CLEAR Act Would Exempt Small Lenders From Certain ATR/QM Rules

In order to provide regulatory relief to community banks, Sens. Jerry Moran, R-Kan., Jon Tester, D-Mont., and Mark Kirk, R-Ill., recently introduced legislation that would in effect exempt smaller lenders from certain regulations contained within the Consumer Financial Protection Bureau's ability-to-repay and qualified mortgage rules.

The Community Lending Enhancement and Regulatory Relief Act, or CLEAR Act, introduced in late July, would provide qualified mortgage status for any mortgage originated and held in a small lender's portfolio for at least three years, providing that the lender had less than $10 billion in assets at the time of origination.

The bipartisan legislation, co-sponsored by Sens. Kay Hagan, D-N.C., and Mary Landrieu, D-La., would also exempt first lien mortgages held by a lender with less than $10 billion in assets from escrow requirements. In addition, it would require the Federal Reserve to increase the Small Bank Holding Company Policy Statement's qualifying asset threshold from $500 million to $5 billion.

What's more, the proposed bill would exempt community banks with less than $1 billion in assets from the internal-controls assessment mandate within section 404(b) of Sarbanes-Oxley.

‘With 12 million Americans looking for work, our government's first priority should be to create an environment where businesses can be created, grow and hire workers," Sen. Moran said in a statement. "I continue to hear concerns from Kansas bankers who are hesitant to lend as they wait for the next burdensome regulation to come out of Washington. Until banks are willing and able to make prudent loans to hometown customers, job creation will remain stifled and our economic recovery will continue to lag.’

The bill is similar to legislation introduced in the House in April by Rep. Blaine Luetkemeyer, R-Mo. That proposed bill, also called the Community Lending Enhancement and Regulatory Relief Act of 2013, directs the board of governors of the Federal Reserve to publish in the Federal Register proposed revisions to the Small Bank Holding Company Policy Statement on the Assessment of Financial and Managerial Factors that apply the policy to bank holding companies having pro forma consolidated assets of less than $5 billion (adjusted annually), no engagement in non-banking activities involving significant leverage and no significant amount of outstanding debt.

In addition, the House bill would require regulators to increase the debt-to-equity ratio allowable for a small bank holding company from 1.1 to 3.1 in order to retain its eligibility both to pay a corporate dividend and to implement expedited processing procedures under Regulation Y of the Board. It would also require the Truth in Lending Act to be amended to require the board to exempt from certain escrow or impound requirements of a loan secured by a first lien on a consumer's principal dwelling if the loan is held by a creditor with assets of $10 billion or less.

‘This bipartisan legislation is key to unlocking the doors of local economic prosperity,’ ICBA President and CEO Camden R. Fine said of the Senate proposal. ‘As a former community banker, and one who represents the nation's community banks, I realize just how important regulatory relief is for community banks and the future of their communities. I urge the Senate to support this vastly important bipartisan legislation because it's a win-win for community banks and communities of all sizes throughout the nation.’

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