Restoring American Financial Stability Act of 2010

Floor Speech

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Ms. SNOWE. I would like to thank the distinguished chairman of the Banking Committee, Senator Dodd, for working with me so constructively, as well as his staff, on these two amendments I am calling up this afternoon. And I thank Senator Shelby, as well, for agreeing to the substance of these amendments.

I think it is important to address these issues that are so fundamental to so many small businesses across the country. The first amendment I have made pending would reduce cumbersome and unnecessary restrictions on the banking industry that may potentially infringe on Americans' privacy rights and curtail the ability of financial institutions to serve their customers.

Specifically, the underlying legislation contains language that would compel banks to make the following disclosures to the Consumer Financial Protection Bureau: Banks would have to report from each deposit-taking facility, including each individual automated teller machine, a record of the number and dollar amount of the deposit accounts of customers; a geo-coding, by census tract, of the residence or business location of each customer; and a record of whether each customer is transacting commercial or residential business.

This type of detailed reporting imposes a regulatory cost on banks and provides an extraordinarily large amount of data to the Federal Government.

While many have advanced the image of banks as monolithically large entities with tens of thousands of employees spread across the globe, the vast majority of banks are small community-centered institutions. For small community banks, every dollar spent on complying with government regulations is another dollar that cannot be used for customer service or extending credit. While these existing processes may be in place at large banks--and even if not, their procurement would be relatively inexpensive--for a small bank this could have a sizeable impact on their bottom line and prove to be an extremely large regulatory burden.

In addition, the Federal Government's track record when it comes to securing its citizens' privacy data is less than stellar. As we all recall, in May of 2006 the Department of Veterans Affairs lost Social Security numbers and dates of birth of more than 26 million veterans. I cannot imagine what would occur if the sensitive deposit data that banks are required to track under this legislation was inadvertently lost.

The legislation does contain a provision requiring that the personal identities of all customers be removed, but one slip could result in the intimate financial details of bank customers being revealed to unscrupulous computer hackers.

I would note both the Independent Community Bankers Association and the Credit Union National Association are supporting this amendment due to its regulatory burden. I am pleased that we have reached agreement to have it accepted in this legislation.

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Ms. SNOWE. This second amendment would fix an unintended consequence of the Consumer Financial Protection Bureau in the underlying legislation, which would have the effect of choking off access to credit by small business.

According to the February 2010 survey of the National Federation of Independent Business on the state of credit:

..... 16 percent of all small employers have a mortgage on their residence that helps to finance the(ir) business. .....

The Small Business Administration's Office of Advocacy has calculated that there are nearly 30 million small businesses in America. Taken together, this means approximately 4.8 million small firms, hardly an unsubstantial number, rely on a home mortgage for their financing.

Many of those small business owners also make loan payments intended to reflect the cashflow of their business models. For example, innkeepers often make larger loan payments during their busier seasons, and farmers and fishermen borrow funds based on their crop or catch cycles.

As brought before the Senate, the underlying bill would prohibit lending products if the Consumer Financial Protection Bureau has a ``reasonable basis to conclude that ..... substantial injury is not outweighed by counterveiling benefits to consumers.''

This means if the Consumer Financial Protection Bureau finds that the injury of a loan product is outweighed by the benefit it might create, the Bureau can prevent a financial institution from offering it.

The problem with the manner in which the bill is drafted is that it does not take into account that many entrepreneurs use home mortgage loans with customized repayment terms for business purposes. Accordingly, overzealous regulators could determine that such loans, which are consumer products, are abusive and thereby either prevent or make it extremely difficult for financial institutions to continue offering these types of critical products.

For example, a loan to a borrower with balloon payments in June, July and August and interest-only payments for the rest of the year might look suspicious to the Bureau and be declared abusive. Yet this is exactly how many seasonal firms in Maine and throughout the Nation finance their businesses.

My amendment simply preserves the ability of small business owners to use their homes as collateral and to make payments based on an alternate lending cycle by clarifying that the CFPB must allow banks to offer home loan products with customized payment terms for small businesses.

I originally raised my concern that the underlying bill could inadvertently harm small business lending during meetings with Treasury Secretary Tim Geithner and National Economic Council Chairman Larry Summers. They were both immediately receptive and agreed that the bill, if not altered, could have unintended consequences that would restrain access to capital for small businesses.

The necessity of this amendment is especially critical given the small business credit crisis that continues to plague the Nation. This fact has been underscored by numerous studies including the Federal Deposit Insurance Corporation's survey that found outstanding loan balances have dropped by the largest margin since 1942. Furthermore, the Federal Reserve's April 2010 Senior Loan Officer Opinion Survey shows that only 1.9 percent of banks surveyed had loosened credit terms for small businesses in the past quarter.

While harming small businesses, lack of access to affordable capital also has a ripple effect across the greater economy. In his April 14 testimony before the Finance Committee, Dr. Mark Zandi, the chief economist for Moody's Analytics, stated that ``small business credit (is) key to job creation.''

By preserving financing flexibility for small business owners, this amendment ensures that home equity will remain as a possible means for entrepreneurs to secure funds to start or grow their businesses. With small businesses adding two-thirds of all net new jobs, this provision will help small business owners create jobs, finance their businesses, and help us reduce our current 9.7 percent unemployment rate.

We understand how instrumental small businesses are to job creation. We have to remain deeply concerned that in the last 3 months, we have had static employment growth with a 9.7-percent unemployment rate. Small businesses are the engine that will drive this recovery and will lead us out of a jobless recovery. A jobless recovery is not a true recovery. Anything we do here, particularly on this legislation, that could affect small business's access to capital will certainly infringe upon our ability to promote job creation. I reiterated that this morning in the Finance Committee hearing, where Treasury Secretary Geithner indicated he shared my deep concerns about stagnation when it comes to lending. It is important to improve upon these regulations that are vetted in the underlying legislation.

I appreciate the chairman's effort to be flexible and to address and modify some of these issues and these constraints, and for allowing me to offer these amendments and agreeing to them.

I yield the floor.

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