ICBA Current Top Issues

Third Quarter 2019

Remaining Implementation of S. 2155. The Economic Growth, Regulatory Relief and Consumer Protection Act (S. 2155) was signed into law on May 24, 2018. While most of the community bank provisions have been implemented, one of the most significant provisions has not: the community bank leverage ratio. The agencies have proposed a leverage ratio of 9 percent. ICBA is urging them to lower it to 8 percent (the minimum allowed under the new law).

Credit Unions. ICBA has renewed and reinvigorated its effort to check the expansion of credit unions by creating a Credit Union Task Force staffed by members of the ICBA legislative, regulatory, marketing, and communications teams. The mission of the Task Force is to pursue legislative and regulatory changes to contain or reverse the expansion of credit unions and to draw media and public attention to the aggressive and frequently abusive nature of the industry.

Beneficial Ownership Rule. Treasury’s beneficial ownership rule became effective in May 2018. The rule requires banks to collect information on the beneficial owners of legal entity accounts. ICBA supports the Corporate Transparency Act (H.R. 2513), sponsored by Representative Carolyn Maloney, which would require companies, rather than their banks, to report their beneficial ownership information to FinCEN.

Anti-Money Laundering and Counter Terrorism Financing. ICBA fully supports the fight against terrorist financing and money laundering activities and is committed to supporting effective measures that will prohibit offenders from using financial products. Those efforts should be properly balanced against the increasing regulatory burdens placed on banks as well as the privacy rights of individual customers. As federal regulators consider reforms to the Bank Secrecy Act (BSA), ICBA is working to reduce the increasing and disproportionate burden of BSA compliance. ICBA has prepared a white paper (available on our website), “Modernizing Anti-Money Laundering and Anti-Terrorist Financing Laws and Regulations” which outlines our recommendations for reducing compliance burden while increasing the effectiveness of compliance measures.

Faster Payments. ICBA remains committed to faster, more efficient and ubiquitous bank-centric payments. ICBA continues to actively advocate to the Federal Reserve, Congress and other policymakers for the Federal Reserve to serve as an operator of a real-time gross settlement to ensure community bank access to real-time payments. ICBA is also a founding member and actively participates in the newly formed U.S. Faster Payments Council.

Future of Housing Finance. Fannie Mae and Freddie Mac have been in conservatorship for over 10 years. ICBA is working to preserve a secondary market for residential mortgages that is financially strong, reliable, transparent, and impartial – providing equitable access and pricing to all lenders regardless of size or volume. Consistent with ICBA’s “ICBA Principles for GSE Reform” (available at ICBA.org). ICBA is advocating for the FHFA to direct Fannie Mae and Freddie Mac to develop and implement capital restoration plans and immediately halt the net-worth sweep, allowing them to recapitalize and end their decade-long conservatorship. This will reduce the risks they pose to the economy, housing market and U.S. taxpayers. ICBA opposes reform proposals that would only benefit the largest lenders and Wall Street players, leading to further consolidation of the mortgage industry in the hands of the too-big-to-fail banks.

Industrial Loan Corporations. ICBA is urging the FDIC to impose a moratorium on approving deposit insurance applications for industrial loan corporations (ILCs) to allow Congress to determine whether it wants to maintain the separation of commerce and banking by closing the ILC loophole permanently, a step advocated by ICBA. SoFi Bank and Nelnet Bank have withdrawn their applications to the FDIC for deposit insurance for their proposed ILCs. Square previously withdrew its application but has resubmitted it.

Cybersecurity. ICBA will continue to ensure that any new frameworks, tools or assessments intended to enhance cybersecurity remain voluntary and recognize the standards and practices community banks currently use to protect the confidentiality and integrity of personal data. Institutions must continue to be able to choose the framework, tools, and assessments that match their size and complexity. In addition, ICBA urges policymakers to recognize community banks’ reliance on third-party service providers and work collaboratively with them to ensure community banks are protected. ICBA is promoting the use of the .BANK web domain and Sheltered Harbor to further protect consumer account information.

Data Security. ICBA is working with Congress to pass legislation that would apply federal data security standards and notice requirements to all entities that store consumer data, comparable to the Gramm-Leach-Bliley Act standards that already apply to financial institutions. ICBA also supports shifting liability for costs associated with a data breach – including the cost of card reissuance – to the party that experienced the breach. ICBA also supports additional examination and supervision of third parties, including the credit rating agencies, that hold personally identifiable information and serve community banks.

Equifax Suit. In response to their 2017 data breach, ICBA filed a lawsuit against Equifax, asking the U.S. District Court for the Northern District of Georgia to require the credit bureau to compensate all community banks harmed by the breach and to improve its security to avoid additional harm to the consumers and local communities that community banks serve. The lawsuit seeks monetary relief for all community banks affected by the breach for such costs as: protection measures to deter customer identity theft, deposit and loan account fraud, customer notification, covering fraudulent transactions, payment card cancellation and replacement, and other expenses.

Tax Relief. The Tax Cuts and Jobs Act, signed into law in December 2017, provides significant tax relief for both C corporation and S corporation community banks. ICBA will press for extension of the individual provisions, including the pass-through deduction and AMT and estate tax relief, well before they are scheduled to expire at year-end 2025. ICBA will oppose any efforts to increase the new corporate rate of 21 percent, increase individual rates for ordinary or capital gains income, create a new wealth tax or a financial transactions tax – all of which have been proposed. ICBA is supporting the ECORA Act (H.R. 1872/S. 1641), which would provide that interest earned on loans secured by agricultural real estate is tax exempt. Interest on loans secured by rural single-family homes that are the principal residence of the borrower in towns with a population of less than 2,500 would also be tax exempt.

Community Reinvestment Act. ICBA supports reforming and modernizing Community Reinvestment Act (CRA) regulations. ICBA continues to urge the banking agencies to create greater transparency during the examination process, ensure examination and supervision are consistent across cycles and among agencies, and allow assessment areas to be identified and delineated by community banks rather than the agencies so that lenders can plan accordingly.

Cannabis Banking. ICBA is supporting the SAFE Banking Act (H.R. 1595), which would create a safe harbor from federal sanctions for financial institutions that serve cannabis-related businesses in states where cannabis is legal. H.R. 1595 passed the House Financial Services Committee and is pending consideration on the House floor.

Implementation of the New Farm Bill. With the enactment of a new farm bill (P.L. 115-334) in December, the administration must work aggressively to adopt regulations to implement the bill in a timely manner. ICBA will continue working to ensure the bill is implemented in a community banker friendly manner by weighing in on key policy issues impacting USDA farm and rural development guaranteed loan programs and other farm bill provisions impacting the community banking sector.

Responsible Innovation (Fintechs). ICBA is assessing the future of financial technology firms (fintechs) and the opportunities these firms may offer community banks for reaching more customers and expanding products and services. At the same time, ICBA advocates for a level playing field with these firms. In particular, ICBA believes the Office of the Comptroller of the Currency should not issue special purpose national bank charters to fintech companies without explicit statutory authority and implementing regulations. Any special purpose federal charter should be subject to the same standards of safety, soundness and fairness as other federal charters.

Community Bank Access to Capital. ICBA is advocating for the Community Bank Access to Capital Act, S. 1233, which would provide relief from SEC rules regarding SOX 404(b) and Regulation D. ICBA supports an SEC proposal to exempting SEC filers with less than $100 million in annual revenues from SOX 404(b).

Current Expected Credit Loss Model. Following a multi-year advocacy campaign, ICBA won significant changes in the Financial Accounting Standards Board’s final accounting standard on credit losses. In particular, community banks will not be required to use complex cash flow modeling to determine loan reserves. ICBA is pleased that the banking agencies have adopted a rule allowing banks the option to phase in the day-one adverse regulatory capital effects of CECL adoption over a three-year period. Despite these achievements, ICBA supports H.R. 3182, which would require the agencies to conduct a quantitative study of the impact of the CECL standard and delay its effective date for one year following completion of the study.

SBA Rule. ICBA opposes any regulatory changes to SBA lending programs that could diminish access to SBA loan programs by improperly identifying small businesses as affiliates of large corporations. ICBA believes SBA’s proposed affiliation principles will have many unintended consequences for small businesses across the nation, including agricultural enterprises.

Flood Insurance. The National Flood Insurance Program (NFIP) is currently under a short-term authorization. ICBA is actively engaged in the debate over reform of the program. ICBA supports reforms that include a long-term re-authorization and an increase in the role of private insurers while maintaining access to the NFIP for those who need it. ICBA opposes reforms that exempt commercial properties or place additional compliance responsibilities on community banks.

Small Business Lending Data Collection. ICBA is seeking repeal of the CFPB’s statutory authority to require lenders to collect and report data on all small business loan applications. ICBA submitted a comment letter to and met with the CFPB to urge the agency to exempt community banks from its forthcoming rule.

TILA/RESPA Integrated Disclosures (TRID). ICBA continues to monitor feedback from community bankers regarding TRID implementation issues and exam findings. Recent amendments to the TRID rule and commentary are a welcome development. However, ICBA is encouraging the CFPB to make additional changes to TRID that include waiver of the 3-day review period by the borrower prior to closing and exemption from TRID for loans where vacant land or acreage is used as additional collateral.

Mortgage Servicing. The CFPB’s final servicing rule, released in January 2013, exempts servicers that service 5,000 or fewer loans from some, but not all, new requirements. ICBA advocates an increase in the exemption threshold to 30,000 loans serviced or $5 billion in unpaid principal balance on loans serviced.

Consumer Financial Protection Bureau. ICBA is working to protect the interests of community banks before the CFPB. We are advocating governance reforms to change the structure of the CFPB to a five-member commission and give bank regulators meaningful input into CFPB rules. ICBA also supports raising the threshold for banks subject to direct examination and supervision by the CFPB from $10 billion to $50 billion in assets. ICBA will continue to push for greater scrutiny over non-bank financial firms. ICBA is urging the CFPB whenever possible to adopt tiered regulations and appropriate exemptions for community banks.

Fair Lending Issues. ICBA is working to protect community bankers from frivolous lawsuits and the misapplication of fair lending laws by a number of different agencies, including the U.S. Department of Justice. ICBA is also urging bank examiners not to use statistical screening alone, which has caused banks to defend themselves against “false positive” fair lending violations. In response to the Department of Housing and Urban Development’s notice and request for comment, ICBA urged its fair lending disparate-impact rule be amended to meet the limitations imposed by the U.S. Supreme Court in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc. Under the disparate-impact theory, lenders may be held liable for neutral practices that have a disparate impact on certain classes of borrowers, even if the lenders have no intent to discriminate.

FDIC National Rate Caps on Deposits. ICBA is urging the FDIC to reconsider the methodology used to calculate the interest rate restrictions applicable to less-than-well-capitalized institutions. The current methodology understates prevailing rates, thereby unduly hampering affected banks. For example, credit union deposit rates should be included as well as premiums and promotional rates and non-standard certificates of deposits. Interest rates paid by large banks should not be overrepresented in the calculation.

Bank Exams. ICBA continues to warn regulators that overly conservative safety and soundness and compliance exams adversely impact community bank lending and support for economic growth. ICBA continues to advocate for a more flexible supervisory approach to community banks. ICBA’s advocates for the creation of an independent appeals process outside of the banking agencies.

Accounting and Auditing. In addition to our work on FASB’s current expected credit loss model, ICBA opposes FASB proposals to restrict the ability of community banks to classify mortgage loans and investment securities at amortized cost and to require extensive liquidity risk and interest rate risk disclosures in the footnotes to audited financial statements. ICBA also opposes requirements that public companies use specific auditors or use different auditors on a rotating basis.

Mutual Institutions. ICBA continues to support the option of mutual ownership before all regulatory and legislative bodies. S. 2155 provides that federal savings institutions with assets of $20 billion or less can elect to operate with national bank powers. ICBA also supports the authorization of mutual banks to issue Mutual Capital Certificates (MCCs) that would qualify as Tier 1 common equity capital.

Overtime Pay. A federal judge struck down the Obama Department of Labor’s new rule to expand the number of employees subject to overtime pay. In March, DOL issued a new proposed rule which would reduce the salary level below which an employee cannot be exempted from overtime pay to $35K from $47K.

Small Dollar Loan Rule. In November 2018, the FDIC requested information on payday, vehicle title, and certain high-cost installment loans. ICBA recommended that the FDIC promote community banks as model small-dollar lenders, allow flexibility for banks to develop and manage their own reasonable underwriting guidelines; and provide banks the flexibility to offer small-dollar credit products above 36 percent. In February 2019, the CFPB reopened its rule on payday, vehicle title, and certain high-cost installment loans. ICBA urges the CFPB to ensure that the small-dollar marketplace is fair, transparent and competitive, promote community banks as model small-dollar lenders, and allow flexibility for banks to develop and manage their own reasonable underwriting guidelines.

State-Owned or Public “Partnership” Banks. ICBA opposes the establishment of state-owned or public “partnership” banks. Such banks would directly compete with community banks and divert deposits from local communities. Public banks are not needed in a highly competitive financial environment. Moreover, they are fraught with risk for taxpayers and liable to capture by partisan political agendas.

Patent Abuse. ICBA supports legislation that would curb abusive patent infringement claims against community banks.

Claims Under the Americans with Disabilities Act. ICBA is committed to further raising community bank awareness and to providing resources to assist community banks in responding to demand letters sent by plaintiff law firms alleging violations of the Americans with Disabilities Act (ADA) accessibility requirements for electronic banking services.

Minority Banks. The ICBA Minority Bank Council was formed to recognize the unique characteristics of minority banks and to pursue policies in support of minority bank growth and preservation.

Fintech Disruptors. ICBA continues to track the development of non-bank financial services that use technology to disrupt banks, such as mobile wallets, virtual currencies, and distributed ledger (blockchain) technologies. Additionally, ICBA educates regulators and other interested parties regarding the risks related to these services.

Payments Card Security. ICBA supports industry initiatives aimed at improving security for credit, debit, and prepaid cards, including EMV/chip, tokenization of card numbers, and point-to-point encryption.

Transitioning from LIBOR. ICBA is representing community banks on the new reconstituted Alternative Reference Rates Committee (ARRC), an industry-wide, private-sector organization convened by the Federal Reserve to ensure a successful transition from U.S. dollar LIBOR to alternative reference rates.

De Novo Community Bank Formation. ICBA supports a more flexible and tailored supervisory policy for de novo banking applicants. Capital standards, exam schedules, and other supervisory requirements should be based on the pro forma risk profile and business plan of the applicant, not a one-size-fits-all policy that inhibits de novo bank formation.