A Matter of Responsibility

20130920 Another Day Another Fine

A hallmark of community banking is accountability. Community bankers are held accountable to their customers because they live and work in the same neighborhoods. As locally based institutions with a stake in the prosperity of their communities, community bankers simply can’t afford to take advantage of their customers.

So Wells Fargo’s failure to take responsibility for fraudulently opening 2 million unwanted consumer bank accounts has been particularly disturbing for the community banking industry.

The megabank’s leadership has repeatedly blamed the widespread fraud on the 5,300 employees it fired as its $185 million settlement was announced—a fine that is nothing more than a rounding error for the $2 trillion-asset institution. Chairman and CEO John Stumpf refuses to concede that the scandal stemmed from failed leadership and a poisoned corporate culture. And even fellow banking industry representatives have responded by merely condemning dishonest or unethical behavior at “any bank, anywhere, any time.”

Any bank? Suddenly this massive breach of trust isn’t about Wells Fargo, but the banking industry in its entirety? Absolutely Not! No! This isn’t about “any” bank or all banks. This isn’t about universal condemnations of wrongdoing. And this certainly isn’t about community banks, who remain, as always, accountable for their actions.

What this whole sordid mess is about, however, is the massive negative consequences not just on American consumers, but the local banks that had nothing to do with it. Community bankers have seen time and time again how the consequences of megabank misdeeds rain down hardest not on the perpetrators, but on us!

Again and again, Washington responds to the largest banks’ bad behavior by rolling out new regulations that fall disproportionately hard on the smallest banks. While we fight and scrap and claw for exemptions and carve-outs, the truth is that community banks always get roped in to new regulatory burdens that take our attention away from our customers and toward red tape. Meanwhile, the large banks that incited the response have the resources to hire teams of lawyers to manage their compliance.

No, no, no—not again. We WILL NOT get dragged into this mess! Community banks are NOT Wells Fargo!

ICBA is doing its utmost to ensure Washington and the American public make a clear distinction between community banks and systemically risky institutions. We take responsibility for exclusively representing community banks, not the megabanks that make our members’ lives more difficult. Therefore, we will be with you—the community banker—every step of the way, ensuring that your name is not tarnished by this scandal. Because #WeAreNotWells!

As we’ve told Congress again and again, we need a system of tiered and proportional regulation based on size and risk, which will ensure appropriate standards on the largest banks while allowing local banks to continue serving their communities. In doing so, we can fix what’s wrong with our banking system by strengthening what’s right with it—community banks.

Standing Up to a Reckless Regulator

regulationEvery now and then we have the chance to stand up for what’s right against powerful forces. As the legacy of a group of colonists who stared down and defeated the world’s greatest empire, it’s virtually our birthright as Americans. So in some ways ICBA’s federal lawsuit against the National Credit Union Administration for its unlawful lending rule feels like the extension of a longstanding national tradition.

ICBA’s suit challenges the NCUA’s rule allowing tax-exempt credit unions to exceed commercial lending limits set by Congress. In a nutshell, federal law defines credit union “member business loans” to include any and all commercial loans on a credit union’s balance sheet. But the NCUA’s final rule unlawfully allows nonmember commercial loans and purchased loan participations to be excluded from the statutory limits.

Regulatory Rubber Stamp
If this issue sounds familiar, that’s because credit unions have been trying to push it through Congress for more than a decade. But lawmakers have repeatedly declined to expand credit union lending loopholes. What is a tax-exempt industry to do?

Well, if you’re the credit union industry, you simply wait for your captive federal regulator to rewrite the law for you. And that is precisely what the NCUA has done—unilaterally sidestep the legislative branch. You know, the branch of government those scrappy American provincials later enshrined in Article I of the U.S. Constitution.

The only problem for the credit unions is that ICBA was watching. Indeed, we’ve seen more than enough. After years of evolving from a regulatory agency to a cheerleader for its tax-exempt industry, the NCUA has finally gone too far. In attempting to serve as the regulatory rubber stamp for a handful of growth-oriented credit unions seeking to expand at all costs, the NCUA has overstepped its legal bounds.

Bad Faith, Bad Policy
Quite simply, the NCUA’s business-lending rule contradicts federal law, which expressly limits the amount of member business loans that may be held on credit union balance sheets. The NCUA has absolutely no authority to concoct its own exceptions to the “member business loan” definition. Indeed, the agency itself has acknowledged that it “does not have authority to amend the MBL definition through regulation.”

Not only is the NCUA rule unlawful, it’s also bad policy. The agency’s plan places undue risk on U.S. taxpayers, expands government-sponsored advantages for credit unions, and jeopardizes the safety and soundness of these institutions. Our tax dollars should not be used to promote reckless lending practices at these tax-exempt companies.

So here we are—taking a stand. ICBA’s volunteer board of community bankers has elected to confront a heedless federal agency and hold it accountable. We might not be Washington, Jefferson and Adams, but the NCUA isn’t exactly the British Empire, either.

So I encourage community bankers, our allies, and consumers everywhere to go to ICBA’s “Stop the CU Grab” website to learn more about the lawsuit and how to help through the ICBA Credit Union Litigation Fund. After all, we’re taking action not only because the law is on our side, but because it’s the right thing to do.

Study Affirms Community Banks’ Small-Biz Leadership

It’s something ICBA and the community banking industry say all the time: community banks are the nation’s leading small-business lenders. And the numbers back it up. While community banks make up less than 20 percent of the banking system’s assets, they dole out more than half of its small-business loans.

Still, some small businesses continue to test their alternatives: megabanks, credit unions, and now online lenders. The latest set of numbers shows that these businesses should stick with a community bank.

According to a new study from seven Federal Reserve Banks, small businesses that apply for loans with community banks are the most successful and most satisfied.

Here’s what the study found:

  • Community banks were the most likely to make a loan, extending financing to 76 percent of loan applicants while large banks approved just 58 percent.
  • Community banks also had the highest satisfaction scores, with 75 percent reporting that they were satisfied with their overall experience, compared with scores of 56 percent for credit unions and 51 percent for large banks.
  • While online lenders had the second-highest rate of approval at 71 percent, just 15 percent of borrowers said they were satisfied with the experience.
  • Of the firms that were dissatisfied with their experience with online lenders, 70 percent cited high interest rates and 51 percent reported unfavorable repayment terms.

16.03.30_FRB_Small_Biz_StudyWith the amount of blood, sweat and tears that goes into launching a startup or expanding a small business, entrepreneurs should know that they have a partner in their local community bank. That is more important now than ever before, as demonstrated in a 2014 ICBA study that found that 41 percent of Millennials say they are very interested in starting up their own business.

So community bankers, let’s continue to spread the word about the importance of our industry in getting small businesses off the ground and taking our economy along with them. It’s an important message that everyone needs to hear, and now we have even more data to back it up.

Mortgage Relief Recognizes Community Banks’ Unique Role

It was a long time coming, but persistence paid off when the Consumer Financial Protection Bureau recently updated its mortgage regulations to ease unnecessary restrictions on many community banks. Under an interim final rule, the CFPB expanded Qualified Mortgage eligibility for balloon loans held in portfolio and exempted more rural lenders from escrow mandates.

That might sound a little complicated to the layman. But all it really means is that Washington regulators will allow many community bankers to keep doing what they’ve done for years—making mortgage loans that meet the unique needs of their customers and communities.

And that’s really the heart of the matter here. This isn’t an example of ICBA, our affiliated state associations and community bankers achieving some abstract policy goal. No, this is a case of policymakers acknowledging the benefit of a service that community bankers have offered for generations.

The case for reform has been overwhelming. According to the ICBA Community Bank Lending Survey released last year, three-quarters of respondents said regulatory burdens are keeping them from making more residential mortgage loans. Half of all rural banks said they did not qualify for the QM rule’s “rural” exception. That report followed the release of ICBA’s 2013 Community Bank Qualified Mortgage Survey, which found that less than half of those offering balloon loans would qualify for the QM rule’s balloon mortgage exception.

Ultimately, it was this hard evidence combined with dogged initiative that saw crucial reforms all the way through—from winning portfolio QM treatment for small creditors in the original rule, to achieving the CFPB’s expanded definition of “rural area,” to the additional relief that advanced last December in the FAST Act. In fact, we still want to take this even further and implement QM safe harbor treatment and escrow relief for all community bank loans originated and held in portfolio.

I’m thrilled that our persistence has paid off—that the concerns of ICBA have been heard and that thousands of community banks and the customers they serve will regain access to mortgage credit. And I’m thankful for all the hard work that community bankers and the state associations have put into their advocacy. But more than anything, I’m hopeful that this development reminds policymakers that community banks are and always have been in the business of serving local communities—something that Washington should be looking to promote, not regulate out of business.