Why is the Community Lending Enhancement and Regulatory Relief Act (CLEAR Act) of 2013 so important to community banks?

Posted by Don Woodland on Sep 4, 2013 9:58:00 AM

banking regulation and community banksCommunity banks are an integral component of our nation’s economy and of the recovery effort for individuals, communities, and the nation alike.  Community banks serve all ranges of populations and all types of businesses held in these areas, from rural to urban.  It has becomes extremely cumbersome for these community banks to sustain under the immense burden of regulatory, tax, and paperwork requirements handed down in the Dodd-Frank Act.  Community Banks simply do not have the manpower or monetary resources of bigger financial institutions, and these requirements weigh disproportionately heavy on community banks and their managements, pulling vital resources from attraction of more capital or provision of credit to customers.

Community banks are desperate for relief from the regulatory burden felt across all levels of banking, and in an effort to retain autonomy and avoid massive mergers and acquisitions of these community banks, or worse failure, from this over-regulation of the banking industry, both the Senate and the House of Representatives have introduced legislation to assist in decreasing the regulatory burden on community banks.  The Community Lending Enhancement and Regulatory Relief Act aims to keep deposits circulating in these local communities and ultimately add jobs and create a stronger economy.  This bipartisan legislation has huge traction towards establishing breathing room for community banks, and if these bills are passed, a sense of security in the smaller banking institutions may be slightly more evident.

CLEAR House Bill 1750

The Community Lending Enhancement and Regulatory Relief Act (CLEAR Act), H.R. 1750, is a bill introduced by Representative Blaine Luetkemeyer (R – Missouri) designed to relieve regulatory burdens on community banks. The official objective of the bill states, “To enhance the ability of community financial institutions to foster economic growth and serve their communities, boost small businesses, increase individual savings, and for other purposes.”  The bi-partisan bill was introduced on April 25, 2013, and there are 48 co-sponsors in the House of Representatives.

The CLEAR Act, H.R. 1750, is an attempt to:  

  • Help banks with assets of less than $5 Billion to pay a corporate dividend
  • Allow banking institutions, with less than $10 billion in assets, an exemption  from the escrow requirements of Section 129D(c) of  the Truth in Lending Act (TILA)
  • Broaden the Qualified Mortgage safe harbor for institutions with less than $10 billion in assets
  • Exempt institutions that have not changed their privacy practices from annual privacy notice delivery requirements,
  • Necessitate a cost-benefit analysis before changes or new introductions are made to GAAP
  • Exempt institutions with less than $10 billion in assets from Section 404 of the Sarbanes-Oxley Act of 2002,  requiring the annual management assessment of internal controls
  • Direct the Consumer Financial Protection Bureau (CFPB) to allow for exemptions of or provisions for of small servicing mortgage firms (with 20,000 or fewer mortgages) from the regulatory burdens
  • Reduce barriers in receipt of Automated Clearing House (ACH) transactions, provided the originating institution is in compliance with the Office of Foreign Asset Control (OFAC) and that said transaction is not prohibited.

You can read the full CLEAR Act here.  

CLEAR Senate Bill 1349

Similarly, on July 24, 2013, Senators Jerry Moran (R-Kan.), Jon Tester (D-Mont.) and Mark Kirk (R-Ill.), introduced a similar bill, the Community Lending Enhancement and Regulatory Relief Act of 2013, S. 1349, to the Senate, with 4 co-sponsors.  The official objective of the Senate bill reads, “To enhance the ability of community financial institutions to foster economic growth and serve their communities, boost small businesses, increase individual savings, and for other purposes.”

Senator Moran states in a news release that Senate Bill 1349, would provide regulatory relief to community banks and their customers as well as support the housing recovery. By stripping away outdated or unnecessary regulation, the CLEAR Relief Act would help community banks focus on what they do best: providing loans to their communities and helping small businesses grow.” 

Brief summations of the Senate Bill’s contents are:

  • Exempting banking institutions from Sarbanes-Oxley section 404(b) internal-controls assessment requirement, provided assets are $1 billion or less
  • Requiring revision of the Small Bank Holding Company Policy Statement of the Federal Reserve Bank by increasing the qualifying consolidated asset threshold from $500 million to $5 billion.
  • Exempting any first lien mortgages on consumer’s principal dwelling from any escrow requirements held by a lender with $10 billion or less in total assets
  • Providing “qualified mortgage” status, under the Consumer Financial Protection Bureau’s (CFPB) ability-to-repay rules, for any mortgage originated and held by an institution with less than $10 billion in assets for a minimum of three years.

The full Senate Bill 1349 can be read here.

The Graduate School of Banking at LSU believes in staying abreast of current issues and legislation affecting the banking industry.  We hope that this has clarified the proposed bills in front of the senate and the house regarding banking legislation and how it may impact community banks nationwide.  

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