Capitol Hill - Communities First Act

Communities First Act (CFA)

110th Congress

Title I

Targeted Regulatory Relief for Community Banks

Section 101. Call Reports: Permits highly rated, well-capitalized banks with assets of $1 billion or less to file a short form Call Report in two non-sequential quarters of each year.Section 102. Sabanes/Oxley: Exempts insured depository institutions with consolidated assets of $1 billion or less from the provisions of internal control attestation requirements of Section 404 of the Sarbanes Oxley Act of 2002. Section 103. Small BHCs: Requires the Federal Reserve to revise the Small Bank Holding Company Policy Statement on Assessment of Financial and Managerial Factors so that the policy applies to BHCs with pro forma consolidated assets of less than $1 billion and that are not engaged in any nonbanking activities involving significant leverage and do not have a significant amount of outstanding debt.Section 104. SIPC: Amends Section 9 of the Securities Investor Protection Act of 1970 to provide banks with assets of up to $1 billion with insurance coverage for losses incurred in their own brokerage account if a broker dealer fails.Section 105. Updated Loans Limits: Allows the Federal Reserve Board discretion to increase the aggregate limit on extensions of credit to insiders up to four times the bank

’s unimpaired capital, unimpaired surplus and undivided profits for banks with assets up to $1 billion.Section 106. Community Bank Impact Analysis: Before establishing or making any revision in any regulation, requirement, or guideline, this provision requires the appropriate banking agency to take into account the effect on community banks and savings associations.Section 107. Shareholder Threshold: Increases SEC shareholder registration threshold to 1,000 from 500.

Title II

Additional Regulatory Relief for Community Banks and their Customers

Section 201. Enhance Customer Capital Access: (1) Directs the Federal Reserve to prescribe regulations authorizing customers who borrow from Federally insured depository institutions to waive the three-day right of rescission, (2) exempts a refinancing with a new lender from the three-day right of rescission where no new money is advanced, and (3) exempts home equity lines of credit from the three-day right of rescission.

Section 202. Bank Secrecy Act CTR Reform: Provides for a seasoned customer exemption from CTR filings and adjusts the CTR threshold for inflation.

Section 203. Privacy Notices: Exempts a bank from the annual privacy notice requirement if the bank does not share customer information other than as permitted by one of the exceptions, and has not changed its policies.Section 204. Privacy Protection of Consumer Reports: Prohibits a consumer reporting agency from providing another lender with a consumer report where a lender has requested a credit report in connection with a loan application, unless authorized in writing by the consumer.Section 205. Update Loans to Officers Limits: Increases to $250,000 the special regulatory lending limit on loans to executive officers other than those for housing, education, and certain secured loans.

Section. 206. Reimbursement for Mandatory Production of Records: Requires reimbursement by the Federal government for the production of records for any law enforcement or investigative purpose, modeled after the provision in the Right to Financial Privacy Act.Section 207. Report on Implementation of Commercial Real Estate Guidance: Requires a GAO report on the implementation of CRE guidance and its effect on local economies, the regulatory burden on banks, community bank portfolios, and community bank market share.

Title III

Tax Relief for Bank Depositors, Rural Banks, Municipalities, Banks Organized and Limited Liability Companies, Individual Savers, and Small Businesses

Section 301. Long-Term CDs: Reduces tax rate and defers income on long-term certificates of deposit. Defers tax recognition of individual interest income on long-term CDs (term of 12 months or more) until maturity and reduces the tax rate to long-term capital gains tax rate.Section 302. Enhanced Rural Lending: Excludes from taxable income of a bank or savings association, income earned on agricultural real estate loans and mortgage loans in communities of 2,500 or less population. This mirrors exclusion available to the Farm Credit System.303. Update Tax-Exempt Bond Limits: Increases to $30 million the current $10 million annual issuance limitation for tax-exempt obligations. Cap would be indexed.Section 304. LLCs: Allows bank, bank holding company, savings association or savings association holding company to be treated for tax purposes as a limited liability company and allows privately-held financial institutions to convert their state or federal charters to an LLC charter in a tax-free transaction.

Section 305. Individual AMT Repeal: Repeals the punitive individual alternative minimum tax.Section 306. Young Savers Accounts: Permits a Roth IRA account for children under age 25 to encourage early savings.Section 307. Permanent Section 179 Small Business Expensing: Makes permanent increased limits on small business expensing for equipment.

Title IV

Targeted Tax Relief for Community Banks and Holding Companies

Section 401. Limited Community Bank Credit: Allows banks, bank holding companies, savings associations and savings association holding companies with up to $5 billion in assets that are taxed as C corporations to take a 20% credit against their taxable income up to a cap of $250,000. Shareholders of financial institutions that are S corporations would be able to exclude 20% of the distributable income from the financial institution up to an aggregate cap of $1,250,000. Also creates a 50% tax credit for financial institutions with up to $5 billion in assets that are operating in distressed communities and/or designated enterprise or empowerment zones, or qualifying New Market Tax Credit Census tracts not to exceed $500,000. Financial institutions that are operating in these areas and that are S corporations would be able to exclude 50% of distributable income not to exceed $2.5 million of income.Section 402. Community Bank AMT Relief: Repeals the alternative minimum tax for banks, bank holding companies, savings associations and savings association holding companies with assets of $5 billion or less.

Title V

Small Business Subchapter S Reforms

Section 501. Shareholder Limit: Increase shareholder limit for S Corporations to 150 from 100.Section 502. Qualifying Directors Shares: A banks

’qualifying directors’shares not included in the shares counted toward the S Corporation shareholder limit.Section 503. Bad Debt Reserve: Provides option to recapture bad debt reserves in first S corporation year or in last C Corporation year.Section 504. Preferred Stock: Allows the use of preferred stock for S Corporation banks.

Title VI

Small Business Lending Enhancements

Section 601. SBA Loan Fees: Allows the reduction in Small Business Administration loan program fees on borrowers and lenders commensurate with an appropriation.

Section 602. Low Documentation Loan Program: Permits a low documentation SBA 7(a) loan program for seasoned lenders for loans up to $250,000.

Section 603. Effective Date: Sections 601 and 602 shall take effect October 1, 2007.

Summary