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 You can also access past editions here:  Capitol Comments  |  Regulatory Spotlight

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Regulatory Burden

Community banks across the country have long struggled to keep up with ever-increasing regulatory compliance and examiner demands. With the enactment of thousands of pages of Dodd-Frank Act rules, the problem is more acute than ever. Recently, policymakers have demonstrated a sensitivity to community banks’ regulatory burden and have attempted to minimize the negative impact of new rules.

OBA believes that policymakers must move away from one-size-fits-all regulation to tailored regulation that corresponds to a bank’s charter, business model, geography and risk profile. This policymaking approach avoids the negative economic consequences of burdensome, unsuitable and inefficient bank regulation.

Easing regulatory burden is a priority for many during the 115th Congress.  A number of proposals will be introduced and debated in the coming months to address financial regulatory burden.  OBA will be closely watching this debate and adding its voice to the cause of meaningful regulatory relief.

To encourage action by the 115th Congress, OBA is asking bankers to submit real, personalized stories about how a rule or requirement has impeded their ability to serve their customers.  Please click here to support the national effort by submitting your story.

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Credit Unions

Congress established credit unions in the 1930s to provide small-dollar loans to close-knit groups of people of modest means. To encourage credit unions in their mission, Congress exempted credit unions from federal income taxes.

However, many of today’s credit unions bear little resemblance to the industry that received this special tax exemption and today have become indistinguishable from the banking industry. Credit unions have leveraged their taxpayer subsidy to aggressively grow—becoming a $1 trillion industry. And as the credit union industry expands, it does so at the expense of all taxpayers.

The credit union tax exemption is no longer justified. Credit unions have drifted from their original mission, and have outgrown their special tax-exempt status. Taxpayers can no longer afford to continue subsidizing the credit union industry. The goal is to have these large, aggressive credit unions return to their original mission or become subject to the same regulatory, supervisory and tax requirements as banks.

Recent Credit Union Developments
 
The battlefield for expanding credit union powers has shifted recently to the administrative rulemaking process and the courts.  In 2016, the NCUA promulgated rules to not only expand credit union member business lending rules, but also to broaden the credit union field of membership rules. The banking industry, including the OBA, filed comment letters arguing against these proposals.  The NCUA, however, moved forward with these rules.  In response, the Independent Community Bankers of America (ICBA) and the American Bankers Association (ABA) each filed a lawsuit to stop these rules. 
 
The ICBO’s lawsuit challenged NCUA’s member business lending rule that would weaken the statutory member business lending cap, including making it easier to exclude non-member loans from the cap calculation.  Unfortunately, this lawsuit was dismissed in early 2017, in part, due to a lack of standing. ICBA is considering its options for moving forward.  Like the ICBA, the ABA also filed a lawsuit.  Its target, however, was the expansive field of membership rule.  The litigation on this issue is still pending. 

Click here to learn more about Oregon's credit union industry.

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Farm Credit System

The Farm Credit System (FCS) is a $314 billion Government Sponsored Enterprise (GSE) that competes directly with banks by making farm, ranch, consumer, housing, business, and energy loans.  If the FCS were a bank, it would be the ninth largest in the nation. But as a GSE, it has substantial funding and other advantages, and it does not pay taxes at the same rate as banks.

The reason for the FCS’s creation no longer applies. The FCS was the first GSE, created in 1916 when farmers had limited options available to finance their operations. That is no longer true in rural America today.  Thanks to a robust banking industry, rural Americans enjoy the same credit opportunities their urban counterparts do. Even if one argued that FCS exists because small and beginning farms lack access to credit, FCS no longer focuses on this mission. There are countless examples of FCS cherry-picking a community bank's best customers that don't need subsidized credit, particularly in rural Oregon.

The fact is that FCS lacks a specific statutory mission to do anything other than compete with taxpaying institutions. Loans greater than $5 million now account for 45.5 percent of the entire FCS portfolio at the end of 2015.  In addition to these loans, FCS currently has eight loans between $750 million and $1 billion, and two loans over $1 billion. In recent years, in addition to wealthy farmers, other major corporations have been the beneficiaries of FCS largess including the likes of Verizon, Frontier Communications, U.S. Cellular, and AT&T.  

Why it matters:

• The subsidy is an enormous cost to taxpayers. FCS profits were $4.69 billion in 2015, yet it only paid a total of $197 million in combined federal, state, and local taxes – an effective tax rate of less than 4.2  percent total. If FCS had been taxed at the effective rate of 29 percent paid by banks in 2015, FCS would have paid $1.36 billion in taxes. 
• FCS’s growth impacts state and local governments’ tax revenues. The FCS has bullied states into accepting that it is a federal instrumentality, and therefore not subject to state taxation. The FCS also uses its GSE status to withhold payment of local taxes and fees.

Congress should abolish the FCS tax subsidy and.  It does not help the economy, make the tax code fairer, or promote an important policy goal.  Congress should continue to hold annual oversight hearings on the Farm Credit System to examine the mission and lending activity of this $314 billion GSE.

Click here to learn more about the Farm Credit System.

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Data Breaches

Recent high-profile retailer data breaches have reignited the long-running debate over consumer data security policy. Policy issues include what security and breach notification standards should apply to businesses and who should be responsible for covering costs of fraud that results from breaches.

OBA believes Congress should pass data security legislation that holds retailers and others to high, uniform, nationwide standards for safeguarding sensitive customer information. Banks have had such an obligation to protect their customer's sensitive financial information for years. OBA also is advocating that those responsible for data breaches should be responsible for their costs.

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Marijuana & Banking

In light of the legalization of medical and recreational marijuana in Oregon, the issue of marijuana related businesses accessing banking services is a growing concern in our state. The Oregon Bankers Association believes that marijuana related businesses -- just like other businesses operating legally under Oregon law -- should have access to traditional banking services that keep their funds safe and provide access to payment systems and credit options. Cash-only businesses pose a risk to public safety and create challenges ranging from processing customer payments to record keeping to tax collection.
 
Currently, there are barriers in federal law that effectively prevent the vast majority of banks from serving marijuana related businesses.  While a few institutions have attempted to offer services to marijuana related businesses, doing so has been complicated, expensive, and challenging from a regulatory perspective. To remove barriers and repair disconnects between federal and state law, Congress must take action. This is the only way to provide for more banking options for marijuana related businesses.
 
Attempts have been made to provide guidance to marijuana related businesses and banks through the "Cole Memo" issued February 14, 2014 by the Office of the U.S. Attorney General and the FinCen Guidance (FIN-2014-G001) also issued February 14, 2014. Although a handful of banks and credit unions have attempted to offer depository services under the guidance, most financial institutions believe the guidance is insufficient because it doesn't change the underlying law, poses a significant additional compliance burden as presented, and is subject to change at any time.
 
Discussion has taken place about federal legislation needed to remove the major hurdles preventing more banks from serving marijuana related business. The Oregon Bankers Association is open to such options and willing to look at proposed legislative solutions. Any legislative solution must provide a high degree of clarity and certainty.
 
During the 114th Congress, U.S. Representative Perlmutter and other colleagues, including Oregon Representatives Earl Blumenauer, Peter DeFazio and Kurt Schrader introduced H.R. 2076 to provide some protections for banks that serve legitimate marijuana related businesses operating in compliance with state law. Similar legislation - S. 1726, The Marijuana Access to Banking Act of 2015 - was introduced in July 2015 by several U.S. Senators, including Oregon Senators Ron Wyden and Jeff Merkley. The Oregon Bankers Association appreciates the awareness this legislation raises and considers it a step in the right direction. At the same time, the issue of compliance with federal law isn't fully resolved unless marijuana is removed from the list of Schedule 1 substances under the Controlled Substances Act. Moreover, regulatory requirements as outlined in the February 2014 FinCen Guidance remain burdensome and prohibitive for most banks. 

Beyond congressional action, it is imperative that bank regulators at both the state and federal level are clear, consistent, and reasonable in the rules and examination practices they deploy. Regulators must not impede banks being able to serve marijuana related businesses through excessive compliance requirements, particularly if and when Congress makes necessary legislative changes.
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Future action on the federal level is up in the air more than ever.  With the inauguration of a new President, it is unclear what action the federal government will take concerning banking and marijuana related businesses.  It is also an open question as to what may happen to the “Cole Memo” and FinCen Guidance with the appointment of a new Attorney General.  Bills similar to those introduced during the 114th Congress may again be introduced during the 115th Congress, however, passage is likely to be an uphill battle.  OBA will continue to monitor developments in this area and engage in dialogue with legislators and regulators on ways to address the banking of marijuana related businesses.