On January 18, 2018, the House Financial Services Committee approved some bills that, if passed by the House and Senate, will roll back some of Dodd-Frank's provisions. One of those proposed bills is the Community Financial Institution Exemption Act, H.R. 1264, which was originally introduced by Representative Roger Williams (R-TX) on February 28, 2017.1 The Community Financial Institution Exemption Act, which was passed by the committee in a 30 to 25 vote, has support from the Credit Union National Association (CUNA) and the Independent Community Bankers of America (ICBA), among others. This bill, if approved by the House and Senate, could provide considerable relief to community banks from the crushing rules and regulations of the Consumer Financial Protection Bureau (CFPB).
H.R. 1264 would amend the Consumer Financial Protection Act of 2010 to exempt community financial institutions from all rules and regulations issued by the Consumer Financial Protection Bureau (CFPB). A "community financial institution" is an insured depository institution or credit union with less than $50 billion in consolidated assets. Under specified circumstances, and with the written agreement of the Federal Reserve Board and other specified federal banking agencies, the CFPB may revoke such an exemption with respect to a certain rule or regulation and a specific class of institutions. This arises if the CFPB is able to demonstrate that these institutions are engaged in a pattern of abuse.2
One of the most important parts of the proposed bill is its definition of "community financial institution" as an insured depository institution (or credit union) with less than $50 billion in assets. It is likely that most, if not all, community banks will fall within this definition. However, it has been notoriously difficult to define "community bank" to the satisfaction of all.
Simply put, a community bank is a depository institution that typically is locally owned and operated. Community banks tend to focus on the needs of the businesses and families where the banks have branches and offices. Lending decisions are made by people who understand the local needs of families, businesses and farmers, and employees often reside within the communities they serve.
Government agencies base this term (community banks) on the combined value of assets with varying definitions such as less than $1 billion (Office of the Comptroller of the Currency) or less than $10 billion (Federal Reserve Board and the U.S. Government Accountability Office).3 Based on the FRB definition, 94 percent of all U.S. banking organizations and 92 percent of FDIC-insured banking charters were considered to be community banks as of 2010.4
Community banks are also said to be relationship lenders, which rely to a significant degree on specialized knowledge gained through long-term business relationships. They tend to place the long-term interests of their local communities at a high level relative to the demands of the capital markets. Since these attributes are generally—but not always—associated with smaller banking organizations, most previous studies have used asset size alone to define community banks.5
It remains to be seen if the Community Financial Institution Exemption Act will gain enough support in the general legislature to become law. The main idea behind the bill is that community banks did not cause the financial crisis and, therefore, should not bear the weight of the substantial and expensive regulation intended to address it.6 Should the bill become law, it could save community banks from the substantial time and expense of complying with the myriad of rules and regulations promulgated by the CFPB. Either way, the situation bears watching in the future.
For more information on this topic, contact Andrew C. Voorhees. Mr. Voorhees is an attorney in the Commercial Collections Group of Weltman, Weinberg & Reis Co., LPA, which provides comprehensive collection, legal, and collateral recovery services to companies with commercial accounts. Mr. Voorhees has been selected for six consecutive editions of Ohio Rising Stars (2012-18) by Super Lawyers Magazine. He is a graduate of the University of Akron School of Law, and a member of the Ohio State Bar Association and Akron Bar Association.
1 The Community Financial Institution Exemption Act, H.R. 1264, 115th Cong. (2017-18). See https://www.congress.gov/bill/115th-congress/house-bill/1264?r=29.
2 "House Committee passes CUNA-backed CFPB, mortgage relief bills," https://www.cuinsight.com/press-release/house-committee-passes-cuna-backed-cfpb-mortgage-relief-bills (Jan. 18, 2018)."
3 "Trends in Community Banking. FYI: An Update on Emerging Issues in Banking. Federal Deposit Insurance Corporation,” https://www.fdic.gov/bank/analytical/fyi/2004/051804fyi.html (FDIC May, 18, 2004). Retrieved 3 November 2011.
4 "FDIC Community Banking Study Chapter 1 - Defining the Community Bank," https://www.fdic.gov/regulations/resources/cbi/report/cbsi-1.pdf (Dec. 2012).
6 Dave Kovaleski, "Community Bankers Urge Lawmakers to Pass Legislation Promoting Regulatory Relief," https://financialregnews.com/community-bankers-urge-lawmakers-pass-legislation-promoting-regulatory-relief/ (Jan. 11, 2018).