With the stroke of a pen, President Donald Trump enacted a regulatory relief bill on Thursday, a law that will make the most significant changes to the Dodd-Frank Act since it passed in 2010.
For much of the media, the focus has been on the law's biggest measure, a provision that would raise the "systemically important financial institution" threshold for banks to $250 billion from $50 billion. (The law immediately raises it to $100 billion, and regulators will look at the next asset tier over the next 18 months to see if any of those institutions should be considered SIFIs.)
Most of the bill, however, is aimed not at helping those large regional banks, but banks and credit unions with less than $10 billion of assets. Those provisions, which are far less controversial, have received much less press. But they may total up to a big impact for community banks.
“This hard-fought, long-awaited community bank regulatory relief legislation will put community banks in an enhanced position to foster local economic growth and prosperity,” said Rebeca Romero Rainey, president of the Independent Community Bankers of America. “By unraveling some of the suffocating regulatory burdens community banks face, they are better able to unleash their full economic potential to the benefit of their customers and communities.”
From tackling qualified mortgages to MBLs, the NCUA budget, elder abuse and more, there are several measures of the law that may make a sizable difference. Following is a look at some of the provisions of the new law that will help credit unions and small banks.
One of the most important provisions of the law would make it easier for mortgages originated by small banks and credit unions to receive qualified mortgage status.
Under the law, certain mortgages originated and retained in portfolio by institutions with less than $10 billion of assets will be deemed QMs. The law has some restrictions in it, but it would effectively mean that most mortgages made by smaller institutions would face less legal liability if they are challenged in court later.
The law also requires the National Credit Union Administration to make a draft of its proposed budget publicly available, hold hearings with public notice during which time the draft could be discussed, and solicit and consider public comment about the draft budget.
Chief Information Security Officer touching CYBERSECURITY on a visual screen. Business process metaphor and information technology concept for network security and protection of information systems.
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As part of the new law, the U.S. Department of Treasury will be required to conduct a study on the risks that cyber threats may pose to financial institutions.
New exam schedule
The law would extend the examination cycle to 18 months (from its current level at a year) for banks with less than $3 billion of assets. Previously, only banks with less than $1 billion could have an extended exam cycle. The exam cycle is an issue near and dear to credit unions' hearts, as well, having successfully lobbied NCUA to lengthen the cycle for eligible credit unions.
Shortened call report
The law raises eligibility for shorter call-report forms for institutions to $5 billion of assets from the previous $1 billion threshold. Institutions have claimed for years that the call reports have become a big paperwork burden, something the smaller version is designed to address.
The revised call report can be used in the first and third quarters by well-rated community banks below that $5 billion level.
This is another issue credit unions are keeping an eye on as NCUA is currently studying ways to update and streamline its call report system.
Banks that originate less than 500 mortgages a year would be exempt from added Home Mortgage Disclosure Act requirements mandated by the Dodd-Frank Act.
This provision has been the subject of controversy since the left argues it will make it harder to detect discrimination at banks while the right argues it posed a significant burden on small banks. In effect, it will exempt roughly 85% of banks from the new mortgage disclosure requirements, but at the same time it will not impact the vast majority of the mortgage market, given that most mortgages are made by larger institutions and nonbanks.
Escrow exemption, appraisal easing and waiting period
The law provides an exemption from escrow requirements under the Truth-in-Lending Act for certain loans made by banks and credit unions with less than $10 billion of assets that have originated 1,000 or fewer loans secured by a first lien.
It also eases appraisal requirements in rural areas where appraisers are harder to find.
Additionally, the law removes the three-day waiting period for the combined TILA/RESPA mortgage disclosures if a lender makes a second offer of credit with a lower rate.
The new law also offers a break on the member business lending cap by reclassifying one- to four-unit, non-owner occupied residential loans as real estate loans that will not be counted toward the MBL cap.
Fighting elder abuse
Another aspect of the law credit unions supported was the provision related to elder abuse, which provides safe harbor for properly trained financial employees who report alleged financial abuse of seniors.
With COVID-19 cases soaring, a growing number of banks, including JPMorgan Chase, U.S. Bancorp and Capital One, have pushed back target dates for bringing employees back to offices. Some are even allowing them to work from home indefinitely.
CEO James Schenck says the institution's military focus means it must provide services for a group of consumers who move every few years. That has helped it focus more on mobile services and less on brick and mortar.