Bankers Lovin’ on Mitt Romney
Mitt Romney has a few friends in banking. OK, he has a lot of friends.
The former financier and presidential candidate has raised $1.3 million in campaign donations from people in the commercial banking industry through March 21, according to the Center for Responsive Politics.
Compare that to the insufficient funds category for President Obama: $459,272 raised in the same time frame from commercial bankers.
A Romney for President fund raiser in March at the Capitol Hill Club in Washington, D.C., was a who’s who list of banking lobbyists and supporters: the former president and CEO of America’s Community Bankers Diane Casey-Landry was the event chair; and hosts included former Comptroller of the Currency John Dugan, American Bankers Association senior officers Wayne Abernathy and Bob Davis and Federal Home Loan Bank of Atlanta Senior Vice President and Director of Government and Industry Relations’ Eric Mondres.
“There is a feeling that one, Obama doesn’t understand the role of banks in the economy, and two, he doesn’t like them anyway,’’ says Abernathy, noting that this is his personal opinion and not that of the ABA.
Romney has campaigned on the repeal of the Dodd-Frank Act that brought about a new wave of regulation on the industry. His political rhetoric has been kind to banking, and he’s noted that banks are afraid to make loans because the government is hanging over them “like gargoyles.”
In contrast, Obama has proposed a “financial crisis responsibility fee” on big banks, pledged more special investigations into possible bank wrongdoing and told Americans during his State of the Union speech that banks “made big bets and bonuses with other people’s money.”
Rusty Cloutier, president and CEO of MidSouth Bancorp Inc., a $1.4 billion banking company in Lafayette, Louisiana, says bankers are unhappy at the level of pro-consumer, anti-banking regulation coming out of Washington, including the new Consumer Financial Protection Bureau.
“I spend half my day dealing with government regulations and government regulators,’’ he says. “It’s just getting ridiculous. This is a very competitive business. If someone doesn’t like the product Bank X is giving, they can move across the street to Bank Y.”
He counts himself in the category of “abb voters,” or “anybody but Barack.”
But it hasn’t always been this way. In fact, commercial bankers gave Obama more money during the 2008 election than they gave to John McCain, the Republican presidential nominee.
Goldman Sachs employees and affiliates were the second largest contributor to Obama’s 2008 campaign. They are now the number one contributors to Romney’s, as of mid-March.
How things change.
James Campbell, chairman of the political science department at Syracuse University, says bankers in 2008 were hopeful Obama would help the economy.
“That was before Obama made what Republicans call ‘class warfare’ a major part of his political appeal,’’ he says. “Now it’s routine to hear the administration attacking Wall Street and those who have higher incomes. He hasn’t made many friends there.”
American University Professor of Public Communication Leonard Steinhorn says the banking industry is betting Romney will roll back regulations.
“Romney is one of them; he lives in the world of finance,’’ he says. “It’s the same reason blue collar workers aren’t warming to Romney. He’s not one of them.”
However, Howard Headlee, the president of the Utah Bankers Association and a national fundraiser for Romney, says bankers are more pragmatic.
He thinks commercial bankers tend to be fiscal conservatives and they’re worried about the nation’s growing debt levels under Obama.
“I don’t think we’re counting on Dodd-Frank being repealed anytime soon or the CFPB being dismantled,’’ he says. “Most bankers are looking at the substance of our national balance sheet and just how frightening the prospect is for every industry, our economy and our way of life.”
Customers have been so fed up with big banks lately, that they’ve packed up their checking accounts and taken their money to. . . other big banks, J.D. Power and Associates found in a survey conducted in November and December of last year.
More than 60 percent of people who left big banks ended up parking their money at another big bank or regional bank, according to the J.D. Power U.S. Bank Customer Switching and Acquisition Study.
What happened to the wellspring of anger against Wall Street and big banks? What happened to Bank Transfer Day, which encouraged people to leave the behemoths and park their money somewhere safe and small?
“There’s a convenience factor at play here,’’ says Michael Beird, director of J.D. Power’s banking services practice. “People bank at the big banks for a reason. Convenience is an extremely compelling reason. The ubiquitousness of these networks is not to be underestimated.”
However, credit unions and small banks, defined as those with less than $2 billion in deposits, have something to be happy about. The independent research group found that last year, only 0.9 percent of customers surveyed said they left a small bank or credit union in 2011, compared to 8.8 percent in the previous year’s survey and an average range of 10 to 11.3 percent for a big or regional bank.
Nearly one-third who left a bank in 2011 went to a credit union or small bank.
Low fees was the number one reason people went to those institutions.
“There’s a frustration around customer service and fees,” says Beird. “We have seen the uptick, an increasingly higher number of customers switching banks. I think there is a general malaise with big banks and the quality of service they are providing. It’s not about fees only. People are willing to pay fees if they feel like they’re getting value for their money.”
A customer walks into your bank looking for a loan. He has great credit, a lucrative job, and he wants to buy a house within his means. There is only one problem—his religion forbids him from paying interest on the money you lend to him. Well, that can be a tough. But some banks are making it happen by working with the growing population of U.S. Muslims who might have religious objections to paying interest.
According to the Pew Research Center, the number of Muslims in the United States is expected to more than double in the next two decades—from 2.6 million to 6.2 million. While it is safe to say the majority of U.S. Muslims have used conventional loan products when financing a house or business, a small but growing segment of this population has until recently found themselves unable to benefit from conventional loans.
The reason for this is simple; Orthodox Muslims are forbidden from charging or paying interest directly on loaned money, referred to as “riba” in the Quran. To address this problem, certain lenders began proposing “riba-free” loan products that had similar benefits to a conventional loan while staying compliant with their customers’ faith.
Here’s how it works. There are currently three differing methods of Islamic finance available in the United States, but all three revolve around the same basic idea that the customer should be paying money towards a tangible asset or commodity as opposed to simply paying money for money. Shoeb Sharieff, the president of Ijaraloans.com, a consulting company specializing in Islamic finance that recently assisted U.S. Bank with an Islamic loan, explains one of the ways these transactions can be structured in practical terms.
“The process is actually very simple,” says Sharieff. “It’s basically rent-to-own. So what we do is we create a trust. The loan is made to that trust, and then there is a lease-to-own arrangement between the trust and the customer. So when the customer makes their payment, they are essentially making a rent payment to the trust, and then the trust is making the payment to the bank or the investor.”
So what do regulators think about these unique arrangements? As it turns out, they treat them pretty much the same as a conventional loan. The Office of the Comptroller of the Currency has been examining the legal and regulatory aspects of Islamic loans since 1997. It determined that properly structured, lease-based Islamic loans adequately met its requirements for “banking business,” and standard mortgage regulations would still apply.
“As far as the regulators are concerned, the bank or brokers still have to do all the same disclosures. You still have to do the [Good Faith Estimate], the Truth in Lending [statement], and you still have to do the itemization of amount financed,” says Sharieff.
The borrowers must also meet the same credit requirements for loan approval, and they are entitled to the same tax benefits if approved.
“Essentially, if the transaction is a lease-to-own, and it meets certain guidelines, then the part of the payment that is towards profits is tax deductible, as well as the part of the payment that goes towards property taxes,” says Sharieff. “The tax ID number for the trust is the customer’s social security number.”
With established regulatory guidelines and access to “plug-and-play” models that help banks and borrowers convert standard loans to Islamic loans, the barrier for entry to this niche market is decreasing for both banks and customers.
“If you wanted to do an Islamic transaction five years ago, it was 1.5 to 2 percent more than the mortgage market, and the closing costs were much more. But now, because there are more banks getting involved, it is very competitive. It is usually within an eighth to a quarter of a percent [above] a normal mortgage,” says Sharieff. “People are finding that for a few dollars a month more, they can be compliant with their faith.”