Chris D’Elia, the president of the Vermont Bankers Association, says new federal rules could force 20 percent to 30 percent of Vermont’s banks out of business in the next 18 to 24 months.
D’Elia told lawmakers this week that he expects five to seven institutions, out of a total of 22 banks in Vermont, to consolidate in the face of new compliance requirements under federal law.
The more than 250 new rules under the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act could hit Vermont banks with more than $1 million each in new compliance costs, D’Elia said in an interview.
“This is the most sweeping financial services legislation our industry has seen since the Great Depression,” D’Elia said. “It will change the way the banking industry provides products and services…going forward.”
The Dodd-Frank law was passed less than a year ago in the wake of the 2008 Wall Street crash. It closed loopholes that allowed banks to engage in dubious lending and financial services practices in the run-up to the Great Recession. A number of big banks in the United States sold off bundled loans to the secondary market. In many cases, consumers’ equity stake in those loans was negligible. When the market crashed, foreclosures swept the home mortgage market.
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The 2,300-page law was written to rein in bad actors. Vermont banks, which have a fiscally conservative banking profile, did not engage in predatory lending to people who couldn’t afford to make mortgage payments.
D’Elia says Vermont institutions are being unfairly punished for the misdeeds of large banks based in other states. He calls the new law a “one-size-fits-all solution.”
“You don’t see foreclosures in Vermont like other states,” D’Elia said. “We typically don’t see banks here with a presence (in the state) involved in that…yet they’re paying for mortgage bankers in California doing subprime loans.”
Over the last two years, banks were required to revamp truth in lending and real estate settlement procedures. The latter, D’Elia said, has led to mortgage closing delays. Typically, it took 25 to 30 days for a bank to prepare for a closing; the turnaround time is now about 45 days, he said.
New rules also prohibit banks from collecting consumer overdraft fees on debit card and ATM withdrawals, according to the Federal Reserve website. If an account is overdrawn, banks can reject debit card payments and ATM withdrawals. Banks can still charge overdraft fees, however, for bounced checks, according to the Fed. In addition, the government has capped debit card transaction fees, according to a story on the Bloomberg website.
The loss of these revenues will also hurt banks, D’Elia said. At the same time, banks are being required to put new compliance systems in place that could cost each one hundreds of thousands of dollars. “This creates a very challenging environment for our independent banks,” D’Elia said. “I worry about what means to Vermont consumers and Vermont communities.”
D’Elia said there were five bank mergers in Vermont in 2005 and 2006.
CORRECTION: When this article was first posted, it incorrectly stated that banks could not charge overdraft fees, or transactional fees for debit cards, under the new rules. An alert reader pointed out the errors. We apologize for the confusion these inaccuracies may have caused.
