By Doug Farmer —
Bank lobbies used to feature a display board of deposit interest rates. They provided customers a chance to quickly learn what the bank could offer them that other banks might not. Perhaps a savings account with 4.25 percent interest or a 12-month certificate of deposit featuring a 5 percent return. Yes, you read those percentages correctly.
If a prospective account-opener wasn’t thrilled with Park Bank’s offerings, the drive-up teller could watch the customer walk down to First Federal, now Associated Bank, to check that board. Now, a block’s walk south would include Citizens State Bank to complete the triangle.
To protect that wise investor, the government—in the form of compliance examiners at the federal level—decided the interest rate display boards were not serving the consumer well enough. Additional disclaimers cluttered up the once simple utility. Did that interest rate compound daily, weekly or monthly? Was it computed on low, average or actual ending balance? How many withdrawals were allowed monthly?
With each additional disclosure, the board’s effectiveness diminished until it no longer served the institution, the customer or its original purpose. Instead of a quick reference point, it was an indistinguishable mess of asterisks, legalese and contradictions. Banks replaced the display board with potted plants, paintings and framed currencies.
The lasting effect of those microregulations was not to protect or better the consumers’ interests, but rather to decrease a user’s ease of access to options.
The alteration of a bank’s décor aside, such regulatory measures have now extended to the home mortgage process. Not to continue to date myself, but when I closed on my first mortgage, my wife and I signed three forms, one of which the Batavian National Bank had only recently begun using. From start to finish, it took us 24 hours. When my son closes on his new house this month, he and his wife will sign a total of 26 forms over seven weeks.
My wife and I read our three sheets from top to bottom. All the necessary information was right there. I find it rather unlikely my son will so much as skim today’s 100 pages.
Is he more informed? Is he better protected?
Regulations, no matter the claimed intent, fail to serve the consumer. They lengthen time to completion and invoke additional costs.
The time needed to meet compliance examiners’ expectations forces a 45-day waiting period into every mortgage process. That extended delay is a cost. Somebody is paying for the now-delayed sale, be it via interest, taxes, rent or otherwise.
When factoring in all aspects of a community bank’s regulatory burden, some estimate as much as 25 percent of a bank’s expenses are spent on compliance. The bank does not pay that expense. The government certainly does not. The customer always does.
It leads to a depositor getting a lower interest rate while the borrower pays a higher one.
Regulations supposedly benefit the consumer. They don’t.
Doug Farmer has worked at Park Bank since 1981 and began his term on the State of Wisconsin Banking Review Board in 2003.He’s lived in La Crosse since 1971. You can reach him at firstname.lastname@example.org.
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