The Trump Effect: Small Business and Regulation with Becky Wagner
Trump administration policies may affect a potential repeal of Dodd-Frank. Find out what that could mean for small businesses, and learn about anti-money-laundering and “Know Your Customer” requirements, as well as some ambiguity surrounding a large cash-based industry.
Learn more about the Trump Effect on small businesses with:
Gene Marks: Hey there, I'm Gene Marks. I write every day for the Washington Post. I also write for a bunch of other places online, Forbes, Entrepreneur, Inc. Magazine. I run a 10-person company outside of Philadelphia called the Marks Group. We are a financial management and technology consulting firm. We've been around since 1994. And I'm feeling older as I say that. But yes, we've been around for that long. Becky Wagner is here with me today. Becky, not Rebecca, correct?
Becky Wagner: Becky's fine, yes. Becky is fine.
GM: And Becky, you are – and I've been practicing this – Senior Financial Compliance Analyst.
BW: That's correct.
GM: Awesome. At Paychex.
BW: At Paychex, yes.
GM: And you've been at Paychex for –
BW: 19 years this month.
GM: 19 years. What do you guys get on your 20th anniversary? Do you get a big pay hike?
BW: I get five weeks’ vacation.
GM: Five weeks’ vacation?
BW: Yeah, I'm looking forward to it.
GM: You were telling me earlier, you were in the banking industry.
BW: I was for about 15 years.
GM: What were you doing there?
BW: I was working on the operations side of the bank. So I was where Paychex sends money. I was on the receiving side of that at banks, and making sure that direct deposits were posted. I started in banking when they first had debit cards, and ATM cards, and things like that. That was all brand new when I was in banking.
GM: Right, it's crazy.
BW: It was that sort of thing.
GM: Yeah, and you were smart enough to get out of banking.
GM: That's one of the many good decisions that hopefully you have made. It's an industry that when you were in it there were a ton of changeovers, mergers, acquisitions.
BW: Yes. And two of the banks I worked at were, I guess, victims of that as well.
GM: I always thought around that era – what was that in the '80s or something?
BW: Yes, it was.
GM: I always think the companies that made the most money in that era were the ones that made signs.
BW: Yeah, because they had to change.
GM: Every single time. That's good. So here you are at Paychex. And you are on the financial side, so financial compliance. So when we talk about financial compliance, we are talking about banking. We are talking about regulatory issues that affect your clients and the financial, from financial institutions, financial services. So first of all, I've asked this before. So I need to make this connection with you as well. Paychex is an HR company, right? I mean, I am a customer of Paychex. I use payroll services. Paychex does HR compliance work, but then also HR advisory work. They provide technologies and all that. What does that have to do with banking? What's your role there?
BW: Well, all the products that we have – we're a little unique in our group. Because we're not associated with just one product. All the products we have result in some sort of money movement, whether it's to pay a payroll, or pay taxes, or just collect from our clients for a service that they're getting from us. And so we have to make sure that we're not introducing risk into the banking system for any of those type transactions.
GM: What do you mean risk into the banking system?
BW: We act as an intermediary between our clients and the banks. And the banks don't necessarily know our clients. So it's up to us to really know our clients, the businesses they're in, make sure that they can pay us, make sure that the transactions that we're sending out are not fraudulent. There's a lot of fraud that goes on these days. We have an entire risk department that watches for that, looks for mail fraud or email fraud. That happens to our clients sometimes. So we've built a whole risk protocol around that. When I first started at Paychex, that wasn't there 19 years ago. And now, that's a huge part of our whole processing is to make sure we have all those risk mitigation efforts in place so that we're not introducing risk into the payment system and losing the services of our banks that we need so much.
GM: Got it.
BW: So we have a risk team that we work with closely on the banking side to make sure that they have the right programs in place. Because our banks ask us, what are you doing. Do you vet your clients? And so we go through a whole process and do look at – to make sure the business is legitimate, make sure our sales reps have actually seen the business. And if they haven't gone in there, then we do enhanced due diligence to make sure that we can still determine that business is legitimate.
GM: Got it. Enhanced due diligence, that sounds kind of scary. What does that mean?
BW: It just means checking a few more sources, if for whatever reason. I mean, everything is done virtually now. And our sales reps don't always see the business. And it's been so difficult for companies to get banking services. They sometimes will want to perpetuate fraud through a company like ours that has access to a bank that maybe they don't have access to.
GM: I mean, so that's on the onboarding side, and credit checking, and all of that. Do you have any involvement in my life afterwards? Am I dealing with your group at all as an existing Paychex customer?
BW: On the back end, we're making sure that we're up to date on what's going on in payments. So we're very much following what's going on with pay cards and any type of service like that to make sure that we can offer what our clients want, in terms of how they're paying their employees. So we pay a lot of attention to – I mean, some of our clients still issue checks to their employees. We issue a lot of checks. But there's a lot of rules in all the states about not having charges when you go in to cash your check or whatever. So we follow all those rules to try to make sure that, if we issue a check off our account, that it can be cashed and that your employee's not having trouble cashing it. And the same with the pay card rules, making sure that the program we offer is not having too many fees. We cross over with the employment law group on wage payment in making sure that, if a client says, “Well, I want to offer everybody pay cards, I don't want to pay them any other way, that they understand that they really need to talk to their legal counsel about whether they can do that in their state.
GM: Great. And it's state-related rather. I mean, there's no real federal oversight about it. It's more state-related. So why would I want to offer pay cards to my employees? How would that benefit? Why would employers choose to do that?
BW: If they don't have an account. And so you can't do a direct deposit. It's much better than getting a check and having to go to a bank. That takes time away from work. If they go out on their lunch hour or whatever, they could lose the check, all of that. And then, you don't have to reconcile the checks.
GM: If I issue a pay card to my employee, the employee doesn't have a bank account, right? But so isn't that Paychex bank account, in a way? I mean, right? I mean, the debit card is drawing off of some account somewhere, right?
BW: Yeah. So it's with the processor. We used to offer our own card. And it was off of our account. Now, we outsource that to a third party. So they take care of all the back end of that. But it is accounts at their banks.
GM: Got it. And you need to make sure that this is all in compliance with whatever state laws that there are.
BW: We have a good program with fee-free transactions and all of that, so that employees can get their money without paying fees.
GM: Right, without paying additional fees. And you had mentioned earlier, which is an interesting topic, that a lot of employees are still getting actual paychecks and depositing them in the bank, which I try to tell a lot – again, it's a big country between New York and San Francisco, right? You think that people are getting direct deposits online, which, frankly, they should be. But there are many, many, many, tens of thousands, hundreds of thousands of small business that are not that way. I mean, clearly you've seen that trend change over the years.
BW: Yeah. But we do see still a lot of checks. There are some employers that the only time they see their employee is when they come in to pick up their check. So they want to hand them a check. So I think we'll see a trend of the checks going down. But we still issue a large number of checks all the time.
GM: That really is fascinating. So Dodd-Frank, there's a lot of talk about scaling it back, right? I don't think repealing it, but most likely, scaling it back. What are you hearing about that? How does that impact your customers?
BW: So we are hearing that it will probably just be scaled back. We're hearing that it is going to be after whatever they do with health care, whatever they do with tax reform.
GM: It's just got to wait in line.
BW: It's just got to wait in line. And I've read that the Trump administration doesn't want that to overshadow what's going on with the other two. But he also wants to help out smaller financial institutions that have suffered from this rule.
GM: How did they suffer?
BW: The regulations are just so costly and difficult to comply with. And they don't have the staffs. We've seen fines against institutions that don't have all the right compliance.
GM: And they have to maintain a certain level, like $150 billion. They have to maintain all these tests, if they're over $50 billion in assets, I think is what it was.
BW: And there are some, even larger banks, that haven't passed those tests. So we've read that, obviously, there could be more money for lending, that it would have an impact on the economy, if there could be more lending done by loosening up these regulations. Community banks would probably benefit, independent banks. But then, you hear on the other side, from Janet Yellen, that the banks are lending. And I think you wrote an article a year or so ago saying there was other sources of funding that small businesses were using.
GM: It was a brilliant piece, wasn't it?
BW: Yeah, it was wonderful.
GM: It just made you think and discuss.
BW: So it's hard to know how much lending is not going on, I guess, is what I'm saying. It's probably the truth is somewhere in between. But I think it would help if there was more funds.
GM: It does seem like there is plenty of capital available. It does seem that there is expensive capital available. So that might be a lot of the online lenders have been proliferating and doing very well the past few years. But some of their interest rates are quite high. So maybe this will allow community or independent banks to be that much more competitive.
BW: And actually, so that leads to the CFPB and the lending.
GM: So that's a Consumer Financial –
BW: Protection Bureau. And they have put a suggestion for a rule out there that would curtail some of that high interest lending. But with changes to the Dodd-Frank Act that might come, that may never see the light of day.
GM: Right. So the Consumer Financial Protection Bureau, right? I got your title right. I know the acronyms. I mean, that was again established as part of Dodd-Frank. And there's been accusations that it's somewhat of a partisan thing, that they were going overboard in some of the regulations that they're putting on the industry. So I think it's part of that scale back. They're considering diluting it, making it more of a bipartisan commission.
BW: And probably doing that through maybe budget reconciliation, things like that, and just taking their funding away, rather than just getting rid of it. I mean, I think that the Director, Cordray, is probably going to be there through his term of 2018. I don't know that they'll get rid of him. But we saw, when they first started out, they were just going against the mortgage banking and all the problems that consumers had there. Now, they've gone into payroll cards and other things. And they've also gone into not only looking at banks but looking at non-bank financial institutions, and even third parties that might be processing transactions, and saying they should know exactly what their customers are doing, and not be trying to collect on loans where the interest rates are too high. So they've been putting a lot of pressure on not just banks. I think that's where people are starting to say they're really overstepping their bounds with some of this. They want some kind of a push back on that.
GM: it's interesting. So where do you see this going, as far as banking? Do you think it's going to be more of a deregulatory era coming up?
BW: For some of the lending, maybe. But the whole part that we talked about, us having to know our customers and stuff, that's coming down from regulators in the banks to make sure that there's not problems with money laundering and things like that. And we don't see that those will be lightened up.
GM: So when you leave here joyously, and actually go back to work, and do something productive with today, what sort of issues are you dealing with right now that your customers are facing? I mean, other than the ones that we've talked about, or maybe they are the ones that we've talked about. I mean, what's on your to-do list?
BW: We're trying to be forward-looking. Because there's a lot going on in the financial industry through the Federal Reserve. They have a whole task force, that I'm actually on, that is looking at faster payments. So we're looking at that and being involved with what that ecosystem will look like. We look at things like virtual currency. Our clients sometimes ask if we can pay in Bitcoin.
GM: In Bitcoin, really? People ask to be paid in Bitcoin? Wow, OK. I would immediately report them to the police. But that's just me.
BW: So in addition to trying to pay attention to what's going on today and making sure that we're compliant with everything our banks tell us, we're trying to be forward-looking. We're involved with same day ACH. That's happening right now. So payments after all these years are starting to speed up and wanting to be involved, but making sure it's not risky – it could be very risky, the faster it goes, but trying to stay on top of all that, so we're not just surprised when it happens or whatever.
GM: I got it. Some advice for your customers, what could they be doing to mitigate risk?
BW: Well, I think they have to make sure that they're paying attention to system security. They do use our systems. But they are responsible for making sure their system is secure and that the wrong people aren't gaining access to their systems.
GM: So it's password protected is what the system is. You want to make sure the right people have access to it.
BW: Right, have access. There's email phishing or whatever that they're aware of that. We try to actually be a safety net and catch a lot of that in our – we have a really good risk team that does that. But ultimately, it's the client's responsibility to make sure that they've got a secure system on their site, so that they're not being hacked.
GM: You have to be super careful.
BW: You have to be careful. And we have a lot of small businesses. And they probably don't have the money to build this whole security framework. But it's really important. Because then, you see a small church. All of a sudden, they've lost $20,000. Where did it go? Well, there was phishing. And we received an email. We thought it was legitimate. It was not legitimate.
GM: Right. Should businesses have a separate payroll account set up with their bank that's separate from their checking account? Is that something that you recommend from a mitigating risk standpoint? Or does that not make a difference? Whenever I go to clients, there's always the payroll account, and then their general operating account. Why do they have two separate accounts?
BW: We don't suggest that. I mean, I think they like that. A lot of clients don't like us going into their bank accounts. And so whatever they can do, so if they can send us a wire, we have them send wires. But there's a lot of them that just don't want us accessing their accounts. So that may be why they just have a separate checking account, just for payroll.
GM: Got it, got it. Becky, that was great. Thank you very much for your time. It was a great conversation.
BW: Really nice meeting you, thank you. Thanks.