MCALLEN, RGV – When people talk about Mexican shoppers spending less when they visit the Rio Grande Valley, they often cite the falling value of the Peso or President Trump’s negative comments about Mexico.
What is not discussed as much is the impact of the Dodd–Frank Wall Street Reform and Consumer Protection Act. The legislation was signed into federal law by President Barack Obama in July 2010, in response to the financial crisis of 2007–2008. The legislation affected all federal financial regulatory agencies and almost every part of the nation’s financial services industry.
The part of Dodd-Frank that worries Keith Patridge, president and CEO of McAllen Economic Development Corporation, is the provision requiring banks to do a better job of tracking where deposits are coming from. In the case of Valley banks, that means employing more internal auditors to check deposits from Mexican investors.
“No question, part of the reason our sales tax revenues are down is the Trump Effect. But, more important to me is the whole banking issue with Dodd-Frank. The requirement of banks to trace their depositors, to know where the money is coming from and going to is hurting our banks. What we are seeing is a lot of the banks cannot afford to do it and they are telling Mexican investors to go pick their money up,” Patridge said.
Patridge said he knows this having spoken to a number of Mexican investors. He said he would not divulge the name but said he knew of one prominent leader in Reynosa who has had a bank account in McAllen for decades. He said that person has been told their McAllen bank account must be closed.
“If people do not have their money here, why would they shop here? Do you think people in Monterrey are going to fill their pockets full of cash and drive on the highway coming up here? They are not going to do it. If their money is not here, they are not going to come shop,” Patridge said. “The whole issue is, they (the banks) are telling people, come pick up your money.”
Patridge said he was telling a contact of his about his concerns with the impact of Dodd-Frank. His contact gave him a strange look. “I said, are you okay? He said, ‘the reason I am here today is I was told to come pick my money up. They have got a check for me. They have just closed my account.’”
Dodd-Frank has been the law for many years. Asked why it has become more of an issue in recent months, Patridge said: “They have not been enforcing it until now. Most of the banks did not pay attention to it. But now they are having to hire more and more internal auditors. How many regional banks can afford that?”
Asked what MEDC can do to alleviate the problem, Patridge pointed out that its board chairman, Robert Lozano is on the board of directors for the Federal Reserve Bank of Dallas. “Robert has been pushing it through the Federal Reserve. He said they told him the government is relaxing the compliance issue that the Obama administration hammered on. But it will take a couple of years.”
Patridge said he is less than impressed with the way federal legislators went about addressing deposits from foreign nationals.
“This is what legislators do and it drives me nuts: they punish everyone over one or two bad apples. What I would do is say, bankers, you know your customers. If you knowingly or even unknowingly bring in drug money or illegal money and we catch you, you are going to go to jail. But we are not going to punish all banks that know their customers. If you have a customer that has been here 23 years, you know who that customer is. But, because of this requirement, the bank has to have 29 auditors to track it. It is absurd.”
Patridge said he has talked to U.S. Sen. Ted Cruz about the impact of Dodd-Frank. “Senator Cruz has carried it forward. I know Senator Cornyn is aware of it, too. We probably need to talk to him some more.”
In his interview with the Rio Grande Guardian, MEDC’s Patridge also spoke about a big marketing push the City of McAllen, McAllen Chamber of Commerce, and MEDC is making in Mexico.
“This is a bigger effort than we have made before. We are part of the team and so we are putting “100,000 into marketing McAllen as a destination, for both tourism and shopping. We have committed $100,000 for a long-term promotional campaign, along with the City and the Chamber,” Patridge said.
“We are also running our own ad, promoting industry, in a site selection magazine. And, we are working with the City and the Airport, to promote the retail side, because of the importance of sales tax revenues for McAllen.”
A Banker’s View
Discussion about the impact of Dodd-Frank on investors from Mexico was discussed at the recent “Border Business is America’s Business” roundtable hosted by Congressmen Filemon Vela and Vicente Gonzalez in Weslaco.
At the event, David Deanda, Jr., president of Lone Star National Bank, said: “The regulatory environment has required the validation and verification of BSA Bank Secrecy and it has had a detrimental effect on all banks along the border, so much so that if we have to validate and verify the source of the customers and the source of cash, it is very complex and it is very difficult to do.
“I am going to tell you that I have always seen our economies between Mexico and the U.S. as being interdependent. We depend on them more so than they depend on us because they come spend their dollars here and that affects retail, wholesale, housing, and hotels. We collect those taxes and we become very used to their source of revenue to help our cities and economies improve.
“One of my biggest concerns is that as we continue to focus more on that side, we are making the business relationship an immigration issue, one common theme, and it’s not. It’s two different things.
“My biggest concern and fear is that we are letting our political stance affect how we continue to focus and move forward as a value economy. I’m concerned about banks having to verify and validate every source of wealth of every customer. In my business, we know our customers. It is a family. I think we are all family in the Valley. One of my biggest fears is that we start to lose trust in each other and faith in each other as an economy of trust. It’s not like people from Mexico are not family, they are family as well.”
The issue of Dodd-Frank and its impact on border banks was also discussed at a forum of Valley bankers held at the Embassy Suites Hotel in McAllen the day after the 2016 presidential election. Bankers at the event said they hoped and believed President Trump would overturn parts of Dodd-Frank.
“They (the Obama Administration) created a lot of burdens, not only for banking but everywhere else,” said David Guerra, president of IBC Bank in McAllen, at the forum. “We supported Trump wholeheartedly, because of the Supreme Court, regulatory reform, etc. There is going to be a 180-degree turn (under Trump).”
The issue of Dodd-Frank came up at a recent LIVE conversation Rio Grande Guardian publisher Mark Hanna had with the two major candidates running for mayor of McAllen.
Asked if he could do anything about the legislation, challenger Othal Brand, Jr., said: “It’s a federal issue. I don’t have that type of influence. I think it will change for the better and they (the Trump Administration) will get there. We’re still the financial center of the Valley, and I believe our federal government is going to work on that.”
Asked a similar question, Mayor Jim Darling said: “I talked to some of the produce guys and to start a new one (business) is difficult because you have to have a lot of credit and flexibility to do that. It’s not easy to do that especially if you are a start-up. The larger backs take you up for a million-dollar account but will not take you for any less than that. But we have start-up community banks that are coming back and hopefully can fill that void.
“I hope the President gets to that (reforming Dodd-Frank). He has talked about it. The President says he is a pro-business guy, so pro-business is adjusting some of the Dodd-Frank.”
Editor’s Note: The main image accompanying this story shows McAllen Economic Development Corporation President Keith Patridge holding a copy of an ad MEDC is running in Site Selection Magazine.