The legislation you need to know about—and how you can help

Illustrations: Federico Gastaldi

Everything community banks need to know about ICBA’s policy priorities following S.2155 … and how you can help.

By Thomas Warren, ICBA

Passage of the Economic Growth, Regulatory Relief, and Consumer Protection Act (S.2155) was a major achievement for ICBA and the nation’s community banks. The multifaceted regulatory relief law contained numerous provisions from ICBA’s pro-growth Plan for Prosperity and marked a significant leg in ICBA’s journey for tiered and proportionate regulations.

While ICBA works with regulators implementing the law’s provisions to roll back the red tape (see sidebar, bottom of article), it continues its ceaseless efforts on community banks’ many other policy priorities in the nation’s capital. S.2155 will make a positive difference for community banks, but there is plenty more work ahead to ensure community banks and their local communities can continue to flourish in the years to come.

Here’s a look at what ICBA will be focusing on in the weeks and months ahead, and how you can use ICBA resources to make a lasting difference.

BSA and CRA SOS

ICBA has worked to direct the regulatory relief momentum toward the mounting compliance burdens of the Bank Secrecy Act (BSA) while targeting regulators’ efforts to modernize the Community Reinvestment Act (CRA). Most urgently under the BSA initiative, ICBA is calling on policymakers to advance relief from the Financial Crimes Enforcement Network’s customer due diligence rule requiring financial institutions to identify the individuals who own controlling interests in their corporate or business customers. Further, ICBA’s recent white paper (icba.org/advocacy/reports) on anti-money laundering and anti-terrorist financing regulations advocates increasing currency transaction report and suspicious activity report thresholds, providing more current threat information to financial institutions, and creating a tax credit to offset the cost of BSA.

More fundamentally, ICBA is asking policymakers to rethink the current system of the government requiring financial institutions to do its police work. Federal officials should collect beneficial ownership records at the time a legal entity is formed if it wants this information, rather than requiring financial institutions to do it for them.

Meanwhile, ICBA has been working closely with policymakers on CRA modernization, an Office of the Comptroller of the Currency-led project designed to recognize new technologies and tailor rules to banks of different sizes and business models. In meetings with the OCC and Treasury Department, ICBA has called for clarifying the types of products and services that receive CRA credit, improving examination clarity and flexibility, promoting more efficient exams, and subjecting credit unions to CRA.

“With the OCC taking the lead on both BSA and CRA reform, ICBA has been working with them to ensure our recommendations are included in these reform initiatives,” says Lilly Thomas, ICBA senior vice president and senior regulatory counsel.

How you can help: The campaigns for BSA and CRA reform will continue to be hot-button issues in Washington, so grassroots outreach is essential. Community bankers can use ICBA’s Be Heard grassroots action center (icba.org/beheard) to stay in touch with regulators and members of Congress on these initiatives.

CFPB redress

Consumer Financial Protection Bureau (CFPB) rules are often overly complex and run more than 1,000 pages in length. Because community banks lack the bandwidth to absorb their legal technicalities and the liability exposure, ICBA has worked closely with the bureau’s new leadership in support of greater flexibility for community banks. For instance, ICBA is working to ensure the CFPB carefully considers the impact of small-business loan application data collection and reporting mandates required under Section 1071 of the Dodd-Frank Act before it implements the new requirements. While ICBA works with Congress to advance a Treasury Department-supported repeal, the bureau can use its authority to exempt community banks.

“The standardized data collection process laid out in Section 1071 clashes with the personalized nature of community bank small-business lending.”
—Karen Thomas, ICBA

“The standardized data collection process laid out in Section 1071 clashes with the personalized nature of community bank small-business lending,” says Karen Thomas, ICBA senior executive vice president of government relations and public policy. “So while we’re seeking an outright repeal in Congress, we also want the bureau to recognize that it can use its authority to carve out community banks specifically.”

Meanwhile, ICBA continues to support replacing single-director governance of the CFPB with a five-member commission, which would better involve prudential banking regulators and allow for more diverse views and expertise.

How you can help: Community bankers can follow the latest on Section 1071 and other CFPB developments with ICBA’s daily NewsWatch Today email and frequent social media updates on Twitter, Facebook and LinkedIn.

Flood cleanup

Congress has repeatedly delayed decisive action on shoring up the deficit-plagued National Flood Insurance Program (NFIP), opting instead for a series of short-term extensions. More than 20,000 communities across the United States—along the coasts and inland rivers—depend on flood insurance, so ICBA is looking to avoid further disruptions to the market.

With the latest reauthorization slated to expire next month, ICBA is working with policymakers to advance a long-term solution that continues to provide affordable, reliable flood insurance for residential and commercial properties.

“We need to ensure NFIP reforms don’t price people out of their homes and businesses, or cause them to drop flood insurance.”
—Mickey Thomas, South Louisiana Bank

“We need to ensure NFIP reforms don’t price people out of their homes and businesses, or cause them to drop flood insurance,” says Mickey Thomas, president and CEO of South Louisiana Bank in Houma, La.

Specifically, ICBA supports proposals to increase private-market participation and opposes efforts to remove the mandatory purchase requirement for commercial properties, which would put community banks at a disadvantage to regional and national banks when making loans in flood zones.

How you can help: With many members of Congress expected to be back in their home districts this month ahead of the upcoming midterm elections, now is a great time to meet with them in person on the NFIP deadline. ICBA’s Be Heard resource center (icba.org/beheard) offers tips on how to set up a meeting or bank visit.

Stronger cybersecurity

The scourge of cyberattacks and data breaches poses an ever-increasing threat to community banks and the broader financial system. As policymakers grapple with this challenge, ICBA is reminding Washington that any new federal cybersecurity policies should recognize existing community bank mandates and guidance.

To mitigate cybersecurity threats, ICBA advocates voluntary information sharing among the public and private sectors, as well as comparable regulatory supervision of core processors, other third-party technology service providers and other aggregators of customer financial data, such as credit reporting agencies.

On the data security front, ICBA is pressing lawmakers to ensure all participants in the payments and financial systems—including merchants—are subject to Gramm-Leach-Bliley Act-like standards. ICBA also supports a national data security breach and notification standard, and requiring the costs of data breaches to be borne by the parties that incur them.

“The protection of customer data is only as strong as its weakest link,” says Jeremy Dalpiaz, ICBA vice president of cybersecurity and data security policy. “So we need to ensure all parties—including merchants, vendors and credit bureaus—are subject to the same kinds of standards that community banks meet on a daily basis.”

Meanwhile, ICBA continues to pursue a lawsuit against Equifax that is seeking monetary relief for community banks affected by its massive data breach, and asking the court to direct the credit bureau to employ adequate security protocols.

How you can help: Community banks can help this cause by doing everything they can to preserve their safety and security. Cybersecurity initiatives such as .BANK (icba.org/dotbank) and Sheltered Harbor (icba.org/shelteredharbor) provide enhanced protections for community banks and their customers.

Mortgage makeover

The debate over housing-finance reform has stretched out over the course of a decade since the conservatorship of government-sponsored enterprises Fannie Mae and Freddie Mac in September 2008. Several Congresses have made big plans to achieve reforms, including the current one. With patience on Capitol Hill having long ago worn thin, the next batch of lawmakers elected next month could very well be the ones to pull off GSE reform.

Throughout the debate, ICBA has been consistent in its support for preserving market liquidity, protecting taxpayers, encouraging the return of private capital, and ensuring a stable national mortgage market for all stakeholders.

“The first step in housing-finance reform should be ending the sweep of Fannie Mae and Freddie Mac earnings to the Treasury and allowing them to recapitalize, which will avoid future taxpayer bailouts and market disruptions.”
—Ron Haynie, ICBA

“The first step in housing-finance reform should be ending the sweep of Fannie Mae and Freddie Mac earnings to the Treasury, and allowing them to recapitalize, which will avoid future taxpayer bailouts and market disruptions,” says Ron Haynie, ICBA senior vice president of mortgage finance policy.

“After that, we need to ensure any reforms to the system preserve direct and equal access to the secondary mortgage market for community banks. Otherwise, Washington will be handing the entire market over to Wall Street.”

ICBA details its recommendations for housing-finance reform in its Principles for GSE Reform white paper (icba.org/advocacy).

How you can help: With GSE reform sure to be a top priority in the next Congress, community bankers can bring their voices to Washington at the 2019 ICBA Capital Summit. Slated for April 28 to May 1, the Capital Summit provides unfettered access to top policymakers and staff for discussions on the most pressing community banking policy issues.

Mission creep

While ICBA works to enact pro-community bank policies, it also continues to stand firmly against the mission creep of tax-exempt credit unions and the Farm Credit System. And Washington is finally starting to notice.

Senate finance chairman Orrin Hatch (R-Utah) has expressed concern that credit unions are operating beyond their tax-exempt purpose and called for large credit unions to report the financial information required of other tax-exempt institutions. Meanwhile, a federal court ruling (now on appeal) in an ICBA-supported suit vacated two provisions of the National Credit Union Administration’s October 2016 field-of-membership rule. ICBA has taken advantage with a series of messages to Congress showing how the credit union industry’s evolution has put its tax exemption at risk and why lawmakers should re-examine the outmoded subsidy.

Meanwhile, ICBA has used the farm bill debate to continue to expose how Farm Credit System is abusing its tax-advantaged status. As ICBA has stood in the way of any amendments to expand FCS powers, its Focus on Farm Policy white paper notes that the FCS has experienced dramatic growth while sharply reducing service to family farmers.

“Credit unions and Farm Credit are continuously trying to expand on the taxpayer-funded benefits they already receive, so it’s up to us to both bottle up those attempts and try to reverse them,” says Aaron Stetter, ICBA executive vice president of policy and political operations.

How you can help: Spread the word! ICBA’s Marketing & Communications Toolkit (icba.org/marketingtoolkit) offers resources, including customizable news releases, op-eds and social media content, that distinguish taxpaying community banks from those institutions that enjoy costly tax subsidies.

Regulatory consistency

ICBA’s push for a level playing field extends beyond tax exemptions to regulatory consistency, which has come to the fore as regulators weigh charters for the new generation of financial technology companies.

For one, ICBA has significant concerns with the OCC’s acceptance of special-purpose bank charters for fintech firms, which could be used to access the banking system and avoid state consumer protection laws. ICBA continues to argue that the OCC should procure explicit statutory authority from Congress before it issues fintech charters.

“Any new chartered institution should be subject to the same supervision and regulation required of community banks, including oversight and regulation of parent companies under the Bank Holding Company Act,” ICBA president and CEO Rebeca Romero Rainey said when the OCC confirmed its plans earlier this year.

Meanwhile, ICBA continues to oppose new industrial loan corporation (ILC) proposals, which would allow commercial interests to own full-service banks while avoiding rules that apply to other bank holding companies. Like the since-withdrawn applications of SoFi Bank and Square, Nelnet Bank’s recently proposed ILC is designed to avoid the legal restrictions of the Bank Holding Company Act, ICBA told the agency.

ICBA continues to encourage the FDIC to impose a two-year moratorium on future ILC deposit-insurance applications while calling on Congress to close the ILC loophole for good.

How you can help: Lead the way. While ICBA works the policy front, it also offers resources on how community banks can create, collaborate with and invest in Fintech. For instance, ICBA’s Fintech Strategy Roadmap (icba.org/fintech) outlines the necessary considerations to ensure these strategic decisions succeed.

The community banking industry’s work in Washington is never finished. While ICBA continues to advocate policies that create and promote an environment where community banks flourish, community bankers nationwide can access its vast pool of resources to support the industry’s goals and their bottom line.

What’s next for S.2155?

The hard-fought Economic Growth, Regulatory Relief, and Consumer Protection Act must be fully implemented before it can help community banks unleash their economic potential. In fact, ICBA is still working with policymakers to ensure the tax reforms signed into law back in December 2017 are correctly enacted.

ICBA has called on regulators to issue s.2155 regulations as swiftly as possible.

While writing new regulations is never easy, ICBA has called on regulators to issue S.2155 regulations as swiftly as possible. Many provisions can be quickly enacted by simply revising existing rules, such as those offering “qualified mortgage” relief, implementing Volcker Rule and escrow exemptions, and expanding access to the 18-month exam cycle.

Others will take more time, such as capital simplification, new risk weights on high-volatility commercial real estate and providing for a short-form call report. For these, ICBA has asked for speedy proposals that give community bankers enough time to fully review and comment.

Meanwhile, the Tax Cuts and Jobs Act remains unfinished business in Washington. ICBA is working to ensure the Treasury Department’s regulation implementing a 20 percent tax deduction for pass-through businesses includes all activities of Subchapter S banks. ICBA has repeatedly said that Section 1202 of the act makes clear that Sub S banks qualify, and the association was assured of this by policymakers while the law was being crafted.

How you can help: Community bankers can stay posted on how these policies are being implemented using up-to-date compliance information via Community Banker University’s educational (icba.org/education) webinars and seminars.

 


Thomas Warren (thomas.warren@icba.org) is ICBA vice president of communications.

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