InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
Rep. Luetkemeyer Introduces CLEARR Act to Provide Regulatory Relief to Community Banks
On April 26, Rep. Blaine Luetkemeyer (R-Mo.) introduced the Community Lending Enhancement and Regulatory Relief Act of 2017 (CLEARR Act) (H.R. 2133) designed to provide community financial institutions with regulatory relief from certain burdensome federal requirements. Among other things, the CLEARR Act would limit the authority of the CFPB by raising the asset size threshold for CFPB supervision from $10 billion to $50 billion and amend Section 1031 of the Consumer Financial Protection Act of 2010 by removing the term “abusive” from the CFPB’s “unfair, deceptive, or abusive” acts or practices authority. The CLEARR Act would also provide relief in the mortgage lending area by exempting community banks from certain escrow requirements and amend the Truth in Lending Act by adding a safe harbor for qualified mortgage loans held in portfolio. Moreover, the CLEARR Act would repeal all regulations issued to implement the Basel III and NCUA capital requirements. It would also repeal the Dodd-Frank Act provision amending the Equal Credit Opportunity Act to require collection of small business and minority-owned business loan data, as well as prohibit federal banking agencies from requiring depository institutions to terminate a specific account or group of accounts unless the agency has a material reason not based solely on reputational risk.
Rep. Luetkemeyer—who is a senior member on the House Financial Services Committee and the Chairman of the Financial Institutions and Consumer Credit Subcommittee—also issued a statement after President Trump called for the Treasury Secretary to conduct reviews of the Orderly Liquidation Authority and Financial Stability Oversight Council: “As a former bank examiner, community banker, and Chairman of the Financial Institutions Subcommittee, I have long advocated for eliminating the OLA, because it puts taxpayers on the hook for bailouts, instead of putting private companies on the hook for bankruptcy. For years, I have also introduced legislation to change FSOC’s arbitrary designation processes, which lead to higher costs, fewer services, and less available credit for American consumers. The American people deserve financial independence and I look forward to working with President Trump and my colleagues to help them achieve it.”
CFPB Deputy Director Addresses Community Bank Advisory Council on Financial Data Usage
On April 25, CFPB Deputy Director David Silberman addressed the Community Bank Advisory Council (CBAC) in Washington, D.C. on the Bureau’s work involving the use of data in the financial marketplace. CBAC was established almost five years ago to ensure that the Bureau had a direct line of communication with community banks. The Bureau is focused on understanding “how consumers are exercising control over their personal financial data, including the data that is maintained by their financial institutions.” In November of last year, the CFPB issued a Request for Information (RFI) regarding ways to “address the risks and technological challenges posed when consumers seek ready access to this data and seek to share it electronically with third parties.” The Bureau’s goal is to evaluate how to balance consumer needs without exposing the providers that maintain this data to undue costs and risks, while also making sure consumer data is not misused.
Silberman discussed the use of new types of data to assess the creditworthiness of consumers when applying for credit. The Bureau is exploring the possibility that “thoughtful and responsible use of alternative data—that is, data that is not part of the traditional credit reporting system—could expand the credit available to underserved consumers.” (See previous InfoBytes summary.) In February 2017, the CFPB issued another RFI to seek feedback about the “potential benefits and risks of using, applying, and analyzing unconventional sources” such as rent or utility payments to “assess people’s creditworthiness.” Silberman acknowledged community banks’ skill and “willingness to go beyond the numbers” in order to make lending decisions based on the totality of information they have available about their customers. The Bureau is exploring ways to combine the objectivity and rigor of automated underwriting with the community banks approach.
Credit Unions, Small Banks Encourage Fed Payments System Operational Role
On April 18, three industry organizations representing community banks and credit unions—the Credit Union National Association (CUNA), the Independent Community Bankers of America (ICBA), and the National Association of Federally-Insured Credit Unions (NAFCU)—sent a letter urging the Federal Reserve System (Fed) to provide central bank settlement services in support of private sector development of future payment systems, rules, and standards. The letter also urges the Fed to take on three operational roles in addition to settlement capabilities: (i) to serve as an “on-ramp” to real-time payments; (ii) to serve as a real-time payments operator, much as it currently is an operator for checks, automated clearinghouse payments, and wire transfers; and (iii) to maintain a “payments directory” that would link together financial institutions and private-sector payments directories. The organizations argue, among other things, that the Fed’s commitment to these operational roles is critically important to achieving the “much-needed goals of safety, equitable access, and ubiquity” in developing an improved payments system. The letter emphasizes that the organizations are not requesting that the Fed develop rules or standards for real-time payments, but rather take the position that such efforts “should be left for private sector rules and standards organizations.”
As previously covered by InfoBytes, the Fed created the Faster Payments Task Force and the Secure Payments Task Force in June 2015 to lead industry efforts toward a speedier and better payments system. The CFPB also issued a set of guiding principles aimed to help private industry better protect consumers as new, faster electronic payment systems continue to emerge. (See InfoBytes coverage) The April 18 letter “applaud[s] the formation of both [Task Forces]” and “strongly encourage[s] the ongoing commitment of the [Fed] to lead and catalyze payments industry activities until the desired outcomes stated in the 2015 Strategies for Improving the U.S. Payments System paper are achieved.”
Dallas Fed Explores Reasons Why Community Banks are “Flipping to State Charters”
Released earlier this month, the latest issue of the Federal Reserve Bank of Dallas’ Quarterly Publication Financial Insights, takes a closer look at the causes behind a recent trend in community banks opting to change from a national to a state charter. As explained in the article—entitled Community Banks Flipping to State Charters—“[v]ery few commercial banks—only about 1 percent—change charters in any given year,” but, “of those that do change charters, twice as many are choosing a state charter.” Indeed, according to the authors, “[o]f the 780 community banks that changed charters between 1995 and 2015, 529 left the control of the [OCC].” Having analyzed data from the National Information Center (NIC), the authors conclude that motivations for changing to a state charter vary broadly “from cost to culture,” but that “[b]roadly speaking, charter choice is generally a question of whether the higher assessment cost often associated with a national charter is offset by the benefits of operating under a single set of laws and regulations.”
House Subcommittee Holds Hearing to Discuss the Impact of Regulations on Access to Credit
On March 28, the House Subcommittee on Financial Institutions and Consumer Credit held a hearing that examined recent trends in lending and how the current regulatory climate impacts the availability of credit for consumers and small businesses. According to a memorandum issued prior to the hearing by the House Financial Services Committee, the hearing sought to address the decline in “[l]ending by community financial institutions . . . since the passage of the Dodd-Frank [Act].” Specifically, the memo notes that in the six years prior to the Dodd-Frank Act, small bank lending was more than 150 percent above large bank lending. In the more than six years after Dodd-Frank, small bank lending has been nearly 80 percent below large bank lending. A witness list for the single-panel hearing (along with links to prepared remarks submitted by each witness) included the following stakeholders:
- Scott Heitkamp, President and Chief Executive Officer, ValueBank Texas, on behalf of the Independent Community Bankers of America;
- Holly Wade, Director, Research and Policy Analysis, National Federation of Independent Businesses;
- J. David Motley, President, Colonial Companies, on behalf of the Mortgage Bankers Association; and
- Michael Calhoun, President, Center for Responsible Lending.
In a press release issued by the Financial Services Committee following the hearing, majority members of the subcommittee identified the “Key Takeaways from the Hearing,” as (i) “Dodd-Frank has left Americans with fewer choices, higher costs and less freedom”; (ii) “Financial institutions are exiting entire lines of business, limiting the availability of products and services for consumers”; and (iii) “[t]he Financial CHOICE Act will increase access to credit for consumers and capital for small businesses.”
An archived webcast of the hearing may be accessed here.
FDIC Q4 2016 Quarterly Banking Profile Reveals Community Bank Deposits, Office Count Both Up; OCC Reports Uptick in Mortgage Performance through End of 2016
Earlier this week, the FDIC released the latest issue of both its Quarterly Banking Profile and the FDIC Quarterly Report–a “comprehensive summary of the most current financial results for the banking industry” that is published quarterly by the FDIC’s Division of Insurance and Research. According to its latest Report, community banks—which represent 92 percent of insured institutions—reported net income of $5.6 billion in the fourth quarter of 2016, a 10.5% increase over 2015. According to the Report, “the increase was driven by higher net interest income and noninterest income, which was partly offset by higher loan-loss provisions and noninterest expense.” The Report also reveals an 8.3 percent 12-month growth rate in loan balances at community banks. The Report notes further that “community banks accounted for 43 percent of small loans to businesses.” Notably, the FDIC observed that, although deposits across the banking industry grew, the number of non-community bank offices actually shrank. By contrast, however, the number of community banks increased during 2016.
Also this week, the OCC announced the release of its “OCC Mortgage Metrics Report, Fourth Quarter 2016,” its quarterly report based on performance data from seven national bank servicers, including over a third of all outstanding U.S. residential mortgages. As explained in the OCC’s Q4 2016 Report, foreclosure activity declined and mortgage performance continued to improve through the fourth quarter of 2016, with 94.7 percent of mortgages current and performing at the end of 2016, compared with 94.1 percent a year earlier. Servicers initiated 45,495 new foreclosures in the fourth quarter, a decrease of 5.1 percent from previous quarter and a decrease of 28.2 percent year-over-year. Notably, the number of mortgage modifications—most involving a reduction in borrower monthly payments—similarly reflected a substantial 9.3 percent decrease from the previous quarter. The OCC also notes, among other things, that the percentage of seriously delinquent mortgages dropped to 2.3 percent of the portfolio, down from 2.7 percent reported in the fourth quarter a year earlier.
House Financial Institutions and Consumer Credit Subcommittee Hearing Examines Decline in New Bank/Credit Union Charter Applications
In an afternoon hearing on March 21 entitled “Ending the De Novo Drought: Examining the Application Process for De Novo Financial Institutions,” Members of the House Financial Services Financial Institutions and Consumer Credit Subcommittee met to examine the impact that the Dodd-Frank Act has had on the creation of new or “de novo” financial institutions. According to a majority staff memorandum released in advance of the hearing, the number of new, or “de novo,” bank and credit union charters has declined to historic lows since the passage of the Dodd-Frank Act. From 2010 to 2016, there were only five new bank and 16 new credit union charters granted. In comparison, between 2000 and 2008, 1,341 new banks and 75 new credit unions were chartered.
Three of the witnesses – each of whom appeared on behalf of a banking industry group – generally agreed that the Dodd-Frank Act has, to some extent, had a “chilling impact” on the creation of new banks:
- Kenneth L. Burgess, speaking on behalf of the American Bankers Association noted, among other things, that “in the five years since Dodd-Frank was enacted, the pace of lending was half of what it was several years before the financial crisis. Some banks have stopped offering certain products altogether, such as mortgage and other consumer loans.”
- Keith Stone, representing the National Association of Federally-Insured Credit Unions, noted that “[t]he compliance requirements in a post-Dodd-Frank environment have grown to a tipping point where it is nearly impossible for many smaller institutions to survive, much less start from scratch.”
- Patrick J. Kennedy, Jr., appearing on behalf of the Subchapter S Bank Association, noted that “[m]any banks exited the mortgage loan business because of the complexity and uncertainty resulting from Dodd Frank, the CFPB and related rulemaking.”
The fourth witness, Sarah Edelman, offered an alternative explanation for the decline in new bank applications to the FDIC. Ms. Edelman—who is currently the director of housing finance at the Center for American Progress—testified as to her belief that the “decline” in “[t]he number of new bank applications to the FDIC . . . is largely the result of macroeconomic factors, including, historically low interest rates reducing the profitability of new banks, as well as investors being able to purchase failing banks at a discount following the financial crisis.”
In December of last year, the FDIC released a handbook entitled Applying for Deposit Insurance – A Handbook for Organizers of De Novo Institutions, which provides an overview of the business considerations and statutory requirements that de novo organizers face as they work to establish a new depository institution and offers guidance for navigating the phases of establishing an insured institution. Rather than establish new policy or offer guidance, the Handbook instead “seeks to address the informational needs of organizers, as well as feedback from organizers and other interested parties during recent industry outreach events.” Comments were due February 20. Additional resources are available through an FDIC website dedicated to applications for deposit insurance.
FDIC Advisory Committee on Community Banking to Host Open Meeting on March 28
The Federal Deposit Insurance Corporation’s Advisory Committee on Community Banking will host an open meeting on Tuesday, March 28, 2017, at 9 a.m. The Advisory Committee will provide advice and recommendations on a broad range of policy issues that have particular impact on small community banks and the local communities they serve, with a focus on rural areas.
OCC to Host Credit Risk and Operational Workshops for Directors of National Community Banks and Federal Savings Associations; Banking Agencies to Conduct Webinar to Introduce New FFIEC Call Report
On March 2, the Office of the Comptroller of the Currency (OCC) announced that it will host two workshops in Phoenix on April 11-12 for directors of OCC supervised national community banks and federal associations. The Credit Risk workshop (April 11) will cover strategies to recognize trends and problems in credit risk within the loan portfolio, and the Operational Risk workshop (April 12) will discuss key components of operational risk, governance, third-party risk, vendor management, and cybersecurity.
Also on March 2, four members of the Federal Financial Institutions Examination Council (FFIEC) (Federal Reserve Board, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, and the Conference of State Bank Supervisors) announced the implementation of the new streamlined FFIEC 051 Call Report, effective March 31, 2017, that will introduce burden-reducing changes to the existing versions of the Call Report and will be available to eligible small institutions. “’Eligible small institutions’ are [defined as] institutions with domestic offices only and total assets of less than $1 billion, excluding those that are advanced approaches institutions for regulatory capital purposes.” The revisions to the requirements are subject to approval by the OMB. On March 8, the FFIEC will conduct a webinar from 2:00 p.m. to 3:30 p.m. ET to introduce the new Call Report and explain the revisions.
CFPB Seeks Advisory Council Applications
As explained in a January 16 blog post, the CFPB recently set up three “advisory groups”—the Consumer Advisory Board, the Community Bank Advisory Council, and the Credit Union Advisory Council—in anticipation that the groups would provide information about emerging trends and practices in the consumer financial marketplace and to open lines of direct communication with smaller financial institutions. On January 16, the Bureau requested applications seeking to fill vacancies in all three groups, which have seats that will become vacant in the fall of 2017. According to the post, the CFPB is seeking individuals with expertise in a variety of consumer protection issues, including representatives of banks serving underserved communities, representatives of communities impacted by higher priced mortgages, employees of credit unions and community banks, and academics. Applications are due March 1.