What is likely, adds attorney Patrikis, are higher fees for lines of credit. “There is no free lunch,” he warns. “There are a lot of increased costs to banks because of Dodd-Frank, and these will have to be passed on to their customers.”
And Another Thing…
Some other notable components of Dodd-Frank include a revocation of the Reg FD exemption that has applied to credit-rating agencies. Millipore’s Kasok, for one, thinks it is going to cause grief for issuers of publicly traded securities. “I used to be able to have an open, blunt conversation with a rating agency, not because I was shopping for a rating but simply because they needed to understand my business,” Kasok says. “Now I can’t do that. I don’t know how a rating agency can properly evaluate and understand my business if I’m not able to have that conversation.”
The new law also requires the Federal Reserve to establish standards for interchange fees on debit-card transactions that are “reasonable and proportional” to the cost of processing them. These are the fees, usually ranging from 1% to 2%, that banks charge merchants for accepting debit cards. While it’s possible that the fees will be lowered as a result — the rule applies only to debit-card issuers with assets of $10 billion or more — it’s also possible that those issuers will seek to recoup the lost revenue through some other types of fees. “Virtually any company accepting major cards will be affected, potentially significantly,” says Ogilvie of the Deloitte Center for Financial Services.
The much-discussed Bureau of Consumer Financial Protection excludes merchants, retailers, auto dealers, and other sellers of nonfinancial goods or services, but only if they do not engage in offering or providing consumer financial products or services. It is not entirely clear whether that would bring under the bureau’s purview a retailer like $405 billion Wal-Mart Stores, whose in-store MoneyCenter sites provide services such as check cashing, money orders, money transfers, and bill payment, or a retailer that still issues its own credit card, such as $65 billion Target. (Wal-Mart did not respond to a request for comment.) A Target spokesperson said that because the Dodd-Frank Act is complex and relies heavily on regulations yet to come, it could not speculate about the impact on Target or its customers.
Given that companies can’t predict exactly how final rules will be written, Ogilvie also recommends that CFOs try to strengthen their relationships with their banks and other financial providers (see “Take Control of Your Bankers“), and take steps to improve their own company’s liquidity rather than relying on liquidity from banks.
“Ask yourself if you have access to enough additional capital to ride out the next economic downturn,” Ogilvie says. “And, obviously, worry about costs. Every company I’ve had anything to do with is examining every nickel and dime it spends to be sure it has to spend it, and that when it does spend it, it’s spending it as efficiently as possible. There’s a big emphasis on cost management, liquidity management, and capital management.”
In short, the Dodd-Frank Act’s negative consequences seem likely to reinforce practices that nearly all CFOs have already come to regard as the new normal. Whether it succeeds in preventing the sort of crisis that ushered out the old normal remains to be seen.
Randy Myers is a contributing editor of CFO.