WASHINGTON, Feb. 12 -- The Conference of State Bank Supervisors issued the following news release:
The Conference of State Bank Supervisors expressed strong support today for a Senate bill that would address limitations in the Consumer Financial Protection Bureau's (CFPB) definition of "rural," a classification that affects credit availability through the balloon loan Qualified Mortgage rule, or Balloon QM.
The Helping Expand Lending Practices in Rural Communities Act (S. 1916), a bill sponsored by Kentucky Senators Mitch McConnell (R) and Rand Paul (R), would amend the Dodd-Frank Act to establish a locally-focused petition process for community banks and other stakeholders to apply for an area to be considered rural for purposes of the CFPB's Ability-to-Repay rule.
The Dodd-Frank Act requires the CFPB to define rural or underserved areas as a prerequisite for the Balloon QM. To define rural, the CFPB used county classifications under the U.S. Department of Agriculture's Urban Influence Code. This approach is inflexible when applied to counties with atypical population distributions or geographic boundaries. Accordingly, CSBS has advocated for a mechanism for accommodating areas that are truly rural despite - and contrary to -- Urban Influence Code classifications.
"CSBS supports the HELP Rural Communities Act," said CSBS President and CEO John W. Ryan. "Certain aspects of lending should not be regulated with a nationwide, broad brush approach, and must provide for local flexibility. Whether an area is 'rural' depends on many characteristics, all of which are inherently local. As such, a process should be in place to designate areas as rural depending on local factors, and the HELP Rural Communities Act provides this needed local flexibility and input," Ryan said.
CSBS first proposed the CFPB adopt a petition process in an April 2013 letter (http://www.csbs.org/regulatory/policy/Documents/2013/CSBSRuralPetitionRecommendation.pdf) to the CFPB. Also in April 2013, the American Banker published an opinion piece (http://www.csbs.org/news/op-ed/Documents/BankThink-RuralMortgageDefinitionAnotherOne-Size-Fits-AllRule%20April152013.pdf) written by Louisiana Commissioner of Financial Institutions John Ducrest that raised concerns about the CFPB's Balloon QM 'rural' definition as a one-size-fits-all approach to regulating.
In June, Charles A. Vice, CSBS Chairman and Commissioner of the Kentucky Department of Financial Institutions, further advocated this approach before a House Financial Services subcommittee hearing (http://www.csbs.org/legislative/testimony/Documents/FinalTestimonyofCharlesViceforJune182013FinancialInstitutionsSubcommitteeHearing.pdf) on the CFPB's Ability-to-Repay rule.
"To remedy the inconsistencies of a blanket approach to the rural definition and in the absence of a statutory change, CSBS has suggested the CFPB adopt a petition process for interested parties to seek rural designation for counties that do not fit the Urban Influence Code definition - a step that is within the CFPB's current authorities," Vice told lawmakers.
The CSBS letter supporting the HELP Rural Communities Act is available here (http://www.csbs.org/legislative/Documents/CSBSLetterSupportingS1916-2014-02-10.pdf).
CFPB's Ability-to-Repay Rule: The final rule implements a special provision in the Dodd-Frank Act (the Balloon QM) that would treat certain balloon-payment loans as qualified mortgages if they are originated and held in portfolio by small creditors operating predominantly in rural or underserved areas. Creditors are only eligible to make rural balloon-payment qualified mortgages if they originate at least 50 percent of their first-lien mortgages in counties that are rural or underserved, have less than $2 billion in assets, and originate no more than 500 first-lien mortgages per year.
Following Commissioner Vice's testimony in June 2013, Rep. Andy Barr (KY-R) introduced H.R. 2672, the House version of S. 1916. CSBS sent a letter supporting this bill. The letter is available here (http://www.csbs.org/legislative/Documents/CSBSLetterofSupportforHR2672Dec42013.pdf).