Federal Legislative Priorities – Winter 2019/2020
The Independent Bankers Association of Texas (IBAT) is extremely gratified by the passage of S. 2155, the “Economic Growth, Regulatory Relief and Consumer Protection Act” in the last Congress. Those in the community banking industry have been working toward and waiting for these provisions for years. The passage of this bill into law is having a significant and positive impact on the survival of our sector of the industry, as well as on the economic well-being of the small businesses and families we serve.
We very much appreciate the many who worked so hard to maneuver this common-sense legislation through a difficult process, and we sincerely thank all of those members on both sides of the aisle who voted in the affirmative for community banking and Main Street America.
The business models of community banks and the global financial giants could not be more divergent. While there is clearly more regulatory scrutiny on the systemically important entities, all banks—regardless of risk profile or business activities—must adhere to basically the same set of rules and regulatory expectations. IBAT has long pushed for a recognition of the unique business model of community banks and the positive contributions these institutions make in meeting the needs of small business borrowers, working with low- to moderate-income customers, contributing to their communities and creating jobs and economic activity. While simpler to set arbitrary asset thresholds, we encourage Congress to focus on business activities and risk profiles when determining appropriate regulatory treatment of various categories of banks.
Among the priority issues facing the community banking sector in the 116th Congress are:
- BSA/AML compliance continues to be a costly and aggravating burden for community banks. The Beneficial Ownership rule promulgated by FinCEN has been especially onerous and puts the financial institution in a “detective” role. The information is required to be collected by the bank, is not required to be verified (and in many cases can’t be verified) and can’t easily be shared—thereby making it an exercise in futility. While our sector of the industry wants to cooperate with law enforcement in their important duties, this responsibility clearly rests elsewhere. IBAT strongly supports H.R. 2513 and S. 2563 to address some of our concerns.
- We continue to strongly oppose efforts by the credit union industry to expand field of membership, business lending authority and raising capital from outside sources whether by legislation or regulatory fiat. The recent purchase of community banks by credit unions is clearly an indication that these business models have few, if any, differences. We are supportive of efforts to provide for rent parity between banks and credit unions operating on military bases. Further, regulatory restrictions on the conversion of a credit union to a bank charter are significant and inappropriate. It is time to seriously examine the tax-exempt status of this ever-expanding industry.
While there have been marked and appreciated improvements in the level of regulatory burden, many community banks simply do not have the resources to comply with the regulatory expectations, especially in the areas of CRA, fair lending and HMDA as they have evolved. We would submit that a community bank should have the opportunity to correct a violation of consumer protection law or shortcoming in a compliance management system or protocol prior to a formal (and public) order being issued.
Community banks spend a disproportionate amount of time and resources attempting to comply with an ever-increasing level of regulatory scrutiny in the consumer compliance area. IBAT strongly believes that consumers should be treated fairly, but also is of the opinion that the present environment is counterproductive and is making credit and banking services less accessible to those the government is purporting to protect. Further, this is clearly a result of a “one-size-fits-all” regulatory framework in which egregious behavior by some of the larger institutions has created a tremendously difficult environment for smaller banks.
A much more robust level of regulatory scrutiny is apparent regarding fair lending. Sadly, the result in many circumstances has been that banks have simply stopped making small loans to individuals, thus pushing these customers into the realm of high-cost and frequently predatory lenders. Regulatory restrictions on the availability of overdraft programs have further limited opportunities for those seeking short-term credit. We are particularly concerned that proposed data collection on small business loans mandated by Section 1071 of the Dodd-Frank Act will potentially have a similar effect on small business lending and should be repealed.
Community banks control a shrinking percentage of the overall banking assets in this country (roughly 10 percent) yet make nearly half of the small business loans under $1 million. These loans do not “fit in a box” and each is unique in its own way. In addition to the extra burden to comply with these requirements, comparisons will simply not be possible. “Balance” would appear to be key as these areas are addressed, with a focus on cost/benefit and minimizing unintended consequences.
- IBAT has consistently opposed the mixing of banking and commerce. Recent applications for FDIC insurance and access to the payments system through the chartering of an industrial loan corporation (ILC) by several fintech companies with a diverse array of other business lines are troubling. In addition to further tilting an already unlevel playing field to the detriment of community banks and the small businesses and individual customers we serve, such an arrangement would foster further consolidation and concentration in the industry, promote credit allocation, provide multiple avenues for consumer privacy risks and potentially create more risk to the FDIC fund. The FDIC should declare a moratorium on ILC insurance applications, and Congress should promptly close the ILC loophole. Further, we are in strong opposition to the creation of a “post office bank.”
- IBAT supports reasonable measures to allow a safe harbor for banks doing business with marijuana related businesses (MRB) in states where cannabis is legal. We support the SAFE Banking Act (H.R. 1595) and initiatives in the Senate (S. 1200) to accomplish these objectives.
- Subchapter S offers benefits to allow smaller banks to remain viable and compete with tax-advantaged credit unions and farm credit system lenders. We support raising the limit on shareholders from 100 to 500, allowing Sub S banks to issue preferred stock, making dividends on those shares tax deductible and allowing those dividends to be treated as ordinary income for tax purposes. Further, we support an LLC structure for banks.
- Data security breaches continue to be a significant and costly problem for all banks. We are supportive of requiring the same Gramm-Leach-Bliley standards banks must adhere to for all entities that handle sensitive customer data.
- The ongoing proliferation of “patent assertion entities,” or “patent trolls,” continues to be a source of frustration and expense. IBAT strongly supports the very simple fix of exempting “end users”—those who simply purchase software or a product from a third party—from any liability for alleged patent infringement.
- Lenders under the Farm Credit System umbrella are also competing directly with our banks in a number of markets and are straying from their purpose with loans to large entities and dubious ties to either agriculture or rural development. Tax-advantaged GSEs should not be competing with the private sector outside of their stated mission.
- Recent accounting standards regarding loan impairment (CECL) are adding significant costs and burdens to community banks with questionable, if not nonexistent, benefits. Community banks should be exempted from the onerous requirements of this “solution in search of a problem” in our sector of the industry. We are supportive of H.R. 3182 and S. 1564 requiring a study of this proposal.