Democrats push new bill allowing community banks to exceed QM rule

Bill has broad support among Democratic committee members

The leading Democrats on both the Senate Banking Committee and the House Financial Services Committee are pushing a new bill designed to provide regulatory relief to community banks and increase consumer protections.

The bill, entitled the “Community Lender Regulatory Relief and Consumer Protection Act of 2015,” carries the unanimous support of Democratic members of both committees.

The bill was announced Wednesday by the ranking members on both committees, Sen. Sherrod Brown, D-OH, and Rep. Maxine Waters, D-CA. Brown and Waters were joined by Sen. Heidi Heitkamp, D-ND, and Rep. John Carney, D-DE, in making the announcement.

According to an announcement from the bill’s sponsors, the bill “provides reasonable relief to community banks and credit unions without putting consumers or the economy at risk.”

Most notable among the bill’s provisions is a stipulation that would allow banks and credit unions with less than $2 billion in consolidated assets — that also originate less than 2,000 mortgage loans per year — to issue new loans that exceed the Qualified Mortgage standard of 43% debt-to-income ratio to still receive QM Safe Harbor as long as the loans are held in portfolio and not sold or securitized.

Additionally, the bill states that banks and credit unions with less than $10 billion in consolidated assets that engage in lending and deposit taking as a “significant portion of total assets,” and may be subject to a limit on loans originated per year set by the Consumer Financial Protection Bureau, may issue loans that exceed the 43% DTI under the QM standard and still receive the QM Safe Harbor as long as the loan is held in portfolio.

“There is no reason why Democrats and Republicans can’t pass targeted legislation today that would give community lenders relief and be signed into law,” Brown said. “Main Street financial institutions shouldn’t be held hostage to an ideological attack on the Wall Street reform law.”

The bill also carries enhanced consumer protections including increased CFPB authority under the Servicemember Civil Relief Act. The measure would also protect consumers by giving the CFPB supervision and enforcement authority over a number of consumer protection provisions of the Service Member Civil Relief Act, something it does not have currently, the bill’s sponsors said in a release.

Additionally, the measure would make permanent expired provisions to protect tenants from eviction when their landlord or property owner has entered foreclosure.

“Our unity behind this legislation is an unequivocal statement of Democratic support for small banks and credit unions, which are on the front lines of lending in our communities,” Waters said. “This measure represents a compromise that takes all perspectives into account, by providing targeted relief to real Main Street institutions while increasing protections for servicemembers and vulnerable communities. Our approach is in stark contrast to House and Senate Republicans, who have used the concerns of community banks to push dramatic changes to Dodd-Frank.”

The bill would also reinstates protections for renters when the owners of the property they are renting are foreclosed upon, requiring a 90-day notice before being required to leave, and requiring new property owners to honor the terms of unexpired leases.

“We’re introducing a common sense bill that can actually pass the Senate, House, and be signed into law,” Heitkamp said. “We need solid, realistic reforms that support community banks and credit unions so they can help families, businesses, and farmers gets access to loans and capital, and that’s what this bill accomplishes. It’s telling that every Democrat on both committees supports this bill – we come from varying degrees of the political spectrum – as it was through compromise and open dialogue that we were able to reach an agreement. Now, let’s move it forward.”

Carney said that the legislation will help the Dodd-Frank legislation to function as it was designed to function.

“This bill will go a long way toward ensuring access to credit and enabling community banks to better serve their customers while retaining and strengthening core consumer protections,” Carney said. “Dodd-Frank made a lot of important changes to our banking system, but there’s more work to do. Our legislation fine-tunes Dodd-Frank so it works as intended.”

Click here to read a summary of the legislation and click here to read the legislation in full.

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