April 1, 2014
Community banks play a vital role as the engine that keeps our local, state and national economies running. Community banks help finance start-ups, expansions, and development projects that create jobs and shape our communities. In the case of small towns, they are the lifeblood of the community -- and if they die, the community dies.
The essence of community banking has always been discretion. Lending money has always been part science, part art. It's about knowing your customer and working through hurdles, challenges and tough economic times together. Community banks pride themselves on providing quality, in-person customer service, extended hours and an ability to speak face-to-face with their customers. But today, all of that is at risk because of government over-regulation. Not only are individual consumers suffering, but the proof is in our struggling economy.
While the authors of The Dodd–Frank Wall Street Reform and Consumer Protection Act intended to help consumers as a result of the financial collapse of 2008, it has actually done the opposite. Instead of focusing on Wall Street, the Dodd-Frank Act saddled main street banks with regulation after regulation. Consumers across the country are getting declined for loans at a higher rate today because of the strict limits government regulators have placed on community banks. Many of these are loans that community banks would have made in the past because they "know their customers”; however, the government has eliminated "discretion" from our lender’s decision making and turned lending into a mechanical process. You either fit in the box or you don't. Banks no longer have the ability to make a loan based on a long-standing relationship with a customer. Use of lender discretion is gone!
The bottom line: Under this new regulatory environment, consumers are getting declined at a higher rate for loans and credit; banks are not able to make loans they would have otherwise made, and while Washington continues on this path of destruction, we are losing a community bank every day. At their peak, community banks numbered 19,000 across the country. According to a December 2013 FDIC report, their numbers have dwindled to about 6,891 nationwide.
IBC has had to make some tough business decisions to protect our company’s financial strength and our customers’ free services in response these regulations. Our commitment to customer service and our free products guided the closing of over 60 of our smaller in-store branches. Many were located in grocery stores, making it convenient for customers to shop and bank at the same time. The closings are an unfortunate result of the regulations that limited how much banks can charge retailers for debit card transactions, thus reducing revenue that helped cover the costs of free products and services. We closed these branches to help preserve IBC’s free offerings, led by Free Bee, like free checking, 24/7 access to IBC Bank Online, eStatements, and instant issue debit cards at account opening; unlike other banks who cut their services.
Another negative consequence of these regulations is restricting how banks present their many product offerings and limiting consumer choice; yes, banks have lost their right to free speech. Research clearly shows that consumers like choice and competition in the banking sector: they want the opportunity to compare products, services and fees. Over the years, banks have responded with an array of new products and services such as overdraft protection services. Overdraft protection is a credit-driven product that many consumers want. Research shows that consumers overwhelmingly like this product because it gives them peace of mind. In many banks, consumers don't always use it, but they like knowing it's there in the event they need it. Again, it's the peace of mind that they seek. Banking regulators have limited consumer access to this product -- again, defying the will and desire of consumers who want choice and competition in bank product and service offerings. Because of all these restrictions, non-bank loan companies have sprung up on virtually every corner offering very high cost credit products. Pay day lenders, title lenders, and pawn shops are now the norm for many cash strapped consumers. Replacing your community bank with a pay day lender is not the right answer.
Community banks are closing every day across the U.S., in large part because Dodd-Frank regulations have made it so costly and burdensome to do business. According to recent FDIC figures, the U.S. has not had this few banks since 1934.
At IBC, our philosophy is “We Do More,” and I firmly believe this philosophy is reflected in our customers’ attitudes as well. In that spirit, I am asking you to Do More now, and help ensure that community banks have a future. Join me in getting involved by voicing your support and sharing your positive community bank experiences with your friends, family, local officials, and most of all, your Congressional members in the House and the Senate. Together, we can help support community banks that are the financial backbone of our communities. We cannot do it without you!