With the long-awaited passage of Senate Bill 2155 by the House of Representatives on Tuesday, and the President’s signature two days later, financial institutions are beginning to breathe a major sigh of relief. And for many banks and consumers, the regulatory relief will be dramatic.
What happened
President Trump has signed into law the Economic Growth, Regulatory Relief and Consumer Protection Act (“Act”). Just two days earlier, in bipartisan fashion, the House passed the Senate bill by a vote of 258-159. With the President’s signature, the Act will accomplish a number of major changes, and we’ll address those in articles in the coming weeks.
Media attention has focused on the Act’s impact on smaller banks, especially community banks. But fairly large banks will benefit as well, with significant restrictions lifted on banks with assets less than $10 billion. For those banks, they are finally relieved of compliance with the much despised Volcker Rule, which prohibits certain banks from engaging certain types of speculative investments. But the Act fails to relieve numerous larger banks from other Dodd Frank laws, including larger banks that remain categorized as systematically important financial institutions (i.e., “too big to fail”).
The Act will also help these banks in the mortgage markets. Of special note, there is relief on the qualified mortgage (QM) front for those who retain those loans in their own portfolios. While the current QM rule creates a safe harbor for lenders if the loans meet certain criteria, including an ability-to-repay requirement and that consumer debt not exceed 43 percent of income, the rules for non-QM loans were tough enough that lenders largely steered clear of making them. The Act makes it easier for banks under $10 billion in assets to re-enter the market, because these banks can offer loans that would not otherwise qualify for QM status, as long as they remain in the portfolio.
While many of the changes affect banks in certain asset ranges, many changes are across the board. A few worth noting:
On the combined Truth in Lending/RESPA disclosures (TRID), Congress has fixed an everyday problem by removing the three-day waiting period when the creditor extends a second offer of credit with a lower annual percentage rate. And banks (of any size) with satisfactory Community Reinvestment Act (CRA) ratings will now be exempted from collecting data in the Dodd-Frank supplemental data fields where they originate fewer than 500 closed-end loans or open-end lines of credit.
And, without regard to a lender’s size, consumers will see many new benefits. For example, credit bureaus will now be required to provide free security freezes, VA lenders will be required to show a material benefit for refinances, servicemembers will now have more permanent protections against foreclosures and will avoid negative credit reporting when they default on certain medical debts, renters will obtain greater protections during foreclosures, and consumers who obtain emergency-efficiency retrofit loans under the PACE program will now receive better disclosures, among other helpful changes.
Why it matters
Dodd-Frank relief is finally coming, and the changes will benefit banks and consumers alike. Look for more from our newsletter as we discuss these changes.