Christopher Pinkham, president of the Maine Bankers Association, has five main things on his mind as 2015 closes out and we move into the new year.
From his office in the Maine Historical Society building on Congress Street in Portland, he recently shared his views with Mainebiz on the state of banking in Maine, and his top five priorities going forward. An edited transcript follows.
Mainebiz: How do you think banks are doing now compared to 2008?
Christopher Pinkham: People were vilifying the banking industry for the past 7-9 years. We used to be seen as helpful. We were partners. Now we're public enemy No. 1. So there's interest in attracting millennials who will need financial guidance. Also, we are seeing our age demographics at banks reflective of the state. There are 9,100 employees in Maine banks. A lot are 55 or older, so that will open up more opportunities for jobs in the future, including in information technology.
There are 31 retail banks in the state of Maine. Of those, there are 26 that are Maine-headquartered [including the recent Camden National/Bank of Maine merger.] Their footings [assets] are about $25 billion. We know that all the banks collectively in Maine have 501 retail locations, which means we cover every corner of the state.
MB: Do you think the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010 accomplished what it set out to do?
CP: The standards by which we do any kind of lending have dramatically changed, because prior to Dodd-Frank, the regulated industry, namely the banks, were basically sound underwriters. And then there were the other 50% to 60% of the loans made by the unregulated industry, the mortgage brokers, online borrowing companies, in some ways the companies that were built and designed to circumvent the banking system. They were supposed to follow federal rules but there was no enforcement. So after the mess of 2008 and 2009, Dodd-Frank was passed and we slowly have rolled out some 20,000 pages of regulations. We're only half-way there. It is to benefit consumers, but more importantly it's to create a level playing field.
Dodd-Frank has done a number of things. It's also made running a financial institution much more expensive.
MB: What are your priorities for Maine's banking industry?
CP: First, the cybersecurity and fraud issues with the EMV chip are on everyone's mind. That's because it's an expensive part of our business that's not under our control. With the change in the laws in October and the rollout of chip-processing equipment for merchants, we're getting there. But there is a learning curve. It's the chip, not the PIN. The chip is card-present. So you've got a card, you put it into a machine, so electronically we've got a match. It's a one-time, transaction-encrypted match. And for anyone who says this is going to solve all the problems, you need to remember how many transactions are done on the Internet. There's no card present and no chip involved. We're not dealing with that part of the problem yet.
The two messages the industry's been trying to deliver are: everyone has to work together on this and there's a responsibility for the card issuer, the retailer and the consumer. And we need consumers to make sure they check their statements and provide us with good and current telephone numbers so we can contact them when there's a problem. We need merchants to roll out the proper equipment and have the right security. And we need the people who make the plastic to beef up their capacity to make cards. We're still struggling to get enough cards.
Second, this is the first time ever that the federal government has put both the Truth in Lending Act and the Real Estate Settlement Procedures Act together in a single standardized set of closing documents for every residential transaction nationwide. That happened in October. So the closing documents have grown from 105 pages to 120 pages because this is consumer-friendly and we want you to know everything. I did present to our two U.S. Senators and Representatives last March a complete package of a simulated closing, and they were horrified. Their first reaction was, 'Well those signatures are bank-required,' and I said 'No, I think there are six signatures that are bank-required for the loan itself. Everything else is federal or state documentation.'
All of the software that drives all of the banks' back-office work had to be rewritten. We buy this from vendors, and they were unable to meet the original deadline of July 1, so that was extended. It was not just a matter of getting a patch in the mail that you put into your system. It was a matter of training all the employees, the staff, the attorneys that do the closings, the abstractors who do the title search, the home inspection people, and the appraisers. The whole system in theory now will benefit consumers. Going forward, consumers should feel comfort that if there's any change in the documents as you get down to the closing you have to have three days to look at all those changes. There's a period of time when you have to get full disclosure of all your costs. They can't give it at closing anymore, which was a common practice. In the go-go [real estate] days they'd change the deal when you got to the table. You're all set to go, you sold your house contingent on another, so people went along and they'd end up, we think in many cases, paying much higher commissions. People feel very intimidated by that process. The bottom line is we've standardized this so that in the long run it should benefit consumers.
Third is regulatory relief. Right now it's one-size-fits-all for regulatory examinations. So, for example, one of our smallest banks in the state of Maine, I believe, has eight or nine employees. It's Bar Harbor Savings & Loan. It has no branches and just the main office. It is very successful in its market. So I was up to visit their CEO and they were having their examiners come in. I believe they had eight examiners there for three weeks.
Banks that are chartered by the state of Maine pay the state for all of their exams. Most people think the FDIC (Federal Deposit Insurance Corp.), which insures your deposits, is paid for by federal money. There's no federal money in that. The banks pay an annual premium to the FDIC. In the history of the FDIC, not a single cent from the U.S. Treasury has been used to bail out or pay for banks that fail.
So the regulatory relief we're seeking would be for right-sizing examinations. For example, we have a lot of laws that apply to everything. We have to report on forms to federal law enforcement agencies on a regular basis, some of them daily, depending on what the transactions are. [But a bank that's] not in the international marketplace, not doing currency exchanges, not hedging portfolios, and doesn't have subs that manage other people's portfolios is not as complex. There is some hope that federal regulators will start to look at the complexity of a bank and right-size the examination with that complexity. We've gone to Congress and there are three dozen bills looking at different ways to do this.
One of the very simple ways to do this is, for example, is this time of year you are receiving many privacy notices from many companies. One of the simple bills we've asked for is that if you send a privacy notice out to a new account holder, then you don't have to send another one by mail unless you change your policy. An opt-out also might work. It's those types of things. Banks have to send the FDIC a Call Report every 90 days that is a detailed financial report of everything the bank does. It's sent electronically. It gives the examiners a way to monitor off-site. The Call Report is 90 pages of data per quarter per bank. A human at the bank must fill this in. Our plea is to give the FDIC authority to bifurcate their rules based on business complexity. We think there's a reasonably good chance of Congress looking at this in November or December. We're putting a lot of pressure now to see if they'll pass some of these pieces. This is all different parts of the federal law.
Fourth is community. We have some things on the horizon that we want people to partner with us on. One is elder financial fraud. We are in a unique position to be the identifiers. The teller is in the position to say something is wrong. So the question is what do we do? We've spent a year working with the Department of Health and Human Services and others and we've created a program called Senior Safe. And we are almost through the first year of it being deployed. We've trained almost 125 banks and credit unions where tellers have a card with things to look out for. We now have an 800 number manned by the state and the Bureau of Securities, and that number helps them triage the situation. Up till now we didn't have anyone to call. Now Judith Shaw, who is a state employee and securities administrator of the Office of Securities, heads that program. She also recently became president of the North American Securities Administrators Association. We think we have a great program.
There's a lot of fraud by family and friends. There was a guy we had a little while ago who was absolutely convinced he'd won the Jamaican Lottery and kept sending his money. The bank wouldn't give him the money to send any more so he went to Walmart and used the Western Union system. I believe Judy Shaw's organization has just adopted Senior Safe as their model program.
Fifth is student loan debt. This is very personal for me because my family has three recent college graduates, two of whom went on to graduate school. Students are saddled with debt for years and will be renters as a result.
We are starting to work with the Finance Authority of Maine, which has new authority from the Legislature, to look at some types of consolidation of student debt. We're opening discussions with some companies to give incentives to Maine graduates — students who go to school in Maine and are from Maine, or who are from Maine and coming back — to have a program of debt forgiveness that ties in with duration of employment.
So these five things are emerging issues on my list.