Louisiana Bankers Notes Blog

    7/24/2017
   

Fair Lending Reform

The LBA has made an effort to highlight and advocate reform in fair lending examination and enforcement of alleged violations. My attention to this is due to conversations with Louisiana bankers and the experience they communicated to me about their fair lending examinations. I have another meeting with a Louisiana bank later this month to talk about their experience. Through these conversations, I am convinced that the examination process in its enforcement of the disparate impact doctrine is flawed. The standard of “pattern and practice” in determining an alleged fair lending violation has been stretched to be meaningless with respect to community banks. It is not even worth considering that Wall Street banks are held to the same standard, as it’s inconceivable that a few loans could be singled out through their exam, or that they could be referred to the U.S. Department of Justice in such an instance. Community banks appear to held to a higher standard. 

When writing or speaking about this, it’s always possible those listening will misinterpret this discussion to somehow mean that it’s really about permitting unfair lending. We all know community banks are focused on making good loans and helping their communities grow and prosper. Purposeful exclusion of any part of their community is self-defeating. 

The LBA has had several approaches on this issue. On flood insurance, we tried to get the interest of others on the idea that bankers could safely be trusted to determine which of their borrowers should have flood insurance on properties outside the flood hazard zones without fear of violating fair lending. After the flooding in 2016, when so many areas outside of the flood hazard zones were flooded, we had many conversations about permitting bankers increased leeway on requiring flood insurance. The results would increase the safety and soundness of the bank, position the community to recover better and add needed premium dollars to the NFIP. The fair lending concern makes this a big lift. 

Another approach was to amend federal law that currently requires federal banking agencies “shall refer the matter to the Attorney General whenever the agency has reason to believe that one or more creditors has engaged in a pattern or practice of discouraging or denying applications for credit in violation of section 1691(a) of this title.” The use of the word “shall” apparently gives little or no discretion to the federal banking agencies. I know, through a conversation with a person that worked at one of these federal banking agencies, that referrals are made that the agency staff believe should not be done as the alleged violation did not rise to the level to warrant such a referral. But under current law, they shall, which sets off the series of expensive and anxiety producing months or years. Generally, they get kicked back to the banking agency anyway. We would like to change “shall” to “may”. The banking agencies have the authority to enforce and resolve the issue in a more timely manner and with the same result. 

The other approach, or in addition to the above, is to legislate the meaning of “pattern and practice” as used to define an alleged fair lending violation. Our thought and in consultation with many attorneys and our national association partners on the language is to establish de minimis number of alleged loans in violation of fair lending that could result in a referral to the Department of Justice. Some meaningful number that could more represent a “pattern and practice”. 

Recently a new tack has been initiated: to prohibit or severely restrict the referral of any community bank to Department of Justice. My experience with Louisiana bankers in a fair lending exam is the examiners may focus on a very tiny number of loans that cannot be considered a “pattern or practice” by a common sense standard. At our request, Sen. John Kennedy has written a letter to the federal bank agencies, along with Sen. Thom Tillis of North Carolina, requesting the data on community bank referrals to Department of Justice. I want to know the percent of banks referred that are later kicked back to the banking agency for resolution. If this is a high percent, then it raises the question as to why these referrals are even made since the banking agency is the final arbiter anyway. The primary concern for policy makers is getting to a remedy for any violation. If that can be done, and is being done, through the banking agencies, then why not eliminate Department of Justice. 

One focus of mine is the general wear and tear bankers experience today in their work, what I have heard some refer to as ‘banker fatigue’. If community bankers know they can’t be referred to Department of Justice over an alleged fair lending violation, that would be a tremendous weight lifted, and the bank and the banking agencies can quickly get to a remedy and move on. 

Finally, I am pleased to report that a joint letter, with signatories that include American Bankers Association and Independent Community Bankers of America, was sent to Attorney General Jeff Sessions requesting a meeting to discuss “the Department’s approach to enforcement of fair lending laws. We believe that this Administration has an opportunity to align fair lending policy with Supreme Court precedent and address constitutional concerns regarding the consideration of race in decision-making. Indeed, in a fair lending matter pending in the Northern District of Illinois, the Department recently espoused a concerning position of the previous Administration, which the Court then adopted. Other deadlines demanding the Department’s views are approaching.” The letter continues “the actions of the Department to date appear to further the prior Administration’s policy, and with other court deadlines fast approaching, we ask that you allow us to represent our concerns to you before other decisions are made.”

Fair lending, like the Community Reinvestment Act and Bank Secrecy Act, and other items, need reform. Let’s hope we can see some progress.

 


    7/17/2017
   

A Message from LBA Chairman Ken Hale

Below is a letter from LBA Chairman Ken Hale of BOM in Natchitoches on his thoughts as he assumes the chairman's role for 2017-2018.


As I assume the role of Chairman of the Louisiana Banker’s Association, I am humbled, in awe, and somewhat nervous knowing what great bankers have held this office. I am also very excited to be an advocate for the importance of community banking and the benefits community bankers provide for the towns and cities we live and serve.

My three goals as Chairman of the LBA are promoting diversity in banking, continuing education for banking employees and promoting banking advocacy in both Baton Rouge and Washington, D.C.

Diversity in banking is goal one. I want to encourage all banks and bankers to hire women and minorities and appoint more women and minorities to senior positions. With all banks striving to find a way to capture the Millennials, diversity in banking is required for community banks continual survival.

Hiring educated woman and minorities is goal one, and goal two is to ensure banking staff, especially women and minorities, are continually educated. I want to encourage all banks and bankers to send diverse group of employees to classes and seminars that will make those bankers knowledgeable and competitive in this industry. For community banking to compete with the FinTech industry, it is important to have well trained, scholarly bankers. 

Advocacy is goal three. This is a topic I have felt strongly about since I became a banker 23 years ago. It is banker’s diligent duty to go to Baton Rouge and Washington, D.C. and be loud as we can, tell our stories of what we do for our communities, explain the importance of community banks, and inform others of the benefits of banking local. If we, as bankers, do not do this, then no one will!

The LBA Annual Washington, D.C. conference July 18-20 is coming up soon, and it is not too late to register yourself and your fellow bankers! Email Joe Gendron at gendron@lba.org for details.  Every bank in the state of Louisiana should have at least one banker present! This conference is a perfect opportunity to expose minorities, females, and young bankers to the other side of the banking world and get them involved in promoting diversity and advocating for community banks. 

Remember, we are our own voices! It is our duty to advocate and promote that we are not just small town bankers, but savvy, educated, cutting-edge bankers who can and will compete with world bankers.  I am proud to say that I am a 5th generation banker and my goal is to see a 6th generation working, striving, advocating at BOM with the same goals!

 


    7/10/2017
   

Letter Sent to Address NFIP Reauthorization Concerns

A quick update on reauthorization of the NFIP. Below is a letter we sent recently to our congressional delegation, Commissioner Ducrest, the ABA and ICBA, that provides our concerns on the seven bills that came out of committee in the U.S. House of Representatives.  We expect the House of Representatives to vote on these bills sometime in July.  We are more hopeful the Senate will have a more constructive approach to the issue and keep at the forefront affordability and availability of flood insurance. 


June 27, 2017 

Dear Louisiana Congressman:

On behalf of the Louisiana Bankers Association, we are writing to express some of our concerns with pending legislation in the U.S. House of Representatives to reauthorize and reform the National Flood Insurance Program (NFIP). LBA strongly supports a timely reauthorization of the NFIP before it expires at the end of September. Allowing the program to expire, as has unfortunately occurred numerous times in the past, is harmful to commerce as it leads to delays or stoppages of real estate closings. LBA also strongly supports reforms to the NFIP that make the program sustainable and affordable for the long-term. As a member of the Louisiana Congressional Delegation, we know that you know the importance of sustainable and affordable flood insurance to Louisiana’s citizens and businesses. We appreciate your efforts on this issue. 

It is worth noting that LBA is a member of the Coalition for Sustainable Flood Insurance (CSFI), which is led by Greater New Orleans, Inc. We are thankful for the great advocacy work GNO, Inc. has done, and continues to do, on flood insurance related issues. The vast coalition that has been formed under their leadership includes members from all around the country and makes clear that flood insurance is an issue of national importance, not just an issue for coastal states. 

LBA strongly supports the four primary policy areas (Mitigation, Mapping, Affordability and Program Participation) CSFI has focused on that were highlighted in recent testimony before the House Financial Services Committee. LBA also shares many concerns of the CSFI with legislative proposals that were recently passed by the House Financial Services Committee, which are now ready for consideration on the House Floor. 

LBA opposes numerous provisions contained in H.R. 2874 by Rep. Duffy. Specifically, we are very concerned about a provision in Section 506 of the bill that prohibits grandfathering of rates for properties beginning on or after January 1, 2021. Based on the differing interpretations we have received, it is unclear whether this provision impacts currently grandfathered properties, or only properties that would otherwise be eligible to receive grandfathered rates on or after January 1, 2021. We oppose any removal of grandfathered rates as it unfairly punishes people that built to the requirements in place at the time of construction. Removing grandfathering would cause the premiums on some properties to skyrocket and could devastate some communities in Louisiana. 

LBA also opposes a provision in Section 506 of the bill that will prohibit offering NFIP coverage for new construction in the Special Flood Hazard Areas on or after January 1, 2021, and a provision that will prohibit any new or renewed coverage for any residential property having 4 or fewer residences and a replacement value of the structure (exclusive of the value of the real estate on which the structure is located) of $1,000,000 or more (subject to other provisions in proposed law). The prohibition of coverage on new construction could be extremely harmful to development in certain areas of the state where new housing is needed, and the prohibition of coverage on certain high-value properties raises a number of practical and fairness concerns and appears to lessen the NFIP risk pool. 

LBA also opposes Section 502 contained in H.R. 2874 that would increase annual surcharges on many policyholders, and opposes Section 101 that would raise the minimum annual premium rate increases from 5% to 8%. We are told that the increase in minimum annual premium rates will impact pre-FIRM subsidized homeowners, which we are told is about 20% of NFIP properties. It is our understanding that this provision could also impact grandfathered post-FIRM properties if the provisions removing grandfathering discussed above are implemented. Property owners subject to the minimum increase are already experiencing yearly increases in their premium rates and raising the minimum increase by 60% could make coverage unaffordable for many policyholders. 

LBA also has strong concerns with provisions in H.R. 2874 that would eliminate coverage for properties with excessive lifetime claims (Section 505), defined in the bill as claims exceeding twice the replacement value of the structure. We have similar concerns with H.R. 1558 by Rep. Royce that could impose sanctions, including suspension or probation from NFIP, on communities that may have relatively few Severe Repetitive Loss (SRL) properties, if they fail to implement mitigation plans. Working to address concerns with SRL properties makes sense, but any changes on this front must be done in a thoughtful way that does not unreasonably harm citizens and their communities by abruptly making coverage unavailable. 

Finally, we point out two LBA-opposed provisions contained in House legislation that specifically impact banking. Section 508 of H.R. 2874 will increase the civil money penalties (from $2,000 to $5,000) on federally regulated lenders for failure to comply with the NFIP’s mandatory purchase requirement. We note that the penalties were increased during the last reauthorization of the NFIP and since that time no evidence has been presented to us that suggests there is a problem with non-compliance with the mandatory purchase requirement. In fact, the feedback we have received from banks and bank regulators is that there is an extremely high rate of compliance with an extremely low number of violations being cited during the regular exams that banks undergo. We are aware of some misinformation that was put out by FEMA a couple of years ago that suggested a high non-compliance rate, but FEMA representatives have since acknowledged that they do not have reliable data or information on this issue. We also worry that this provision may be used to levy fines against lenders for flood-related violations that are unrelated to not having coverage in place. 

LBA also opposes Section 2 contained in H.R. 2246 by Rep. Luetkemeyer. This provision would eliminate the NFIP’s mandatory purchase requirement for all commercial properties. We believe this provision would lead to a significant reduction in NFIP premiums collected, and lessen the risk pool of the program. We believe Congress should be pursuing policies that increase NFIP participation, not decrease it. LBA is also concerned that removing the commercial mandatory purchase requirement will create a competitive advantage in favor of the very largest banks, and to the detriment of community and regional banks. Larger banks may be willing and able to accept greater risk and forego flood insurance coverage on certain commercial loans, while smaller banks may not be willing or able to do so. Ultimately, this may create greater risk for larger banks and some of their commercial loan customers by leaving them without flood insurance coverage or with insufficient coverage. 

Sincerely,

Robert T. Taylor
LBA Chief Executive Officer

Joe Gendron
LBA Director of Government Relations




    7/3/2017
   

U.S. Treasury Releases Report on Revamping Financial Regulation

The 149-page report released June 12 titled "A Financial System that Creates Economic Opportunities" is the product of a four-month review that could be a road map for changes over the next several years by the regulatory agencies and Congress. Click here to download a copy of the report. The Treasury believes the majority of the recommendations can be implemented through the banking agencies without congressional action. In the coming weeks we all will have a better idea of its contents and the possible impact on Congress. But we do know community banking is a focus to provide relief, such as exempting community banking from Basel III and possibly an exemption from the Dodd-Frank Collins amendment on minimum capital which would positively impact the treatment of mortgage servicing assets and certain types of real estate loans. The report recommends the small bank policy statement asset threshold be increased from $1 billion to $2 billion; makes changes to the Consumer Financial Protection Bureau's ATR/QM rule; raises the threshold for making small creditor loans from the current $2 billion to something between $5 billion and $10 billion; exempts community banks from the Volcker rule; possibly changes the reserves resulting from Current Expected Credit Loss being all or in part counted as capital; simplifies the chartering of new banks; among others. CFPB is not eliminated, but the director would serve at the pleasure of the President and be subject to congressional appropriation, both being in the CHOICE Act. Community Development Financial Institutions and minority-owned banks could see capital raising flexibility measures.  

There is reference to regulatory restructuring but it is vague, not clear as to what it means or if it will be a priority compared to other items that are more focused on enhancing economic growth. Certainly we will be on alert to any threat to the dual banking system. Wall Street seems to have done well with these recommendations that would weaken the capital and liquidity requirements that have been put in place to strengthen these largest of institutions. LBA's Washington Visit on July 18-20 will be an opportunity for Louisiana bankers to continue to push and highlight needed changes with our congressional delegation and the agencies that will be such a critical part of implementing the needed changes for community banking. Please be a part of this important work.