Wouldn’t it be wonderful if there were just one standard by which banks could qualify as “small” and therefore be exempt from, or be subject to less exacting standards under, certain regulations? As compliance professionals, we truly appreciate the powers that be providing regulatory relief to those banks that are most affected by compliance costs, but it would just be nice if we could line up all of the definitions of “small.” The Community Reinvestment Act (CRA), Real Estate Settlement Procedures Act (RESPA), Truth in Lending (TILA), Home Mortgage Disclosure Act (HMDA), and Flood regulations all have different definitions and relief provided to small institutions.
For the CRA, the “small bank” standard is adjusted annually, based on the current average in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Currently, that threshold sits at assets of less than $1.503 billion. Within that subset of “small bank,” the “intermediate small bank” category, which requires an additional community development test for CRA performance standards, is any institution with assets between $376 million and $1.503 billion.
RESPA and the billing statement requirement in TILA both have identical requirements for smaller institutions. To be exempt from most of the RESPA servicing provisions and the TILA periodic statement requirements as a “small servicer,” an institution must be currently servicing 5,000 or fewer mortgage loans as either the main servicer, an affiliate of the main servicer, or an assignee of the loans. This exemption does not get you out of ALL of the RESPA servicing provisions—for example, you still must wait 120 days from delinquency in order to bring a foreclosure action. Nevertheless, being a small servicer does relieve you of many of the loss mitigation and billing requirements.
For the Higher-Priced Mortgage Loan (HPML), Ability to Repay/Qualified Mortgage (ATR/QM) and Home Ownership and Equity Protection Act (HOEPA) provisions of TILA, which apply to “small creditors” rather than “small servicers,” the standard is different. It’s less than $2.537 billion in assets, and no more than 2,000 closed-end, consumer-purpose and dwelling-secured transactions originated in the last year, excluding loans held in portfolio. Keep in mind that HPML, HOEPA and QM Balloon loan exemptions carry the additional requirement of “rural or underserved”, the creditor must make at least one loan in a “rural” or “underserved” area as defined by the regulation within the last two calendar years to be exempt under those provisions.
There is a Small Lender exemption to the requirement to escrow flood insurance, also. If a financial institution has assets under $1 billion and it did not have a policy of requiring escrow of taxes or insurance for mortgage loans during a certain time period, the requirement to escrow flood insurance does not apply.
HMDA provides a helpful exemption for some of the fields that are required to be reported. Granted the word “small” is not used in the name of the exemption but the premise holds true. If a bank passes the requirements to report (which has its own size threshold of $54 million and a volume threshold of 25 closed-end and 200 open-end loans/lines) but does not exceed 500 loans or lines (separately) a large chunk of the data points are not required to be reported.
Finally, regarding examinations, the FAST Act in 2016 changed the threshold for an 18-month safety and soundness exam cycle. Currently, with assets less than $3 billion a financial institution will only be subjected to a safety and soundness exam from your federal regulator once every 18 months.
Whew! The federal agencies have stated numerous times that they both recognize the added regulatory burden on small institutions and wish to alleviate it, but based on a tangled web like this, it sure doesn’t seem like it. Hopefully there will be an attempt in Congress to streamline all of these exemptions into one single, easy-to-reference rule or regulation soon—until then, the best course of action is simply to keep track of all these separate requirements, stay alert for any changes or threshold updates, and contact Compliance Alliance if you have any concerns.