Last Thursday was a monumental day for the banking industry. It marked the first time in nearly five years that the U.S. Senate Committee on Banking, Housing & Urban Affairs passed a bill out of committee that directly impacts the business of banking. Not since the regretful passing of the Dodd-Frank Act has the Senate Banking Committee passed any bill of significance regarding commercial banking. Fortunately last week’s 212-page bill, drafted by Committee Chairman Richard Shelby of Alabama, provides much-needed regulatory relief to community and regional banks. The bill passed 12-10 along party lines, with all Republicans voting for it. The Democrat caucus on the Banking Committee, led by Sherrod Brown of Ohio, decried the bill as being the wish list of the banking industry and consequently offered an alternative that covered three issues favorable to community bankers, which was defeated.
The Democrat bill version provided community banks with:
- Portfolio lending automatic qualifying as a qualified mortgage for banks under $10 billion in assets (the Republican version did not set a cap);
- Extending from 12 to 18 months the examination cycle for well-capitalized banks under $10 billion in assets.
In addition to the above three provisions, the passed Republican version included the following of help to community banks:
- Broadens the rural definition of the Consumer Financial Protection Bureau (CFPB) for both escrow accounts and appraisals;
- Creates an independent ombudsman to appeal disputes to;
- Exempts future payments of insurance escrows from the computation of mortgage points and fees;
- Adds inflation adjustments to Dodd-Frank Act thresholds;
- Exempts banks with less than $10 billion in assets from the Volcker Rule;
- Allows for short form call reports for community banks;
- Requires budget transparency of the National Credit Union Association.
- Trumps the Federal Housing Finance Authority as to membership in Federal Home Loan Banks;
- Provides for EGRPRA1 review of rules resulting from the Dodd-Frank Act;
- Provides for a sense in Congress toward tailored regulation to size and complexity of financial institutions;
- Requires a study of mortgage servicing assets under Basel III;
- Creates TILA/RESPA2 compliance safe harbor until CFPB certifies compliance with all state laws; also allows HOEPA3 loan rate to be lowered within three days of closing without triggering new disclosures.
There were a few other changes that primarily benefit larger banks. There were also two amendments that passed the committee, both by a vote of 13-9, as Indiana Democratic Sen. Joe Donnelly joined the Republicans to vote in favor. One amendment would increase from $10 billion level to $50 billion the level for examination by the CFPB. The other would bar all banking regulators from participating in the U.S. Department of Justice’s Operation Choke Point.
While we struggle to understand opposition to the common sense issues above, we very much appreciate Sen. Donnelly for breaking party rank in order to vote for these two amendments. We certainly hope that his courageous integrity will open the door to others to overlook party lines in order to support the community banks that serve their customers and communities.
The other ray of hope is that, following the voting, both Sen. Shelby and Sen. Brown indicated that the passage of this bill out of committee represents a first step, and that they would continue to work together to find common ground to help community and regional banks. The Indiana Bankers Association certainly welcomes that bipartisan progress!
1 The Economic Growth and Regulatory Paperwork Reduction Act of 1996
2 Truth in Lending Act / Real Estate Settlement Procedures Act
3 The Home Ownership and Equity Protection Act
– S. Joe DeHaven