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Efforts Continue to Reign-in CFPB’s HMDA Overreach

CBAI applauds the continued legislative and regulatory efforts to reign-in the Consumer Financial Protection Bureau’s (CFPB) overreach on Home Mortgage Disclosure Act (HMDA) reporting. While the Dodd-Frank Act mandated additional data to be collected and reported, the CFPB used its discretionary authority to materially increase the number of data fields beyond what was required. Those additional data fields are unnecessary and clear regulatory overreach. They also present legitimate consumer privacy concerns and will impose a significant additional regulatory burden on community banks by diverting bankers’ resources towards unnecessary regulatory compliance rather than serving their customers and communities.

On the legislative front, Illinois Congressman Randy Hultgren (R-14th) introduced the Home Mortgage Reporting Relief Act (H.R. 4648). This legislation provides a one year safe harbor for financial institutions from having to comply with the data collection and reporting requirements issued under the CFPB amendments to the HMDA. In addition the legislation restricts the CFPB’s ability to make any of the new data publicly available because its release raises a number of privacy concerns.

Also on the legislative front, the bi-partisan Economic Growth, Regulatory Relief and Consumer Protection Act (S. 2155) recently passed the U.S. Senate Banking Committee. This legislation contains an exemption for [community] banks that offer fewer than 500 closed-end mortgage loans and fewer than 500 open-end lines of credit from collecting the new Dodd-Frank Act data fields.

On the regulatory front, the CFPB’s new Acting Director, Mick Mulvaney, is delaying for one year the enforcement of the rule amending HMDA that implements the new data fields. In addition, Mulvaney stated that he would revisit the prior decision of the Bureau to go beyond the HMDA reporting requirements that were mandated under the Dodd-Frank Act.

CBAI has consistently expressed concern about the increased regulatory burden and privacy threats regarding additional HMDA reporting. Read CBAI’s October, 2014 Comment Letter. Read CBAI’s May, 2017 Comment Letter. Read CBAI’s July, 2017 Comment Letter.

These recent legislative and regulatory developments clearly indicate that the voices of community bankers and their associations are being heard by Congress and the new leadership of the CFPB. CBAI will continue to urge lawmakers and regulators to provide meaningful HMDA relief for community banks.

December 28, 2017

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CBAI Urges Additional Capital Regulatory Relief

In a December 21, 2017 comment letter to the Federal Reserve, FDIC, and the OCC, CBAI urged the regulators to provide additional, long-overdue and well-deserved capital regulatory relief for community banks. The comment letter was in response to the Agencies’ Notice of Proposed Rulemaking (NPR) regarding the simplification of capital rules pursuant to the 2016 EGRPRA decennial review.

A majority of the NPR’s provisions would apply to community banking organizations that are not subject to the “advanced approaches”. CBAI appreciates simplification of the criteria for HVCRE loans but remain concerned about the 130% risk weighting for all ADC loans. CBAI recommended that properly underwritten ADC loans receive 100% risk weighting without limitation on the the borrower's investment or debt service coverage ratios associated with the loan.

CBAI also remains concerned that the individual deduction thresholds for mortgage servicing assets (MSAs), certain deferred tax assets (DTAs), and the investments in the capital of unconsolidated institutions (including Trust Preferred Securities (TruPS) are not high enough. CBAI recommends raising the individual cap on these assets to 50% of Common Equity Tier 1 Capital for community banks with less than $50 billion in assets and urged that the risk weight assigned to these assets, when they are not deducted, should be reduced to 100%.

Unfortunately, the proposal did not address equality in the application of Prompt Corrective Action (PCA) between community banks and the largest banks, an exemption for community banks from Basel III, and including the entirety of a community bank’s ALLL in regulatory Capital. CBAI urged the Agencies to address these important issues as well. Read CBAI Comment Letter.

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ICBA Sues Equifax over Massive Data Breach

CBAI supports ICBA filing a class action lawsuit against Equifax, Inc. for “financial losses and increased data security risks that are a direct result of Equifax’s egregious failure to safeguard, and affirmative mishandling of, the financial institutions’ customers’ highly sensitive personally identifiable information”. The lawsuit, which was filed in federal court in Georgia (where Equifax is headquartered), seeks to require Equifax to compensate all community banks harmed by the breach and to improve its security to avoid additional harm to consumers and local communities. Read ICBA’s Complaint. Data Breach Information Center and Resources.

December 6, 2017

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President Trump Appoints Mulvaney as CFPB Acting Director

President Donald Trump has appointed Management and Budget Director Mick Mulvaney as acting Director of the CFPB after Richard Cordray resigned the post. The appointment has not been without controversy, however, as Cordray attempted an 11th hour appointment of his own. Cordray referenced language in Dodd Frank when he appointed his chief of staff Leandra English as acting director hours before Trump appointed Mulvaney under the Federal Vacancies Reform Act. English filed suit to block Mulvaney’s appointment, but U.S. District Judge Timothy Kelly rejected the arguments in the law suit and recognized the Federal Vacancies Reform Act as the prevailing authority for the appointment. The judge’s ruling should pave the way for Mulvaney to serve as acting director until a permanent director is nominated by the President and confirmed by the U.S. Senate.

CBAI has been critical of the CFPB in numerous meetings and comment letters for not using the authority granted to the CFPB by Congress under the Dodd-Frank Act to broadly exempt community banks from rules intended exclusively for the largest banks, financial firms, and the shadow banking industry. CBAI is encouraged by the Mulvaney appointment and looks forward to working with the acting director and his eventual successor to appropriately focus the efforts of the Bureau and give community banks needed regulatory relief. 

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Tax Reform Bill Clears the U.S. Senate

In the early hours of Saturday, December 2, 2017, the United States Senate narrowly passed tax relief and reform legislation. The vote was 51 to 49 with all of the Republicans but one voting for passage and all of the Democrats voting against. CBAI anticipates that the differences between the competing House and Senate versions of this legislation will now be negotiated over the coming weeks in a conference committee, but the Senate bill is expected to remain largely intact.

This legislation represents the most significant overhaul of the tax system in the past 30 years and addresses a number of issues including: personal income tax rates, standard deductions, personal exemptions, state and local taxes, tax credits, the home mortgage interest deduction, other deductions, the individual insurance mandate, the Alternative Minimum Tax, inheritance taxes, corporate taxes, business write-offs and multi-national corporations.

One issue that concerned CBAI and ICBA in both the House and Senate bills was the unfair treatment of Subchapter “S” corporations. Approximately one-third of all community banks are organized under Subchapter “S”. Subjecting these community banks to a higher maximum tax rate would exacerbate the tax disparity among financial service providers, would disrupt the corporate and tax structure of the community bank profession, and would harm community banks’ ability to serve their customers and communities. CBAI issued an Action Alert, in conjunction with the ICBA, urging CBAI Subchapter “S” community bankers to weigh-in with their Member of Congress to ensure meaningful relief under the tax code. More than 3,500 community bankers responded to this Action Alert nationwide, and the Senate reportedly lowered the effective tax rate for Subchapter "S" businesses by providing a 23 percent deduction for qualified income.

A second issue raised during the Senate’s consideration of their tax plan was a provision that would force community banks to pay a tax on mortgage servicing, when the servicing right is created, and not over the years the income is collected. A similar provision was not included in the House bill. The mortgage servicing industry is rapidly consolidating and increasingly dominated by the very largest banks. None-the-less, a significant number of community banks choose to service their loans regardless of whether the loans are retained in portfolio or sold on the secondary market. There are numerous examples of large bank and servicing company missteps and customer abuse and neglect in loan servicing, but that is not the case with community banks. Community banks are more responsive to their customers and more willing to work with distressed borrowers. The mortgage market needs more community banks servicing loans, not less. This tax increase would have forced some community banks to stop servicing loans, reduce profitability for those that remain in the business, and further consolidate the mortgage servicing industry.  Thankfully through the efforts of Senator Mike Rounds (R-S.D.) and others, this provision was removed from the Senate legislation.

Unfortunately, the tax disparity between community banks and credit unions and the Farm Credit System was not addressed in either the House or Senate tax reform bills. Congress is missing the perfect opportunity to level the playing field between community banks and their tax payer subsidized entities. CBAI will continue to highlight this discrimination against tax-paying community banks.

Speculation is that Congress will pass meaningful tax reform before Christmas. CBAI will also work together with the ICBA and the Illinois congressional delegation to protect our hard-won victories and improve the legislation for community banks and the customers and communities that they serve. Read ICBA Release.

December 5, 2017