by Daily Inter Lake, Peregrine Frissell

U.S. Sen. Jon Tester unveiled legislation recently that aims to release small-town banks from being subject to the same legislation that large, national banks have been held to since setting off a financial crisis in 2008.

Tester, a Democrat from Montana, drafted the legislation with Republican Sen. Mike Crapo of Idaho.

The biggest impact Montanans may see is in the area of mortgages, said Steve Turkiewicz, president and chief executive of the Montana Banker’s Association, which has endorsed the legislation.

“Most of our community banks that are here in Montana operate on a business model that is relationship based,” Turkiewicz said. “In many cases, they are able to tailor or customize a mortgage loan.”

The new bill would give small-town banks more latitude to work with customers to customize the terms of loans, Turkiewicz said. Since Dodd-Frank was passed in 2010 in the wake of the financial crisis, it has reigned in reckless loans by big banks, but also made it more difficult for smaller banks to customize loans for customers in rural areas.

“Montana is a small population state with vast spaces in between our towns, and we have banks that serve those and have served them for a hundred years,” Turkiewicz said.

Turkiewicz said that it was particularly difficult for banks to prepare good loans for agricultural borrowers, whose income can vary significantly from year to year.

The new legislation would allow these banks to keep more borrowers on their own books, rather than hitting their quota and having to sell the loans on secondary markets where tightened regulations can lead to bad terms for rural Montanans.

Turkiewicz said the benefits would be felt in Montana’s bigger cities as well, because small banks still reign in a large portion of the state.

“It doesn’t necessarily have to be in our smaller towns. We have banks that would qualify in Kalispell,” Turkiewicz said. “We have 59 banks operating in Montana, and all but four of those are under a billion dollars in size. Fifty percent of all of our banks are under $100 million in deposits.”

Don Bennett is President and Founder of Freedom Bank in Columbia Falls, and he said he is glad to see some legislation address this issue but it doesn’t go quite far enough.

“The problem is that the people in DC paint with such a broad brush,” Bennett said. “They find a problem and then they assume that’s a problem everywhere so they make everyone comply with these ridiculous rules that actually are detrimental to the consumer.”

He said his small, community bank is able to make judgements about who to loan money to that go beyond what large banks can discern in an algorithm. He said he can decide who to lend money to by looking them in the eye, and estimated that every week he lended to someone that couldn’t get a loan at a major bank.

While the legislation will help him do that more, he said is still saddled with too many hours of superfluous paper work that is a result of the legislation enacted after the financial crisis. He also said the legislation addresses banks under $10 billion, which is smaller than many major banks but continues to treat small banks like his with a broad brush.

Bennett said he had only about $70 million in deposits, and that banks his size still operate significantly differently than a bank with $5 billion in deposits and should be treated as such.

Turkiewicz said their support of the legislation should not be interpreted as a vote against the efforts to reign in reckless banking practices of large firms. It is widely recognized many of those regulations unintentionally hurt small banks, and this legislation is seen as an effort to rectify the collateral damage of legislation like Dodd-Frank.

Tester announced the legislation in a weekly press call with Montana journalists earlier this month.

“Montana’s main street banks did not cause the financial crisis and they should not be held to the same regulation as Wall Street bankers,” Tester said on the conference call. “This legislation will make it easier for small-town institutions to lend to Montana families.”

Tester said the legislation was drafted to improve the harsh environment for small banks that has made it difficult for many Montanans to get the loans they need to buy houses and pay for fraud protection.

As drafted, it would exempt small banks with fewer than 500 closed-end mortgages from certain reporting requirements, allows banks with under $10 billion in total consolidated assets to deem certain mortgages qualified and reduces paperwork requirements for rural housing authorities that support fewer than 550 households.

The bill also contains certain consumer protection provisions, including providing a free year of fraud protection alert for consumers impacted by the Wells Fargo scandal and Equifax breach and one free credit freeze and unfreeze each year. It allows parents to turn credit reporting for minor children on or off and prevents credit agencies from recording negative information on veteran’s credit scores for a year if it was due to mix-ups in Choice Program payments. It would also prevent mortgage companies from immediately kicking out tenants from their rentals if their landlord is foreclosed on. It also encourages banks to report instances where it appears a senior citizen may be getting scammed.

The bill is scheduled to come before the Senate Banking Committee on Dec. 5, and then it will be up to Senate Majority Leader Mitch McConnell to determine if and when it will come to the Senate floor.

The Montana Association of Realtors, Montana’s Credit Unions and Montana Independent Bankers also endorsed the legislation.