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Senate Banking Committee reaches tentative compromise on reg relief

On Nov. 13, members of the Senate Banking Committee unveiled a proposed compromise on regulatory relief for community banks, according to OBA President Roger Beverage.

“It's not everything we wanted,” Beverage said. “I still want to see if this is the final 'take-it-or-leave-it' version or if we can add some tweaks.  

“The most obvious omission is that it doesn't talk about 'tailoring' rules and regulations according to business model and risk profile,” Beverage said. “Rather, it takes the approach of capping the size a bank can be to benefit from its provisions. The ceiling for most sections caps it for banks at $10 billion or less. It is far from perfect, but it's a great start.”

Beverage said that Committee Chairman Mike Crapo (R-Idaho) negotiated the agreement with a few moderate Democrats on the Committee, led by Sen. Heidi Heitkamp (D-N.D.). Other Democrats on the Committee who will co-sponsor the bill include Joe Donnelly (D-Ind.), Jon Tester (D-Mont.) and Mark Warner (D-Va.).

“A strong and vibrant economy is important for American consumers, businesses and the stability of the financial sector,” Chairman Crapo said. “The bipartisan proposals on which we have agreed will significantly improve our financial regulatory framework and foster economic growth by right-sizing regulation, particularly for smaller financial institutions and community banks. I thank all of the senators who have joined with us to move this forward, and look forward to continuing our work to achieve a robust, bipartisan legislative product.”

“This bipartisan regulatory relief package is an example of what we can achieve when we work together, and the result of good-faith negotiations with Chairman Crapo, Sens. Tester, Warner and Heitkamp,” Sen. Donnelly said. “The proposal would provide long-awaited regulatory relief to community banks and credit unions unintentionally burdened by rules intended to hold Wall Street accountable. This agreement would maintain the safety of our financial system and offer new protections to consumers, including veterans, by helping to protect their credit in the wake of recent data breaches, like the Equifax breach."

“Our bill is an example of how if Democrats and Republicans put partisanship aside and work together, we can reach real compromises that support the country,” Sen. Heitkamp said. “Every day I come to work in the U.S. Senate, I'm fighting for rural America – and that's what our bipartisan bill is about. It would provide needed relief to community banks and credit unions, so they can continue enabling small businesses to get financing to operate, helping farmers get loans to support their farms, and allowing families to buy homes in rural communities across our state. And it does all of this while strengthening protections for consumers. In the past 30 years, the number of community banks and credit unions have dropped by about two-thirds, yet more than 80 percent of North Dakota deposits still go to community banks, reinforcing that small financial institutions remain a key resource for North Dakota families. And with our bill, it will stay that way.”

Here are the key provisions of the proposed agreement as released Nov. 13:
 

TITLE I IMPROVING CONSUMER ACCESS TO MORTGAGE CREDIT

Section 101. Minimum Standards for Residential Mortgage Loans.
This section provides that certain mortgage loans that are originated and retained in portfolio by an insured depository institution or an insured credit union with less than $10 billion in total consolidated assets will be deemed qualified mortgages under the Truth in Lending Act (TILA) while maintaining consumer protections.

Section 102. Safeguarding Access to Habitat for Habitat for Humanity Homes.
This section provides that appraisal services donated voluntarily by a fee appraiser to an organization eligible to receive tax-deductible charitable contributions will be considered “customary and reasonable” under TILA.

Section 103. Access to Affordable Mortgages.
This section provides a tailored exemption from appraisal requirements under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 for certain mortgage loans with a balance of less than $400,000 if the originator is unable to find a State certified or State licensed appraiser to perform an appraisal after a good faith effort to do so.

Section 104. Home Mortgage Disclosure Act Adjustment and Study.
This section provides regulatory relief to small depository institutions that have originated less than 500 closed-end mortgage loans or less than 500 open-end lines of credit in each of the two preceding calendar years by exempting them from certain disclosure requirements under the Home Mortgage Disclosure Act. It also directs the Comptroller General to conduct a study examining the impact on the amount of data available.

Section 105. Credit Union Residential Loans.
This section provides that a 1- to 4-family dwelling that is not the primary residence of a member will not be considered a member business loan under the Federal Credit Union Act.

Section 106. Eliminating Barriers to Jobs for Loan Originators.
This section provides that an individual will be deemed to have temporary authority to act as a
loan originator for 120 days under the S.A.F.E. Mortgage Licensing Act of 2008 if such person is

1.    a registered loan originator who becomes employed by a state-licensed mortgage company or
2.    a state-licensed loan originator who becomes employed by a state-licensed mortgage company in a different state.

Section 107. Protecting Access to Manufactured Homes.
This section amends TILA to exclude from the definition of “mortgage originator” an employee
of a retailer of manufactured or modular homes who does not receive compensation or gain for
taking residential mortgage loan applications while maintaining consumer protections.

Section 108. Real Property Retrofit Loans.
This section applies consumer protections to real property retrofit loans.

Section 109. Escrow Requirements Relating to Certain Consumer Credit Transactions.
This section provides an exemption from escrow requirements under TILA for certain loans
made by an insured depository institution or an insured credit union.

Section 110. No Wait for Lower Mortgage Rates.
This section (1) removes the three-day wait period required for the combined TILA/RESPA
mortgage disclosure if a creditor extends to a consumer a second offer of credit with a lower
annual percentage rate, and (2) expresses the sense of Congress that the CFPB should endeavor to provide clearer, authoritative guidance with respect to certain issues.


TITLE II REGULATORY RELIEF AND PROTECTING CONSUMER ACCESS TO CREDIT

Section 201. Capital Simplification for Qualifying Community Banks.
This section requires that the Federal banking agencies establish a community bank leverage
ratio of tangible equity to average consolidated assets of not less than eight percent and not more than 10 percent. Banks with less than $10 billion in total consolidated assets who maintain tangible equity in an amount that exceeds the community bank leverage ratio will be deemed to be in compliance with capital and leverage requirements.

Section 202. Limited Exception for Reciprocal Deposits.
This section provides that certain reciprocal deposits will not be considered to be funds obtained, directly or indirectly, by or through a deposit broker under the Federal Deposit Insurance Act.

Section 203. Community Bank Relief.
This section provides that banking entities will be exempt from Section 13 of the Bank Holding
Company Act if they have (1) less than $10 billion in total consolidated assets, and (2) total
trading assets and trading liabilities that are not more than five percent of total consolidated
assets.

Section 204. Removing Naming Restrictions.
This section permits certain funds to share the same name or variation of the same name as their bank-affiliated investment adviser.

Section 205. Short Form Call Reports.
This section requires the Federal banking agencies to reduce reporting requirements for
depository institutions with less than $5 billion in total consolidated assets that satisfy other
criteria the Federal banking agencies deem appropriate.

Section 206. Option for Federal Savings Associations to Operate as Covered Savings
Associations.

This section permits Federal savings associations with less than $15 billion in total consolidated
assets to elect to operate with the same powers and duties as national banks without being
required to convert their charters.

Section 207. Small Bank Holding Company Policy Statement.
This section raises the consolidated asset threshold of the Federal Reserve's Small Bank Holding
Company Policy Statement from $1 billion to $3 billion.

Section 208. Application of the Expedited Funds Availability Act.
This section applies the Expedited Funds Availability Act, which governs bank deposit holds, to
American Samoa and the Commonwealth of the Northern Mariana Islands.

Section 209. Mutual Holding Company Dividend Waiver.
This section establishes that, in order for mutual holding companies to waive dividends of its
subsidiaries, mutual holding company members must have voted to do so in the prior 24, rather
than 12, months.

Section 210. Small Public Housing Agencies.
This section streamlines certain requirements for small public housing authorities operating in
rural areas.

Section 211. Examination Cycle.
This section raises the consolidated asset threshold from $1 billion to $3 billion for well managed and well capitalized banks to qualify for an 18-month examination cycle.

Section 212. National Securities Exchange Parity.
This section would amend Section 18 of the Securities Act of 1933 to apply the exemption from
State regulation of securities offerings to securities listed or authorized for listing on “a national
securities exchange” rather than naming specific securities exchanges.
 

TITLE III PROTECTIONS FOR VETERANS, CONSUMERS, AND HOMEOWNERS

Section 301. Protecting Consumers' Credit.
This section provides that credit bureaus will be required to include in the file of a consumer
fraud alerts for at least a year under certain circumstances, provide consumers one free freeze
alert and one free unfreeze alert per year, and provide further protections for minors.

Section 302. Protecting Veterans' Credit.
This section amends the Fair Credit Reporting Act to exclude from consumer report information:
(1) certain medical debt incurred by a veteran if the hospital care or medical services relating to
the debt predates the credit report by less than one year; and (2) a fully paid or settled veteran's medical debt that had been characterized as delinquent, charged off, or in collection. It also establishes a dispute process for consumer reporting agencies with respect to such veterans' medical debt.

Section 303. Aiding Senior Protection.
This section extends protections to certain individuals who, in good faith and with reasonable
care, disclose the suspected exploitation of a senior citizen to a regulatory or law-enforcement
agency.

Section 304. Restoration of the Protecting Tenants at Foreclosure Act of 2009.
This section permanently restores the Protecting Tenants at Foreclosure Act, which was repealed as a result of a sunset provision that took effect on Dec. 31, 2014.

Section 305. Remediating Lead and Asbestos Hazards.
This section authorizes the Department of Treasury to use loan guarantees and credit
enhancements as part of the Hardest Hit Fund to remediate lead and asbestos hazards in
residential properties.


TITLE IV TAILORING REGULATIONS FOR CERTAIN BANK HOLDING COMPANIES

Section 401 – Enhanced Prudential Standards for Certain Bank Holding Companies.
This section raises the threshold for applying enhanced prudential standards from $50 billion to
$250 billion. Bank holding companies with total consolidated assets between $50 billion and
$100 billion will be exempt from enhanced prudential standards immediately, and bank holding
companies with total consolidated assets between $100 billion and $250 billion will be exempt
18 months after the date of enactment (“effective date”). For bank holding companies with total
consolidated assets between $100 billion and $250 billion, the Federal Reserve will (1) have the
authority to apply enhanced prudential standards after the effective date, (2) be required to
conduct a periodic supervisory stress test after the effective date, and (3) have the authority to
exempt firms from enhanced prudential standards prior to the effective date.

Section 402. Supplementary Leverage Ratio for Custodial Banks.

This section requires the Federal banking agencies to amend the supplementary leverage ratio
final rule (SLR) to specify that funds of a custodial bank that are deposited with a central bank
will not be taken into account when calculating the SLR, subject to limitations.

Section 403. Treatment of Certain Municipal Obligations.

This section directs the FDIC, the Federal Reserve, and the OCC to classify qualifying
investment-grade, liquid and readily-marketable municipal securities as level 2B liquid assets
under the agencies' Liquidity Coverage Ratio final rule.


TITLE V STUDIES

Section 501. Treasury Report on Risks of Cyber Threats
.
This section requires the Treasury Department to submit a report to Congress on the risks of
cyber threats to financial institutions and the U.S. capital markets.

Section 502. SEC Study on Algorithmic Trading.
This section requires the SEC to report to Congress on the risks and benefits of algorithmic
trading in the U.S. capital markets.

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