Barletta: Community Banks Key to Local Prosperity

Dec 12, 2017
Press Release

WASHINGTON – Today the U.S. House of Representatives passed H.R. 3971, the Community Institution Mortgage Relief Act of 2017 by a bipartisan vote of 294 to 129.  The bill directs the Consumer Financial Protection Bureau (CFPB) to exempt smaller community banking institutions with assets of $10 billion or less, from onerous reporting requirements on escrow and mortgage servicing.  Congressman Lou Barletta (PA-11) voted in favor of the legislation.

“The heartbeat of the American free market starts with our community bankers,” Barletta said.  “I started my business for $29.95 and with a dream, I secured credit to keep growing.  I can tell you for a fact that this was made possible by the relationship based services provided by local lending institutions.  Unfortunately, the passage of Dodd-Frank has crippled this critical resource for local communities and small businesses across the nation.”

“While larger banking institutions can hire a fleet of lawyers and compliance officers to process the extra paperwork, the customers at community banks are left defenseless.  This is exactly the sort of top down, one-size-fits-all decree of nameless, faceless Washington bureaucrats that cripple America’s economic growth.  Americans are seen as a statistic.  Regulation should punish bad behavior, not crush the free market and the dreams millions of Americans have to start their own business or own their own home.  I’m happy the House continues to take steps that grow the economy and open doors for Americans after years of closing off opportunity.”

The Dodd-Frank Act and CFPB’s expansion of escrow and mortgage servicing requirements have pushed community banking institutions out of the mortgage market since the law’s passage.  According to a report from the Federal Reserve of Dallas from December 2015, since 2010, the United States has seen only one newly chartered bank which wasn’t a conversion of a thrift, an alarming development.

In 1992, community banks accounted for 64 percent of $4.6 trillion in total banking assets.  By 2015, their market share had dropped to 19 percent.  Even with the dramatic decline, community banks still account for the largest share of small-business loans.  Small and medium sized banks hold around 55 percent of small-business loans and 75 percent of agricultural loans.

Community banks have pointed to the dramatic growth in regulatory requirements as the primary driver of smaller banks out of the market.  Reporting requirements and restrictions present a problem of scale for community financial institutions, which do not have the internal human or financial resources to abide by additional servicing requirement or create and maintain escrow accounts in-house.

Since larger banking institutions have enough strength to hire the necessary compliance and legal costs, they have been inherently provided an advantage over smaller institutions.  Many of the smaller institutions have since become victims to consolidation or closure.

The burdensome and expensive regulations promulgated by the CFPB force small lenders to make difficult choices: pass the increased costs to consumers as part of the mortgage process, or exit the mortgage market altogether. Neither of these options benefits nor protects consumers.

Barletta hopes the legislation will help to reverse Washington centered policies pushing community banks out of local communities since the passage of Dodd-Frank in 2010.