JOHNSTOWN — Community banks in Greater Johnstown say the financial reform mega-bill poised for a Senate vote misses its intended mark, winging them, though a consumer advocate is very high on the legislation.

“We think it’s a huge positive,” said Susan Weinstock of the Consumer Federation of America in Washington, D.C., who lobbied Congress on behalf of the bill.

She ticked off pluses ranging from a new Bureau of Consumer Financial Protection to rules designed to keep mortgage brokers at least partly exposed to the credit they issue.

“We will finally have a bureau looking out for consumers,” Weinstock said last week from her Washington office. Now, she said, that responsibility is spread among seven different agencies, “none of whom feel that consumer protection is their top priority.”

In practical terms, the bureau will be looking at – among other things – any excessive overdraft fees that banks charge.

Weinstock said that, under the current system, a $4 Starbucks coffee can cost an inattentive consumer $40 when an overdraft fee is tacked on.

“That money is good for the bank’s bottom line, but is it good for the consumer? The answer is no,” she said.

“This is an agency that is going to look out for consumers. With payday loans, mortgages, credit cards – there’s too many traps that consumers fall into. We need an agency to say, ‘Wait a minute.’ ”

Yet legislation that Weinstock says streamlines the regulatory process, wringing out excesses and setting rules of the road, local banks see as unnecessary, costly intrusion.

“It falls in the category, ‘It could be worse,’ ” said Glenn Wilson, CEO of Johnstown-based AmeriServ Financial.

While the bill “started out to be very bad,” Wilson said, some provisions were inserted to ease the burden on community banks.

Even so, he said, the measure would include a minimum of 30 new or expanded regulations.

"It’s just going to take more people and more effort (to comply),” he said Thursday. “If we’re going to spend more hiring compliance people, it will take away from our efforts to deploy money in the community,” he said.

What is causing particular heartburn, Wilson said, are attempts to regulate debit card fees.

“In essence, it will reduce the fees that banks receive and shift them to retailers. Banks will make less, retailers will make more,” he said, leaving less money to lend.

Wilson’s counterpart over at Richland-based 1st Summit, Elmer Laslo, also said the bill is overreaching.

“Banks don’t ask customers to overdraw their account. That’s what customers do and they want us to cover their checks when their budget is tight," he said. Laslo said the reality is that a lot of area residents don’t have a lot of resources.

He said 1st Summit doesn’t charge an overdraft fee if an account is in the hole by less than $10.

Asked if the bill, should it become law, would hurt the bank’s bottom line, Laslo said, “I think it has the potential to do that.”

He believes a lot of community banks will sell to larger institutions when the economy firms up just because they don’t want to deal with all the regulation.

U.S. Reps. Bill Shuster, R-Hollidaysburg, and Mark Critz, D-Johnstown, both voted against the bill.

Critz was one of 19 Democrats, and the only one from Pennsylvania, to vote “No.”

Aide Matthew Mazonkey cited “undue burdens” the legislation would foist on smaller financial institutions.

He explained his boss’ vote in an e-mail, writing, “Our local banks and credit unions were opposed to this legislation, which is why Congressman Critz voted against it.

“These banks and credit unions did not cause the financial crisis, and Congressman Critz does not feel that they, and their customers, should be penalized with these new regulations still to be developed.”

Surprising ‘hands off’

But banks and bank organizations are not uniformly shouting down the bill.

In fact, Camden Fine, head of the Independent Community Bankers of America, representing about 5,000 local lenders, recently said his group wouldn’t publicly take a position.

Fine urged his members in an e-mail not to oppose the overhaul, saying Wall Street was using small lenders for its own ends.

“They only care about the credibility small banks can wield on Capitol Hill to get them out from under this rock,” Fine wrote, according to a Bloomberg News story published Wednesday.

Local bankers would only be “turning the gun on themselves” if they fight the bill ahead of the Senate vote, Fine said.

On the other hand, the American Bankers Association, which also counts the largest banks among its members, has stridently fought the legislation.

Weinstock, the financial reform campaign director for the CFA, was optimistic the Senate would pass it. And she ticked off areas where consumers might notice a difference:

n Auto loans

While loans by carmakers are not part of the oversight rules – to the dismay of local banks and credit unions – Weinstock said the Federal Trade Commission is being given more power over the credit arms of automakers.

“So, it’s not a total loss,” she said.

n Stockbrokers

The Securities and Exchange Commission, which regulates the stock market, will be able to mandate that stockbrokers work for the best interest of the client. Now, she said, brokers can willy-nilly steer customers into products simply to earn higher fees.

n Payday lenders

Interest rates would be curbed on the short-term loans issued by these businesses.

“These products trap consumers in a cycle of debt that they can’t get out of,” Weinstock said.

‘Too big’ fails

One major element of the financial regs that didn’t make it to the final bill was a proposal to break up so-called too-big-to-fail financial institutions.

The government had to backstop these financially reckless behemoths – trashing its own balance sheet – as the world economy teetered over the chasm. The ensuing fright pushed consumers to freeze spending, caused home values to plunge and brought double-digit unemployment.

Weinstock said the Consumer Federation of America couldn’t get everything in the bill.

Other bill supporters, such as Rep. Barney Frank, D-Mass., contend the measure is tough enough and that cutting big firms down to size is not necessary now.

But Wilson and Laslo said that the feds were right in targeting the big boys, such as investment banks and mortgage backers Fannie Mae and Freddie Mac. But they believe Congress lost focus.

“It morphed into a potpourri of regulations that had nothing to do with the almost financial collapse,” Wilson said.

“I’m not saying this bill is all bad,” Wilson said.

“But this is a 2,000-page bill and, when you write the regulations, it’s multiples of that.”

Said Laslo, “The typical bank didn’t cause this problem, yet we’re having all of the new regulation heaped upon us.”