Federal Legislative Priorities – Spring/Summer 2016
In the 114th Congress, the Independent Bankers Association of Texas is focused on reasonable changes to statutes which have resulted in significant burden on community banks and their customers. These laws and subsequent regulations, many of which were promulgated as a result of The Dodd-Frank Wall Street Reform and Consumer Protection Act, have taxed the productivity and resources of smaller financial institutions which did nothing to contribute to the 2008 financial crisis. Further, the cumulative effect of the myriad “enhancements” to regulatory oversight have disproportionately impacted the ability of community banks to meet the needs of their customers.
Common-sense reform of CFPB mortgage rules which limit credit availability
Enacted in early 2014, new mortgage rules promulgated by the Consumer Financial Protection Bureau have led some community banks to limit their mortgage product offerings. Other small community banks have made the decision to exit the mortgage business altogether. IBAT supports legislation to:
- Provide “qualified mortgage” safe harbor status for loans originated and held in portfolio by banks with less than $10 billion in assets, including balloon mortgages.
- Exempt banks with assets below $10 billion from escrow requirements for loans held in portfolio (CLEAR Act – H.R. 1233 by Luetkemeyer; CLEAR Relief Act of 2015 – S.812 by Moran).
- Exempt from the higher risk mortgage appraisal requirements for loans of $250,000 or less provided they are held in portfolio by the originator for a period of at least three years (CLEAR Act – H.R. 1233 by Luetkemeyer).
- Preserve the role of community banks in the mortgage servicing business by increasing the “small servicer” exemption threshold to 20,000 loans, up from 5,000 (CLEAR Act – H.R. 1233 by Luetkemeyer).
Eliminate onerous, unnecessary and duplicative regulations
IBAT supports legislation to streamline or eliminate certain onerous, unnecessary and duplicative regulations which contribute to costly and unproductive regulatory burden. This includes legislation to:
- Allow community banks to file a short form call report in the first and third quarters of each year (CLEAR Act – H.R. 1233 by Luetkemeyer; S.927 by Moran).
- Require regulators to consider the risk profile and business model of regulated financial institutions, and effect appropriate regulatory policy and procedures (TAILOR Act – H.R. 2896 by Tipton).
- Exempt financial institutions of $10B or less in assets from all CFPB rules unless CFPB provides detailed justification for inclusion (H.R. 3048 by Williams).
- Eliminate the CFPB (H.R. 3118 by Ratcliffe), and/or replace it with an independent commission to regulate the offering and provision of consumer financial products or services (H.R. 1266 by Neugebauer).
- Shift funding mechanism of the CFPB from the Federal Reserve Bank to the regular appropriations process (H.R. 1486 by Barr).
Increased data-security standards
Understanding that financial institutions face liability for losses in the event of card or account fraud, IBAT supports new data-security standards that would:
- Apply Gramm-Leach-Bliley security standards for all industries that handle sensitive customer data (Data Security Act of 2015 – S.961 by Carper and Blunt; H.R. 2205 by Neugebauer and Carney).
We further support any legislation that would require merchants to report any breach in a timely manner and would require merchants to share the cost of a breach with affected financial institutions.
Limit further expansion of small business lending authority by credit unions
IBAT opposes legislative initiatives (and regulatory actions) that would:
- Expand the cap on business lending by credit unions and allow CUs to further exploit their tax exempt status to undercut the product offerings of community banks, in particular legislation that would expand the member business lending cap from 12.25 to 27.5% of total assets (Credit Union Small Business Job Creation Act – H.R. 1188 by Royce and Meeks).
Provide additional opportunities for Subchapter S banks
There are currently some 2100 Subchapter S community banks in the United States. Restrictions on raising additional capital have stymied growth and economic opportunities. IBAT supports legislation that would:
- Raise the limit on S-Corp shareholders from 100 to 500; allow S-Corp banks to issue preferred stock; make dividends on preferred stock deductible; and, allow dividends issued to preferred shareholders to be treated as ordinary income (The Capital Access for Small Business Banks Act – H.R. 2789 by Marchant).
Enact meaningful reforms to combat patent litigation abuse
IBAT supports revisions to current law to provide immediate relief for community banks from “demand letters” sent by patent assertion entities (PAEs) or patent trolls. “End users” who simply purchase software or a product should not be held liable for patent infringement.
FAST Act Provisions
A number of our concerns were addressed in the FAST Act, which was enacted in late 2015. IBAT sincerely appreciates the attention to these issues and is grateful to all who supported and assisted in this process.
Important issues addressed include: exemption from annual privacy notices when no changes have occurred in policies; extend exam cycle to 18 months for well-rated banks up to $1 Billion; several enhancements to provide more opportunities for small banks to make mortgage loans and meet the needs of their customers; restoration of cuts to the crop insurance program; provide parity regarding SEC registration and deregistration thresholds for savings and loan holding companies; and, exempt small banks from the raid on Federal Reserve stock dividends.
Exempt reciprocal deposits from brokered deposits
Reciprocal deposits are caught up in the definition of “brokered deposit” in the Federal Deposit Insurance Act, and reciprocal deposits do not act like the type of deposits the law on brokered deposits was meant to cover. IBAT supports H.R. 4116 by Emmer and Moore, which addresses this issue by providing a targeted exception for reciprocal deposits from the definition of a brokered deposit.
April 14, 2016