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House Financial Services Committee Chairman Called for End of CFPB; Senate Banking Committee Ranking Member Responds
In a February 10 blog post, House Financial Services Committee Chairman Jeb Hensarling called for the abolition of the CFPB, and recommended that the President “immediately fire CFPB Director Richard Cordray.” Specifically, Rep. Hensarling expressed his belief that the CFPB is “arguably the most powerful, least accountable agency in U.S. history,” and his concern that the agency “defines its own powers and can launch investigations without cause, imposing virtually any fine or remedy, devoid of due process.” For these reasons, Rep. Hensarling stated he believes that “even with good policy, the CFPB would still be unconstitutional.” Ultimately, he argued that the CFPB “must be functionally terminated,” which he said could be achieved by ending the Bureau’s funding through a reconciliation bill.
The same day, Senate Banking Committee Ranking Member Sherrod Brown issued a statement responding to Rep. Hensarling’s proposal to abolish the Dodd-Frank Act. Senator Brown’s response noted, among other things, that “71 percent of Americans approve of the [CFPB]’s mission,” and that “[t]he Hensarling proposal would transform the Bureau from an effective watchdog into a toy poodle.”
Legislation Introduced in Both Houses Seeking to Curb Authority of the CFPB and Other Financial Regulators
On February 14, Senator Mike Rounds, a member of the Senate Banking Committee, introduced S. 365, which seeks to amend the Consumer Financial Protection Act of 2010 to bar the transfer of funds from the Board of Governors of the Federal Reserve System to the CFPB. The bill also would require the CFPB to turn over all penalties it obtains to the United States Treasury. Sen. Rounds also reintroduced the “Taking Account of Institutions with Low Operation Risk (TAILOR) Act” (S. 366)–a bill intended to ease regulatory burden on local banks and credit unions. Specifically, the TAILOR Act would require financial regulators to take into consideration the risk profile and business models of individual financial institutions and tailor those regulations accordingly. The TAILOR Act also would require regulators–including the OCC, the Fed, the FDIC, the NCUA and the CFPB–to conduct a review of all regulations issued since the 2010 passage of the Dodd-Frank Act and revise any regulations that do not conform to the TAILOR Act’s requirements. In addition, the regulatory agencies would be required to provide an annual report to Congress outlining the steps they have taken to tailor their regulations.
On February 15, Senator David Perdue (R-Ga.), along with Sens. John Barrasso (R-Wyo.), John Boozman (R-Ark.), Ted Cruz (R-Tex.), Steve Daines (R-Mont.), Mike Enzi (R-Wyo.), Joni Ernst (R-Iowa), John Hoeven (R-N.D.), Johnny Isakson (R-Ga.), Ron Johnson (R-Wis.), John Kennedy (R-La.), Mike Lee (R-Utah), Rand Paul (R-Ky.), Marco Rubio (R-Fla.), and Thom Tillis (R-N.C.), have introduced legislation S. 387 to amend the Consumer Financial Protection Act so that the CFPB would be subject to the regular appropriations process.
Senator Ted Cruz and Representative John Ratcliffe also introduced legislation in their respective chambers that would abolish the CFPB. The pair of bills–S. 370 and H.R. 1031–would “eliminate the Consumer Financial Protection Bureau by repealing title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act, commonly known as the Consumer Financial Protection Act of 2010.” As explained by Senator Cruz in a joint press release, the proposed legislation would give “Congress the opportunity to free consumers and small businesses from the CFPB’s regulatory blockades and financial activism, which stunt economic growth.”
Law Firm Raided, Founders Arrested, Tied to Bribery Investigation
On February 8, authorities in Panama raided the offices of a law firm at the center of the sprawling Panama Papers scandal, and arrested the firm’s founders. Reuters reports that Panama’s Attorney General announced on Twitter that the raid and arrests were tied to the investigation of the Brazilian construction company that in December reached a $3.5 billion combined global settlement with U.S., Brazilian, and Swiss authorities to resolve FCPA allegations. Until now, the investigations spawned by the 2016 release of millions of documents stolen from the law firm were focused on money laundering and tax evasion. The tie to the company’s investigation brings anti-bribery investigations into the mix.
Fed's Regulatory Chief Submits Letter of Resignation; Will Step Down in April
On February 10, the Fed announced that Daniel K. Tarullo submitted his resignation as a member of the Board of Governors of the Federal Reserve System, effective on or around April 5. Mr. Tarullo—who has been a member of the Board since January 28, 2009—was appointed to the Board by President Obama for an unexpired term ending January 31, 2022. During his time on the Board, he served as Chairman of the Board’s Committee on Supervision and Regulation. He was also Chairman of the Financial Stability Board’s Standing Committee on Supervisory and Regulatory Cooperation.
White House Issues Interim Guidance Concerning its "2-for-1" Regulatory Order
On February 2, the OMB Acting Administrator of the Office of Information and Regulatory Affairs (OIRA) released a memorandum providing interim guidance for implementing President Trump’s January 30 Executive Order entitled “Reducing Regulation and Controlling Regulatory Costs.” Among other things, the memorandum clarifies that the January 30 Order—which was covered previously by InfoBytes here—(i) does not apply to agencies defined as an “independent regulatory agency” by 44 U.S.C. § 3502(5), which include the CFPB; (ii) applies only to significant regulatory actions that have an annual effect on the economy of at least $100 million or result in other material effects as defined in Executive Order 12,866; and (iii) applies only to significant regulatory actions issued between noon on January 20 and September 30, 2017.
NCUA Publishes Proposed Rule Offering Alternate Capital Proposal for Credit Unions
On February 8, the National Credit Union Administration (NCUA) published a notice of proposed rulemaking to expand the types of investment capital that federally insured credit unions could use to meet certain regulatory requirements. NCUA is considering whether to allow credit unions to use investment capital (that would be uninsured capital subordinate to all other claims) to satisfy the risk-based net worth ratio requirement. Currently, only low-income designated credit unions are allowed to use secondary capital to satisfy two regulatory requirements: the net worth ratio and the risk-based net-worth ratio. Although any changes to the definition of net worth would require an act of Congress, the NCUA asserted in the proposal that it has broad authority to adjust the risk-based net worth ratio requirement and therefore may choose to allow credit unions that are not “low-income designated” to use alternative capital to meet this requirement.
Groups Seek Injunction Blocking Trump's "2-For-1" Regulatory Order
On February 8, three organizations—Public Citizen, the Natural Resources Defense Council, and the Communications Workers of America—sued the Trump administration over the President’s recent Executive Order (as clarified by the OMB’s interim guidance issued on February 2), which directs agencies to identify two regulations for repeal for every rule written (covered in InfoBytes here). The action seeks to have the Executive Order declared unconstitutional and enforcement thereby stayed. Among other things, the complaint asserts that the President’s Executive Order unlawfully forces agencies to make decisions based on an “impermissible and arbitrary choice—whether to issue a new standard at the cost of the loss of benefits of two existing standards.” To repeal “two regulations for the purpose of adopting one new one, based solely on a directive to impose zero net costs and without any consideration of benefits,” Plaintiffs argue, “is arbitrary, capricious, an abuse of discretion, and not in accordance with law.” The case has been assigned to Judge Gladys Kessler of the U.S. District Court for D.C.
President of Philadelphia Fed Makes an Argument for FinTech Regulation
In prepared remarks at the “Global Interdependence Center’s Payment Systems in the Internet Age” Conference, Philadelphia Fed President Patrick T. Harker said that regulating the evolving FinTech industry benefits not only consumers, but also the innovators. While Harker did not speculate as to whether the Fed will become involved in FinTech regulation, he stated that it is in the best interest of FinTech companies “to have an established framework in which to operate.” He cautioned, however, that “all financial systems are a matter of trust” and thus FinTech firms will “need that trust the same as any other bank or financial institution.” Harker noted that regulations will help determine which companies can survive the “down side” of a credit cycle, but implementing regulations after a “crisis. . . could mean tighter strictures and less room for innovation.”
Meeting to Approve the Authorization and Oversight Plan of the Committee on Financial Services
On February 7, the House Financial Services Committee adopted, by a voice vote, its Authorization and Oversight Plan of the Committee on Financial Services for the 115th Congress. Among other things, the Oversight Plan identifies the Committee’s intention to focus on the following areas of oversight during the upcoming Congress: the Dodd-Frank Act, capital markets, housing, insurance, and monetary policy and trade. The document also describes anticipated actions relating to the oversight and authorization of agencies or programs under the Committee’s jurisdiction.
OCC Proposes Final Revisions to Stress Test Information Collection
On February 2, the OCC requested comment on proposed revisions to an existing information collection entitled “Company-Run Annual Stress Test Reporting Template and Documentation for Covered Institutions with Total Consolidated Assets of $50 Billion or More Under the [Dodd-Frank Act].” The agency is also giving notice that it has sent the collection to the OMB for review. This information collection is related to the conduct of annual stress tests that the Dodd-Frank Act requires of certain financial companies, including national banks and federal savings associations. Comments on the current notice must be received by March 6, 2017.