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Durbin Amendment could hurt banks, provide opportunity for lenders

Jul 16, 2012 Sean Albert

Banks have always offered their patrons the opportunity to apply for loans to fund various endeavors, from buying a home to starting a business. Recently, many financial institutions have started marketing to the unbanked and those with dismal credit histories who would not normally qualify to borrow. However, many financial veterans believe this system of lending may be chaning soon, due to a new amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act. The recently-passed Durbin Amendment will limit the fees both banks and credit unions can charge store owners for debit card transactions. Because of limits concerning different sorts of loans are popping up, this next slash in profits could spell disaster for traditional institutions. However, this could also provide the perfect landscape for alternative finance companies to make their move and become economic mainstays. Study on Georgia banks The Competitive Enterprise Institute for the Georgia Public Policy Foundation recently published a study that looked into the effect of the Durbin Amendment on the state's banks. The Peach State was one of the hardest hit by the 2008 recession, which cause the most bank failures as compared to any other state in the nation. Around 80 percent of banks in the area have closed since the onset of the economic troubles. The study, Government Barriers to Georgia's Growth: How Dodd-Frank Price Controls Poach the Peach State's Prosperity, noted banks will lose $8 billion they would have received from debit card transactions otherwise and have to pay an additional $7 billion to become compliant with the new rules. As such, many experts believe banks will no longer be able to dole out loans the way they once could. "Without healthy banks with money to lend, it will be much harder for local entrepreneurs to find the funding they need to grow their business," John Berlau, the author of the study, stated. Non-traditional lenders can profit While trouble may be in store for banks, this burgeoning situation could also provide more customers for short term lending companies. If consumers can no longer find economic satisfaction from traditional institutions, they should be aware that they can always turn to other industries in the event of a fiscal emergency. Lenders may want to consider expanding their reach and advertising more, should banks go through their predicted troubles because of the Durbin Amendment. Multiple companies are pursuing online loans to better serve customers - clients can apply and be approved for loans no matter their location - while others are expanding storefront operations. Firms that have not exhausted these type of options should think about expanding to become more attractive to consumers who cannot find relief.