More News

Executives with Maryland banks and other financial institutions blasted certain parts of the financial reform bill signed into law this week by President Barack Obama, while officials with retail groups praised the measure.

Reforms of the financial industry were needed and original intentions were sound, but the Dodd-Frank Wall Street Reform and Consumer Protection Act went too far, said J. Scott Wilfong, chairman of the Maryland Bankers Association. It will tack on several hundred new regulations and possibly lead to more banks seeking mergers, he said.

"We need to figure out how to make it work and not have a negative impact on the economy," said Wilfong, who is also chairman, president and CEO of SunTrust Bank's Greater Washington and Maryland region. He said he was speaking on behalf of the trade group and not SunTrust.

Many executives with financial institutions criticized one provision in particular, the Durbin amendment, designed to set limits on the swipe fees that retailers pay institutions to process debit-card payments, although retailers sang a different tune. The amendment is named for its author, Sen. Dick Durbin (D) of Illinois.

"Many are asking if this will be the death knell for free checking," said Juli Anne Callis, president and CEO of the National Institutes of Health Federal Credit Union of Rockville. "I'm sure that was not intended by [the bill's authors]. We remain committed to providing free checking with no minimum balance requirement. ... This is not good news for consumers, as this further depletes the revenue that undergirds totally free checking for the little guy."

Charles H. Noski, CFO of Bank of America of Charlotte, N.C., the largest bank in Maryland deposits, said in a conference call that the new debit-card rules could cost his company as much as $2.3 billion annually when they are enforced starting in late 2011.

"We estimate that the impairment of goodwill to be reported in the third quarter of 2010 could potentially be in the range of $7 billion to $10 billion," Noski said.

But the Durbin amendment will merely require the Federal Reserve to set regulations resulting in "reasonable and proportional" swipe fees for the cards, said Matthew Shay, president and CEO of the National Retail Federation, in a statement.

"Congress realizes that debit cards are simply plastic checks and has said the Federal Reserve should look at them with paper checks in mind," Shay said. "The result shouldn't be swipe fees being cut by a quarter or even a half. The result should be plastic checks that get paid at essentially face value."

The retail group estimated that the average American household pays $427 more annually due to retail merchandise price hikes to cover swipe fees. Wilfong said he doubted that retailers would pass on any savings to consumers.

Law regulates lenders, credit rating agencies

Other parts of the law include the following:

-Forming a consumer financial protection bureau within the Federal Reserve to regulate consumer products issued by banks, credit card businesses and payday lenders.

-Forming a council of federal regulators to recognize "threats" to the financial system.

-Requiring lenders to closely review borrowers' financial data and make sure they can afford mortgages.

-Limiting banks' investments in hedge and private equity funds.

-Reassessing what banks pay to the Federal Deposit Insurance Corp.'s insurance fund.

-Allowing investors to sue credit rating agencies for "recklessly" failing to investigate data they use to determine ratings.

Major ratings agencies Fitch Ratings, Moody's Corp. and Standard & Poor's — which some analysts have blamed for giving inflated ratings to mortgage-backed securities, leading to the financial crisis of 2008 — have indicated they will try to minimize legal risk by not allowing bond issuers to list their credit ratings in public registration statements.

Fitch executives said in a statement that they will "make a range of changes that will provide greater transparency, more rigorous processes and heightened verification of the information Fitch is provided by issuers and underwriters. ... While the differences will be most noticeable across ratings of mortgage-backed securities, asset-backed securities and other structured products, the ratings processes for corporate credits, financial institutions, municipalities and even sovereigns will also be strengthened."

There are many problems with the law, including that the new regulating council relies on the same officials who didn't foresee the dangers of mortgage-backed securities, Peter Morici, a business professor at the University of Maryland, College Park, said in a report this week.

"Restrictions on risky bank activities are so vague and far into the future, lobbyists will surely neuter them," he said. "The new consumer protection agency will oversee reforms the Federal Reserve is already implementing."

Executives with mortgage industry organizations such as the National Association of Mortgage Professionals in McLean, Va., also criticized the law, saying it will result in higher costs for consumers and job losses for mortgage businesses.

On the flip side, officials with the Durham, N.C., nonprofit Center for Responsible Lending argued that the new regulations and changes are necessary to correct abuses in the system. The center estimated that Maryland homeowners will lose $31.3 billion in home equity from 2009 to 2012 due to neighborhood foreclosures that lower property values.

The law "marks a watershed in efforts to restore common sense to lending and financial markets. Our nation now has a roadmap for ending the unfair and deceptive practices that have cost millions of families their financial security and nearly capsized the economy," Michael D. Calhoun, president of the nonprofit, said in a statement. "Passing this legislation was an enormous undertaking. Now we all face the equally hard job of implementing it as intended."