President Signs Community Bank Regulatory Relief Into Law. On May 24, President Trump signed into law S. 2155, the Economic Growth, Regulatory Relief, and Consumer Protection Act. This historic new law is the culmination of a multi-year ICBA effort to create regulation that is tiered to the size, risk, complexity, and business model of community banks. In addition to relief for smaller community banks, S. 2155 includes provisions specifically designed for larger community banks with assets from $10 billion to $50 billion.
Agencies Implement S. 2155. Four months after S. 2155 was enacted, ten of fifteen provisions of interest to community banks are in effect. Guidance, final rules or proposed rules have been issued by regulators on eight of the ten, allowing community banks to benefit from this important new law as soon as possible. In particular, the agencies have acted on the Home Mortgage Disclosure Act partial exemption, the TRID three-day waiting period relief, the exception from the brokered deposits rule for certain reciprocal deposits, the Volcker rule relief, the extension of the 18-month exam cycle to more banks, the higher asset limit for Small Bank Holding Company Policy Statement eligibility, the relaxation of HVCRE capital risk weights, and the treatment of municipal bonds under the liquidity leverage ratio rule.
Tax Cuts and Jobs Act Provides Significant Tax Relief for Community Banks. 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. C corporations are taxed at a rate of 21 percent. S corporation shareholders are generally eligible for a 20 percent deduction of their business income. Among other significant changes, the new law generally preserves the interest deduction for business borrowers, which had been targeted for elimination, reduces individual tax rates, increases the standard deduction, and increases exemption levels for the individual alternative minimum tax and the estate tax. 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 year-end 2025.
CECL Phase-In Proposed. Due to ICBA’s advocacy and concerns regarding the new current expected credit loss (CECL) accounting standard’s impact on community banks, the banking agencies are now proposing the option to phase in the day-one adverse regulatory capital effects of CECL adoption over a three-year period. The transition is intended to address banks’ challenges in capital planning for CECL implementation, including the economic uncertainty at the time of CECL adoption.
Agencies Raise Appraisal Exemption Threshold for CRE Lending. As advocated by ICBA, the federal banking agencies raised the appraisal requirement exemption threshold for commercial real estate transactions from $250,000 to $500,000. For transactions below this threshold, an in-house evaluation may be substituted for an appraisal performed by a licensed or certified appraiser.
Beneficial Ownership Rule. In September 2018, the Financial Crimes Enforcement Network granted exceptive relief from beneficial owner requirements for the rollover of certificates of deposits, the renewal of safe deposit box rentals, the renewal, modification or extension of loans or commercial lines of credit or credit card accounts that do not require underwriting review and approval. FinCEN also granted an exemption from the customer identification program rules, including the general requirement to identify and verify the identity of the beneficial owners for loans to facilitate purchases of property and casualty insurance policies.
Congress Overturns BCFP Indirect Auto Lending Guidance. On May 21, Congress passed a resolution to rescind the BCFP’s indirect auto lending guidance. The 2013 guidance provides that lenders that offer loans through auto dealerships are responsible for unlawful discriminatory pricing.
Congress Overturns Arbitration Rule. In October 2017, Congress passed a resolution to rescind the BCFP’s rule barring the use of arbitration agreements in consumer contracts. The resolution was narrowly approved in the Senate, and ICBA and community banks were instrumental in securing votes for passage.
Agencies Pause Certain Basel III Rules, Propose Capital Simplification. In August 2017, the federal banking agencies announced a pause in the phase-in of regulatory capital deductions and risk weights for mortgage-servicing rights, certain deferred tax assets and certain investments in other banks. These provisions were scheduled to be fully phased in in January 2018. In September, the agencies proposed raising the capital threshold deduction from 10% to 25% for the assets listed above.
Treasury Withdraws Adverse Estate Planning Proposal. In October 2017, Treasury withdrew an Obama administration proposal that would have disallowed the use of well-established estate planning techniques for the transfer of family-owned businesses, increasing estate tax liability by as much as 35 percent. ICBA highlighted the adverse impact of this proposal on community banks and urged its withdrawal.
Small Dollar Loan Rule Includes ICBA-Backed Exemption. In October 2017, the BCFP released its final payday, vehicle title and certain high-cost installment loan rule. As advocated by ICBA, the final rule exempts from the onerous full-payment test and the principal-payoff option lenders that make 2,500 or fewer covered short-term or longer-term balloon-payment covered loans per year and derive no more than 10 percent of their receipts from such loans. The BCFP has announced that it will reopen the rule. ICBA will advocate to protect and expand the exemption.
Appeals Court Vacates Fiduciary Rule. In March 2018, the U.S. Court of Appeals for the 5th Circuit vacated the Department of Labor’s fiduciary rule which governs the provision of retirement investment advice. ICBA had advocated for full repeal of the rule because it reduces access to investment advice. The Trump administration will not appeal the ruling, so the rule is now dead. Subsequently, the SEC proposed a rule that includes some elements of the DOL’s fiduciary rule.
Congress Passes SBA Reform Bill. In June 2018, Congress passed and the president signed the Small Business 7(a) Lending Oversight Reform Act, which will strengthen the SBA Office of Credit Risk Management and Lender Oversight Committee, codify the SBA’s “Credit Elsewhere Test,” and allow the SBA to lift the cap on general business loans if it is reached so lending is not disrupted as it was in the summer of 2015.