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From Banking and Finance Law Daily, May 24, 2018

Economic Growth, Regulatory Relief, and Consumer Protection Act signed into law

By Lisa M. Goolik, J.D.

President Donald J. Trump has signed into law the Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155), an Act that is intended to ease many of the post-recession restrictions that were imposed on the financial services industry by the Dodd-Frank Act.

"This is truly a great day for America and a great day for American workers, and for small businesses all throughout the nation," said the President. "The legislation I am signing today rolls back the crippling Dodd-Frank Act regulations that are crushing community banks and credit unions nationwide."

At the signing ceremony, the President congratulated the Senate bill’s sponsor, Mike Crapo (R-Idaho) for garnering support for the bill on both sides of the aisle. Despite initial House Republican leadership threats not to move the bill unless provisions of bills passed earlier by the House were incorporated, S. 2155 was passed with no amendments, and with bipartisan support, on May 22, 2018.

Eases requirements for big banks too. While the President, and a fact sheet released post-signing by the White House, focused on the impact of the law on community banks, which are often defined as those under $10 billion in assets, significant provisions will change which bank holding companies are subject to enhanced prudential standards, benefiting much larger banks.

The law changes the asset threshold for the automatic application of enhanced prudential standards. Currently, banks with more than $50 billion in assets are covered, but Section 401 increases the threshold to $250 billion. The Fed does, however, retain the ability to apply enhanced prudential standards to banks with assets of more than $100 billion if doing so is deemed necessary.

The law also raises the asset threshold for stress test requirements. Company-performed stress tests will be required only of institutions with more than $250 billion in assets, as opposed to the current $10 billion, exempting even the larger, regional banks. Other than for institutions that exceed the $250 billion asset threshold, stress test frequency is changed from "annual" to "periodic."

Mortgage lending. One of the ways the law is intended to help community banks and credit unions is by easing the regulatory requirements for mortgage lending, specifically by broadening what is considered to be a qualified mortgage that satisfies ability-to-repay standards. The law also reduces appraisal requirements, creates an exception from escrow account requirements, and reduces Home Mortgage Disclosure Act data collection duties for very small banks and credit unions that make a small number of mortgage loans and have adequate Community Reinvestment Act ratings.

In a statement issued following the law’s signing, Consumer Financial Protection Bureau Acting Director Mick Mulvaney commented that he was "pleased to see the long-overdue reforms to the regulations governing mortgage lending." He added that the changes "will allow community banks and credit unions to focus on making prudent loans to prospective homebuyers without being tied up in expensive and excessive red tape."

Consumer protections. Although the provisions were not the focus of the signing ceremony—or Mulvaney’s statement—the law also contains provisions that are intended to protect consumers, and more specifically, servicemembers, veterans, borrowers of students loans, and the elderly. Among them, Section 301 requires that consumer reporting agencies place and remove security freezes on consumer files free of charge.

Bankers’ associations applaud signing. Following the signing, the American Bankers Association issued a statement thanking the President for the administration’s support for financial regulatory reform. "This bill includes important reforms that will allow banks, particularly smaller institutions, to focus more of their time and resources on serving their customers and communities," said ABA president and chief executive officer Rob Nichols. While categorizing the law as a victory, Nichols stressed that more legislation is needed to "right-size financial rules while maintaining needed safety and soundness."

Similarly, the Independent Community Bankers of America president and chief executive officer Rebeca Romero Rainey commented, "While this new law will make a positive difference for community banks, there is plenty more work ahead of us to ensure a tiered and proportionate regulatory environment that will allow community banks and local communities to flourish."

Further analysis of S. 2155. The Senate bill is analyzed in further detail in the Wolters Kluwer white paper, "Is Senate reg relief a scalpel or hatchet to Dodd-Frank?"

Companies: American Bankers Association; Independent Community Bankers of America

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