Congress is conspiring with the regulatory authorities to drive away business from banks and hurt small-business owners. Through excessive data-gathering requirements and substantial risk of high fine to banks, the lending environment is becoming increasingly hostile to convenience stores. This is pretty unfortunate, as most C-stores are owned by immigrants, minorities, and hard-working folks just trying to get by. Congress is always claiming to want to help exactly those people, but has passed laws that hurt them directly.
I’ve talked before about the Bank Secrecy Act (BSA), and how banks are responsible for keeping all sorts of data on our customers. The new requirements after 9/11 (many of which were, incidentally, written by John Kerry*) require us to know pretty much every dealing on every customer. We have to know, or make every reasonable and unreasonable attempt to find out, where our customers’ money came from, with whom they do business, and where their money is going. Documentation requirements vary, but there is a list of businesses considered “high risk” for money laundering or other criminal financial activity, and the requirements on those types of customers come down to knowing the daily minutae of their dealings.
As a result many banks of any substantial size, my employer included, have decided to exit their convenience store relationships. This makes it more difficult for owners of those businesses to get credit, and will cause them to move either to smaller banks or to cash. Movement in that direction directly undermines the stated goals of the BSA and its enhancements under USA PATRIOT: namely tracking monetary activity so we can catch terrorists.
Smaller banks are not as heavily monitored by regulators, and thusly tend to keep less documentation on their customers. The OCC and other regulatory bodies don’t want to waste the time and resources policing small banks because 1) they assume the level of criminal activity in smaller organizations is going to be lower and 2) busting small establishments doesn’t make big headlines. Further, the regulatory burden in many cases is scaled by the size of the bank so smaller banks sometimes have fewer regulations with which to comply. The practical upshot of all this is that if a “high risk” business moves over to a smaller bank the government loses the ability to track many of that businesses dealings. If the business moves to cash their business becomes quite literally untraceable.
The new money laundering laws also go against the primary goals of the Community Reinvestment Act. Regardless of what you think of that bill’s contents, and I think it’s a very stupid law, it makes exactly zero sense for Congress to pass another burdensome regulation that will directly undermine its goals. The CRA works as sort of a carrot to lend to certain kinds of businesses, and areas of town that are “underfinanced”, and while the bank can be penalized for things CRA-related it can also earn credits etc etc…it’s complicated and I’m not a lender so I don’t understand it as well as I could, but that’s the gist. Well, because C-store relationships are “high risk” banks don’t really want to have their deposits and that’s a disincentive to lend to them.
In sum, way to go Congress, you’ve managed to discourage us from lending to small businesses primarily owned by immigrants while at the same time potentially lowering our profits AND making it harder to trace financial activity. Everyone loses! Way to go guys.
* Money Quote:
Meanwhile, Kerry continues to support intrusive efforts to stamp out money laundering. His campaign statement points out that Kerry “authored most of the money laun-dering provisions” in PATRIOT. Those provisions were largely based on an old money laundering bill that Kerry had introduced and which was opposed by economic conservatives and the ACLU. Kerry and other Democrats insisted that the money laundering provisions be attached to the PATRIOT Act. An October 2001 Associated Press article quoted Kerry as accusing Republicans of trying to remove the provisions “by fiat.” The article noted that Kerry “underlined the political influence of Texas bankers.” [Emphasis added]
