Mark K. Scanlan: Overregulation is strangling rural America

After the CFPB released its report on the financial issues facing rural America, ICBA emphasized that leveling the playing field and easing rural community banks’ regulatory burden would drive prosperity in these areas.

By Mark K. Scanlan, ICBA


ICBA and the community banks it represents have always been steadfast advocates for boosting rural economic activity.

Now that the Consumer Financial Protection Bureau (CFPB) has announced it is focusing attention on financial issues facing rural America, ICBA is reaching out to the agency to offer observations and recommendations.

While the CFPB raises important points about larger economic trends affecting the financial resilience of rural families and the negative impact of bank consolidation, its report on rural challenges published this spring doesn’t address several key factors, including government-subsidized competition from the Farm Credit System (FCS) and the credit union industry, and the regulatory burden.

As ICBA shared with the CFPB in a recent letter, access to financing is not the only way to enhance rural prosperity. Community banks are more than willing to serve rural communities. A lack of prosperity is the result of a regulatory burden that restricts investments, job growth, innovation and competition in key rural sectors. Meanwhile, tax burdens on banking and rural sectors make it harder for rural businesses and citizens to access low-cost credit. These same burdens drive community bank consolidation.

Inflation also threatens the future of these communities if it’s not dealt with by reasonable policies from Washington.

Key problems that community banks can help solve

In researching the specific issues raised by the CFPB, ICBA found community banks play a vital role in supporting rural communities while addressing the following issues.

Banking deserts. Community banks have consistently been the only banking presence in one out of every six U.S. counties. The largest banks have reduced their national branch presence by 20% over the past 10 years, while community banks have operated between four and five bank branches to every large bank branch within mostly rural areas.

The Congressional Research Service, cited in a recent CFPB blog, notes that “community banks were almost three times more likely than noncommunity institutions to locate their offices in a nonmetro area in 2011 and were four times more likely to operate offices in rural counties.”

Discriminatory/predatory lending. ICBA also pointed out that despite industry and branch consolidation by the largest banks, community banks have maintained a presence in the overwhelming majority of African American-majority communities and Hispanic American-majority communities over the past three years. Community banks also originated more than 40% of Paycheck Protection Program (PPP) loans to minority small business borrowers, more than any other type of lender.

Manufactured housing. Community banks maintain lending to minority and low- to moderate-income borrowers, financing more of these loans than other lenders. In 2020, community banks made 97% of all low- and moderate-income (LMI) loans and 99% of all manufactured housing loans to minority borrowers.

ICBA recommendations for helping rural America

Pass the ECORA Act. The bipartisan Enhancing Credit Opportunities for Rural America Act (ECORA Act H.R. 1977 and S. 2202) would give community banks tax benefits like those the Farm Credit System (FCS) and credit unions receive. It would exempt interest income to banks from agricultural real estate loans and rural home loans (in communities with 2,500 or fewer residents).

The ECORA Act would allow community banks to provide lower interest rates on these loans and allow financially stressed farmers to qualify for land loans or refinance existing farm real estate loans. Lower mortgage payments would also help attract more people to smaller rural communities.

Enhance the farm bill’s rural safety net. ICBA supports increases to farm, housing and rural development guaranteed loan programs, including increasing guaranteed farm operating and ownership programs to a threshold of at least $2.5 million versus the current $1.825 million limit.

This would provide enough capital for family, young, beginning, small and minority and socially disadvantaged farmers to start or expand farming operations. ICBA also urges that community banks be able to participate in any program to help resolve “heirs’ property” legal title questions.

Require credit unions to comply with the Community Reinvestment Act (CRA). The CFPB should urge the administration to mandate that credit unions comply with CRA.

Prohibit credit unions from acquiring community banks. The U.S. banking sector has lost more than 100 community banks from large credit unions acquiring smaller community banks. This happens due to lax regulation and credit unions leveraging their tax benefits to inflate the purchase prices of community banks above book value.

Don’t let the FCS cherry-pick loans. The FCS uses its status as a government-sponsored enterprise (GSE) to offer below-market rates to the largest, financially strongest farm borrowers. This destabilizes community bank portfolios, driving community banks out of agricultural lending and accelerating bank consolidation.

ICBA will continue to reach out to the CFPB to discuss solutions to better the lives of rural Americans. We’ll connect the CFPB with members of ICBA’s Agriculture–Rural America Committee to share the views of rural bankers across America.

By sharing these stories, we can emphasize that community banks are providing solutions to the issues raised by the CFPB. And with better regulatory and tax policies, community banks can preserve the hope of a brighter future for rural America.


Mark K. Scanlan (mark.scanlan@icba.org) is senior vice president of agriculture and rural policy for ICBA.