2017’s legislative wins for community banks

Legislative headway on tax reform and regulatory relief could cap off an encouraging year for the community banking agenda.

By Karen Thomas and Paul Merski

With the first session of the 115th Congress hitting the home stretch, much work remains to be done before lawmakers head home for the holidays. In addition to must-pass spending bills, Congress is working to finalize comprehensive tax reform and advance regulatory relief for community banks.

With so much to do in the few remaining weeks of an eventful year in Washington, ICBA is firing on all cylinders to represent the interests of community banks and the communities they serve. Here’s a look at where we stand as we head into a furious finish.

Tax reform
The push for tax reform, long a Republican legislative priority, began almost immediately after the 2016 elections. The Trump administration and Congress have sought to reform the US tax code for the first time in three decades, proposing lower corporate and individual tax rates intended to spur business and economic growth. After months of debate, GOP lawmakers are still looking to pass a tax bill by their end-of-the-year deadline.

The congressional plan would reduce the corporate tax rate to 20 percent, cut the rate for pass-through entities (including S corporations) to 25 percent, limit the deduction for net business expenses incurred by C corporations, and allow businesses to write off the cost of new investments in the year they are made. Among changes to the individual tax code, the plan would double the standard deduction, simplify the rate structure, retain tax incentives for home mortgage interest and charitable donations, and repeal the estate tax and alternative minimum tax.

Voice on the Hill—On March 28, ICBA chairman and ValueBank Texas president and CEO Scott Heitkamp testified before the House Committee on Financial Services’ Subcommittee on Financial Institutions and Consumer Credit on the state of bank lending in America.

Throughout the debate, ICBA has been encouraged by policymakers’ commitment to growth-oriented reforms while at the same time emphasizing that the plan should adhere to the priorities laid out in the ICBA Principles for Tax Reform white paper released in August. ICBA has been particularly focused on preserving the business interest deduction, strengthening the pass-through model for Subchapter S institutions, lowering marginal tax rates for both C and S corporations, repealing the estate tax, preventing new taxes targeting commercial banks or their customers, and promoting tax parity among all financial services providers, including tax-subsidized credit unions and Farm Credit System entities. These and other ICBA principles are essential to strengthening the community bank–small business partnership and thereby enhancing local economic growth and prosperity.

In fact, ICBA has led grassroots outreach to ensure the proposed maximum 25 percent pass-through tax rate is available to the nation’s more than 2,000 community banks organized under Subchapter S of the tax code. As lawmakers began codifying their tax reform framework into legislative language, ICBA and S-corp community bankers responded in force to avoid anticompetitive tax disparities.

The event that trumped them all—ICBA executive committee members Preston Kennedy, Cam Fine, Scott Heitkamp and Tim Zimmerman were among the more than 100 community bankers invited to the White House in May.

ICBA thanks all those who have responded to its calls to reach out to members of Congress on behalf of the industry’s tax reform priorities. Policymakers are engaged in a complex and ambitious initiative—updating the tax code for the first time since Ronald Reagan signed the last major reform into law in 1986. Done right, modernizing and simplifying the tax code can provide needed relief to community banks, strengthening local communities, economic growth and job creation.

Regulatory relief
While Congress works to finalize tax reform by its self-imposed deadline, it is also off to a strong start in advancing community bank regulatory relief.
Congress and the Trump administration made a down payment on relief with the passage in October of a resolution overturning the Consumer Financial Protection Bureau’s rule prohibiting consumer arbitration agreements. ICBA strongly opposed the CFPB rule and worked with Senate Banking Committee chairman Mike Crapo (R-Idaho) to advance a legislative fix. In a comment letter in 2016, ICBA noted that the bureau’s own research indicates that arbitration offers a better process and outcomes for consumers than class actions. The successful vote followed a months-long ICBA grassroots campaign that generated nearly 2,000 community banker letters to members of Congress.

Meanwhile, ICBA’s Plan for Prosperity regulatory relief platform continues moving ahead through numerous channels. Following meetings with President Donald Trump and Treasury secretary Steven Mnuchin at the beginning of 2017, including a gathering of more than 100 community bankers at the White House as part of the ICBA Capital Summit, Congress has set the table for meaningful reform. The House in June passed House Financial Services Committee chairman Jeb Hensarling’s (R-Texas) Financial CHOICE Act of 2017 (H.R. 10), which contains roughly two dozen provisions from the Plan for Prosperity.

While the comprehensive CLEAR Relief Act continues to gain cosponsors in the House (H.R. 2133) and Senate (S. 1002), the House Financial Services Committee this fall passed on a bipartisan vote a slate of pro-community bank bills. Among them were measures to exempt low-volume community bank mortgage lenders from new HMDA data-collection requirements, expand community bank exemptions from escrow and servicing rules, and increase the CFPB’s exam threshold from $10 billion to $50 billion in assets. In the Senate, ICBA-advocated legislation to enhance community bank access to capital is gaining momentum. The Community Bank Access to Capital Act of 2017 (S. 1962), introduced by Sen. Mike Rounds (R-S.D.) with Sen. Roy Blunt (R-Mo.) as an original cosponsor, exempts more community banks from Basel III and Sarbanes-Oxley requirements, raises the consolidated asset threshold under the Federal Reserve’s Small Bank Holding Company Policy Statement from $1 billion to $5 billion, and revises the Securities and Exchange Commission’s definitions of “accredited” and “non-accredited” investors to attract new investors.

Senators from both sides of the aisle have expressed a willingness to break from the partisanship afflicting Washington to advance community bank relief. In addition to support from the congressional majority, a group of Senate Banking Committee Democrats in October called on Crapo and ranking member Sherrod Brown (D-Ohio) to bring before the panel a regulatory relief package for community lenders. The letter from Sens. Joe Donnelly (D-Ind.), Heidi Heitkamp (D-N.D.), Jon Tester (D-Mont.) and Mark Warner (D-Va.) cited common ground and urged bipartisan action.

Alongside this bipartisan pledge, there has been no shortage of prompting from ICBA and others for fundamental reform. In addition to countless meetings with and messages to lawmakers and staff on Capitol Hill, ICBA community bankers testifying before congressional committees never missed an opportunity to advocate Plan for Prosperity policies. More than 10,000 community bank employees and advocates urged action when ICBA submitted its Plan for Prosperity petition to the Senate Banking Committee in September.

Separately, the Treasury Department has released reports with legislative and regulatory recommendations to roll back community bank regulatory burdens. The first, released in June, focused on the financial system and drew significantly from both the Plan for Prosperity and ICBA’s “Roadmap to Economic Growth and Prosperity” white paper, including provisions on mortgage and commercial lending. A second report focused on the US capital markets with proposals to ease SEC reporting mandates for community banks.

With community bank regulatory relief advancing on multiple fronts, ICBA is focused on using all available avenues to get these measures to the president’s desk.

Housing-finance reform
While regulatory relief is positioned for success, housing-finance reform remains very much a work in progress. ICBA has pressed relentlessly to ensure the herculean task preserves equal and direct access to the secondary market for community banks, including in recent testimony before the House Financial Services Committee’s Subcommittee on Housing and Insurance.

Housing helper—Federal Housing Finance Agency director Melvin Watt, left, talks to Federal Deposit Insurance Corporation chairman Martin Gruenberg at the Treasury Department before an open session Financial Stability Oversight Council meeting.

Yet Congress has little more than committee hearings to show for its years of debate over reforming the housing-finance system.
Nevertheless, policymakers are facing increasing pressure as Fannie Mae and Freddie Mac’s capital buffers are scheduled to drop to zero by Jan. 1 without a change to their agreement with Treasury. In response, ICBA has repeatedly called on the Federal Housing Finance Agency to allow the government-sponsored enterprises (GSEs) to rebuild their capital buffers, including in a comprehensive white paper released in April. A capital buffer would maintain investor confidence, preserve market liquidity, avoid another draw of taxpayer support and ensure the GSEs—

All smiles—Secretary Steven Mnuchin incorporated key recommendations from ICBA’s Plan for Prosperity in 2017 Treasury reports.

which have paid the Treasury nearly $270 billion, or $80 billion more than the $187 billion capital infusion they received—can provide stability in the event of short-term losses.

While Congress is still working to get housing-finance reform off the ground, ICBA’s pleas on GSE capital appear to have the ear of FHFA director Mel Watt. Watt has repeatedly told lawmakers that he is considering actions to prevent Fannie and Freddie from having to take a Treasury draw. Meanwhile, bipartisan appeals from the Republican National Committee and Senate Banking Committee Democrats note that allowing the GSEs’ capital reserves to be exhausted would threaten the nation’s housing recovery and risk another taxpayer bailout. While the time has come for Congress to act on comprehensive housing-finance reform, the process should begin with rebuilding capital.

With much work to do in a few short weeks, ICBA will remain fully engaged on all fronts. We thank community bankers for their consistent commitment to advocacy throughout 2017.

Fine day at the White House

ICBA president and CEO Cam Fine attended President Donald Trump’s signing of a law vacating the Consumer Financial Protection Bureau’s rule restricting consumer arbitration agreements. “Arbitration is a well-established and tested process that offers better results for consumers and helps avoid frivolous class-action suits…,” Fine said in a statement. “ICBA thanks the president for swiftly signing this measure into law, because it preserves community banks’ contractual right to pursue fair and timely resolution through arbitration and avoid prohibitively expensive and protracted litigation.”

2017 advocacy report card

While Capitol Hill wraps up unfinished business this month, community banks have already racked up numerous advocacy successes in 2017.

Plan for Prosperity: Roughly two dozen ICBA-recommended regulatory relief provisions passed the House as part of the Financial CHOICE Act, with many others advancing.


Arbitration: Congress passed an ICBA-supported resolution to nullify the Consumer Financial Protection Bureau’s rule prohibiting consumer arbitration agreements after receiving nearly 2,000 community banker letters.


Estate tax: The Treasury Department withdrew a proposal to effectively raise the estate tax by more than 30 percent for certain closely held businesses like community banks.


Small-dollar rule: The CFPB’s final rule on payday, vehicle title and certain high-cost installment loans incorporates ICBA recommendations to fully exempt thousands of community banks.


Fintech: SoFi Bank withdrew its deposit-insurance application with the FDIC, though ICBA continues to oppose Square Financial Services Inc.’s application and is calling for an end to the industrial loan corporation loophole.


Credit unions: In addition to challenging the National Credit Union Administration commercial lending and field-of-membership rules through the courts, ICBA is using the tax-reform debate to spotlight the credit union tax exemption.


Farm Credit System: In a statement to Congress and in meetings on Capitol Hill during the 2017 ICBA Capital Summit, the association has called on lawmakers to conduct a series of hearings on Farm Credit System abuses and the Farm Credit Administration’s complicity.


Payments: ICBA and community bankers were active participants in the Federal Reserve Faster Payments Task Force, whose report on enhancing the speed, efficiency and security of the US payment system incorporated ICBA proposals.


Fair lending: ICBA called on the Trump administration to rein in the overzealous application of fair-lending laws and is seeking a meeting with Attorney General Jeff Sessions to discuss Justice Department enforcement.


Agriculture: ICBA is working with lawmakers to ensure proper funding for the 2018 farm bill, crop insurance and USDA guaranteed loan programs amid weak farm incomes and commodity prices.


Karen Thomas is ICBA senior vice president, government relations and public policy. Paul Merski is group executive vice president, congressional relations and strategy.

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