Taking it to the banks

New Britain Herald - May 24, 2010

HARTFORD — The sweeping financial reforms championed in Washington by U.S. Sen. Chris Dodd are designed to protect consumers, but also to spur the economy through building confidence in the banking industry, Dodd said Monday.

“Never, ever, again,” should American taxpayers be asked to bail out a financial institution, said Dodd. Without confidence in the financial industry, “the damage is incalculable.”

Bill Englert, owner of City True Value hardware store on Farmington Avenue in Bristol, said he wasn’t sure how much sweeping financial reform would matter to him or his business.

“I guess it trickles down to me,” said Englert. “By the time it hits me, I don’t know what hit me.”

Dodd said the provision to prohibit credit card companies from charging a fee for each retail purchase is “a huge change.”

Englert agreed. The fees range from 1.3 percent to 2 percent, depending on the card, and it would save him “a lot of money at the end of the year,” he said.

But Farmington Bank President John Patrick said there is a cost to credit card companies or financial institutions that issue cards, in processing and more.

If the bill becomes law with merchant fees eliminated for credit card use, Patrick said, the cost will have to be made up elsewhere.

“I don’t think it’s a good solution,” said Patrick, who thinks the cost will show up in higher credit card interest rates or the elimination of some free banking services. “At the end of the day, the consumer ends up paying for it.”

Businesses make a decision as to whether to accept credit cards or not, “No one’s forcing anyone to take credit cards,” Patrick said.

Dodd’s legislation is unfairly punishing all financial institutions — even community banks like his that didn’t take part in the subprime mortgage lending or other practices that caused the crisis — for the misdeeds of some, he said.

“We weren’t part of the problem,” said Patrick, whose bank and similar institutions continued to make loans throughout the crisis. “We slug it out at work every day like everybody else.”

Though he thinks Dodd is “a very patriotic individual trying to do the best thing for the country,” Patrick said, “Nobody knows what this is going to mean at the end of the day.”

Dodd, whose Wall Street reform bill passed the U.S. Senate last week, spoke with reporters Monday outside the University of Connecticut School of Business.

“There will be other financial crises,” said Dodd, but the legislation will “provide the tools for the coming generation” to stop the problem before it gets out of hand.

Chris Earley, dean of the UConn School of Business, called the bill “revolutionary and very critical and important,” and something that will help the nation move forward after a difficult economic time.

The system now, Earley said, is “chaotic” and “unpredictable” and the legislation, while it won’t prevent abuse in the future, is creating incentives for financial institutions to do the right thing.

The bill puts the onus of responsibility onto the financial industries, said Earley, and because of that, will help get it going again.

“The industry is going to feel more confident,” said Earley. “Somebody is watching. It’s not business as usual.”

Phil Sherwood, deputy director of Connecticut Citizen Action Group and a New Britain alderman, said the bill addresses a long overdue issue, will provide a new transparency and protections for consumers that will make the marketplace more fair.

But Patrick maintains the legislation is “going to have unintended consequences.”

When the final version becomes law it appears that regulations will require lenders to maintain more of a financial cushion than they do now and that may mean banks like his won’t be able to loan as much, Patrick said.

Banks are already one of the most regulated industries in the country and “nobody knows” how more regulations will give people confidence or make things better, he said.

State Rep. Ryan Barry, D-Manchester, who chairs the House banking committee, and state Sen. Bob Duff, D-Norwalk, his counterpart in the Senate, applauded Dodd’s work at the federal level.

“Here in Connecticut we’ve brought reform as far as we can,” said Duff. This legislation “will bring confidence back to Main Street.”

Dodd said he’s grateful for support from both Republican and Democratic senators for the bill, a version of which is in the U.S. House of Representatives.

There is more work to be done to mesh the U.S. House bill and the U.S. Senate bill, Dodd said, but he expects it to be ready for President Barack Obama to sign by July 4.

By Jackie Majerus

New Britain Herald - May 24, 2010