ICBA Current Top Issues

Fourth Quarter 2018

Implementation of S. 2155. The Economic Growth, Regulatory Relief and Consumer Protection Act (S. 2155) was signed into law on May 24, 2018. ICBA is urging the agencies to expedite rulemaking or other guidance so that community banks can benefit from the new law as soon as possible. Ten provisions are now in effect, some with and some without guidance. The agencies continue their work on four community bank provisions which are not yet in effect. Of these, the most significant are the community bank leverage ratio and the short form call report for the first and third quarters. ICBA is advocating for a tangible equity-to-assets leverage ratio of 8 percent (the minimum allowed under the new law) and a true short form call report that requires only the balance sheet, income statement, and statement of changes in shareholders’ equity.

Industrial Loan Corporations. ICBA is urging the FDIC to impose a two-year 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. SoFi Bank, Square, and Nelnet Bank have withdran their applications to the FDIC for deposit insurance for their proposed ILCs.

Credit Unions. A federal court vacated two parts of the National Credit Union Administration (NCUA) final rule broadening credit unions’ field of membership. Two parts of the rule were left standing. ICBA and state community banking associations participated as an amicus party in ABA’s suit challenging the final rule. NCUA and ABA have both decided to appeal the ruling. ICBA is opposing NCUA’s proposal to allow credit unions to raise alternative capital. ICBA will continue its efforts to block legislation that would expand credit union powers in any form. ICBA is urging Congress to end credit unions’ unfair tax and regulatory advantages and to prevent NCUA from erecting roadblocks that keep credit unions from converting to tax-paying banks.

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.

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.

The Next Farm Bill, Crop Insurance, and Farm Credit System Lenders. ICBA supports adoption of a robust farm bill to provide a strong safety net for farmers and ranchers. The farm bill must include adequate price-protection programs and enhanced USDA-guaranteed farm and business loan programs. ICBA supports crop insurance as a successful public-private program that is critical to the prosperity of rural America. ICBA is working to protect the program from further cuts or adverse changes that would discourage farmer and rancher participation or undermine private sector delivery. ICBA continues working to significantly reform FCS institutions to keep them from becoming the equivalent of commercial banks but with credit union-like tax exemptions and the inherent advantages of government sponsored enterprise status.  ICBA has released a farm bill “infographic” which summarizes our positions, as well as a more extensive “Focus on Farm Policy” white paper to help guide lawmakers.

Data Security. ICBA calls on 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.

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 is engaged with Treasury to ensure that its rule implementing the new deduction for S corporation community bank income reflects the intent of Congress. 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.

Community Reinvestment Act. ICBA is reviewing the Office of the Comptroller of the Currency’s advance notice of proposed rulemaking on reforming and modernizing Community Reinvestment Act (CRA) regulations. ICBA will 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.

Future of Housing Finance. 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. ICBA has prepared a white paper (available on our website), “ICBA Principles for GSE Reform.” ICBA has urged 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 rebuild a capital buffer 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.

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.

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 measures that would require beneficial ownership information to be collected and verified at the time a legal entity is formed by a federal or state agency.

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 participate in the Federal Reserve Banks’ payment system improvement initiatives, including the Faster Payments and Secure Payments Task Forces. ICBA strongly advocates for real-time payments and supports an operational role for the Federal Reserve as an enabler of ubiquity.

Community Bank Access to Capital. ICBA is advocating for a package of legislative changes to strengthen community bank viability by creating new options for capital raising and capital preservation. Provisions were included in the recently enacted S. 2155 (see above), including Basel III relief for banks with assets of less than $10 billion that exceed a to-be-defined leverage ratio of between 8 and 10 percent; less punitive risk weighting for high volatility real estate (HVCRE) loans for banks that are still subject to risk-based capital rules; and raising the eligibility threshold of the Federal Reserve Small Bank Holding Company Policy Statement from $1 billion to $3 billion. ICBA continues to advocate for relief from SEC rules regarding SOX 404(b) and Regulation D.

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 will follow through on this important victory by ensuring that regulators and auditors charged with implementing CECL do so in a manner that is flexible and scalable for community banks. ICBA is pleased that the banking agencies have proposed the option to phase in the day-one adverse regulatory capital effects of CECL adoption over a three-year period.  

Flood Insurance. The National Flood Insurance Program (NFIP) is currently under a short-term authorization which expires in November 2018. ICBA is engaged in the debate over reform of the program and will evaluate proposals to increase the role of private insurers based on their effect on premium affordability and other criteria.

Small Business Lending Data Collection. ICBA is seeking repeal of the BCFP’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 BCFP urging 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 BCFP to prevent delayed closings and frustrated borrowers by continuing to work closely with community banks and other industry participants to address critical compliance questions through written guidance and FAQs. ICBA is also urging regulators to continue taking a diagnostic and corrective approach regarding good-faith compliance efforts during the amendment process.

Mortgage Servicing. The BCFP’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 legislation that would increase the statutory 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 BCFP. We are advocating governance reforms to change the structure of the BCFP to a five-member commission and give bank regulators meaningful input into BCFP rules. ICBA also supports raising the threshold for banks subject to direct examination and supervision by the BCFP 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 BCFP 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 Plan for Prosperity calls 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 will work with the OCC to issue regulations to implement this provision. ICBA also supports the authorization of mutual banks to issue Mutual Capital Certificates (MCCs) that would qualify as Tier 1 common equity capital.

Cannabis Banking. ICBA is supporting legislation in the Senate (S. 1152) and House (H.R. 2252) that would create a safe harbor from federal sanctions for financial institutions that serve cannabis-related businesses in states where cannabis is legal.

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. As the Trump administration works to rewrite the overtime rule, ICBA is calling for restoration of the 2004 overtime standards.

Small Dollar Loan Rule. In January 2018, the BCFP announced that it will reopen its recently finalized rule on payday, vehicle title, and certain high-cost installment loans. ICBA urges the BCFP to retain and improve the current exemption for community bank lending.

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.