transfers, and debit interchange and routing.
As this report makes clear, the Dodd-Frank regulations and related CFPB rules impose an enormous burden on community banks. Although the CFPB can exempt small banks from some of the burdensome rules, it is not yet clear how the CFPB will exercise its discretion. As such, community banks must continue to expend significant resources complying with these regulations.