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House Republicans urge FDIC to withdraw corporate governance guidelines
Recently, a group of House Republicans sent a letter to Martin Gruenberg, Chairman of the FDIC, expressing concerns regarding the proposed corporate governance and risk management guidelines that would apply to all insured state nonmember banks, state-licensed insured branches of foreign banks, and insured state savings associations subject to Section 39 of the FDI Act. The proposal was titled Guidelines Establishing Standards for Corporate Governance and Risk Management for Covered Institutions With Total Consolidated Assets of $10 Billion or More (covered by InfoBytes here). The congressmembers argued the FDIC lacks the authority to issue these guidelines under its statutory power. However, the letter also included three arguments outlining why the guidelines are flawed even if the FDIC had the appropriate statutory authority. First, the congressmembers claimed the guidelines would significantly alter corporate governance practices, impose unrealistic responsibilities on boards of directors, and increase liability to the boards. Second, they asserted the requirement for directors to “consider the interests of all its stakeholders” set forth in the guidelines conflicted with existing state laws on directors’ fiduciary duties. Third, they contended the asset threshold for applying these guidelines is set too low compared to other heightened banking regulatory frameworks, such as those set by the OCC or the Fed. The letter concluded by urging the FDIC to withdraw the proposed guidelines and consider public feedback.
House Financial Services Committee scrutinizes bank regulators’ actions
On November 20, the House Financial Services Committee held a hearing titled “Oversight of Prudential Regulators” to question the directors and focus on the recent actions and future plans of the Fed, the FDIC, the NCUA, and the OCC. The hearing featured testimonies from Michael Barr, Vice Chairman for Supervision at the Fed; Martin Gruenberg, Chairman of the FDIC; Todd Harper, Chairman of the NCUA; and Michael Hsu, Acting Comptroller of the OCC.
Rep. Patrick McHenry (R-NC), Chairman of the Committee, criticized the agencies for neglecting interest rate risks, leading to significant bank failures. He stated, “Your backward-looking approach to regulations harmed our financial system, innovation, and consumers.” Chairman McHenry and other Republican members of the Committee co-sponsored H. Res. 1574, “Calling for the termination of Federal Deposit Insurance Corporation Chairman Martin J. Gruenberg from his position, effective immediately.”
The CFPB’s Section 1033 open banking rule was a significant topic. Rep. Bill Foster (D-IL) supported the rule for increasing competition and consumer control over financial data. As previously covered by InfoBytes, the CFPB’s Section 1033 final rule would mandate that financial institutions, credit card issuers, and other financial providers make covered data available to consumers and third parties in a standardized format. The final rule has also been the subject of litigation alleging the CFPB exceeded its statutory authority under the Dodd-Frank Act by requiring banks to provide customer financial information to third parties without proper authorization from Congress (covered by InfoBytes here). Rep. Foster asked if the Fed had considered issues related to bank data requests and liability in the case of data breaches. Michael Barr confirmed the Fed’s consultation with the CFPB and the need for clarity on these issues.
Another key discussion was the potential pause in rulemaking. Following a letter calling for agencies to halt all rulemaking by Rep. French Hill (R-AR), Rep. Zach Nunn (R-IA) and Rep. Byron Donalds (R-FL) echoed Rep. Hill’s concerns and urged regulators to halt new regulations until the incoming administration takes office. Michael Barr and Martin Gruenberg indicated that major rulemakings, such as Basel III, would be revisited next year.
GOP Reps urge efficient review of credit-linked note transactions
On September 16, several GOP lawmakers signed a letter urging the Fed to expedite its review process for approving regulated entities’ applications for risk adjusted treatment for the direct issuance of credit-linked notes. The lawmakers emphasized that banks use credit-linked notes to diversify bank balance sheets and enhance financial resiliency and argued that use of such notes could lead to a more efficient allocation of capital, enabling banks to redeploy capital for lending activities, benefiting consumers and corporations by freeing up more capital for lending needs.
The Fed’s approval of directly issued credit-linked note transactions falls under Subpart D of Regulation Q. The Fed reviews these transactions to ensure they transfer risk and to evaluate a bank’s capital adequacy. The lawmakers stressed that an efficient review process was vital as banks prepare for increased capital requirements from the Basel III Endgame standards.
The letter urged the Fed to allocate sufficient resources to review proposed credit-linked note transactions and requested transparent timelines for reviewing and reaching final decisions on bank applications. The letter was signed by seventeen GOP representatives.
Attorneys General criticize Treasury letter regarding de-banking
Recently, 20 state attorneys general (AGs) sent a letter addressed to U.S. Treasury Secretary Janet Yellen objecting to the Treasury’s recent letter which criticized state laws protecting individuals from de-banking. The AGs’ letter argued that these state laws, such as Florida’s HB 989, prohibited discrimination against consumers “based on factors that are not grounded in measurable risks” by financial service providers, and criticized the Treasury for allegedly misleading financial institutions about the implications of these laws. The AGs contend that the Treasury has incorporated political activism into financial regulation, citing past actions related to climate change and net-zero recommendations. The letter concluded by urging the Treasury to focus on its statutory duties rather than political agendas.
For its part, the Treasury sent a letter to House representatives regarding their concerns that the state laws, such as Florida’s HB 989, could conflict with federal AML and illicit financing laws. According to the July 18 letter, the Treasury shares concerns that the recent state laws could hinder financial institutions’ compliance with national security requirements. The letter states that such laws restrict the factors banks can consider when assessing risks, potentially undermining AML, countering the financing of terrorism, and sanctions compliance programs. The Treasury argues that such restrictions could prevent banks from effectively identifying and managing risks associated with illicit activities, thereby threatening national security. The letter calls for collaboration with states to address these issues while ensuring compliance with federal regulations.
Congressional Progressive Caucus opposes bill against CFPB credit card late fee rule
On July 17, 54 members of the Congressional Progressive Caucus sent a letter addressed to the Speaker of the U.S. House of Representatives, Mike Johnson, discussing the upcoming House consideration of H.J. Res. 122 (the “Act”) relating to credit card penalty fees. The Act aimed to invalidate the CFPB’s rule on credit card late fees by amending Regulation Z, which aims to reduce the maximum late fees charged by credit card companies to $8 from the typical $32 (covered by InfoBytes here). The letter indicated that all Republicans on the House Financial Services Committee supported the bill, while all Democrats opposed it. The letter’s authors expressed their view that the Republican majority supports “junk fees.”
The letter argued that the CFPB’s rule would provide substantial financial relief to Americans, estimating an annual savings of $10 billion and an average individual savings of $220 per year for over 45 million people. The letter’s authors affirmed their support for the Biden Administration’s efforts to lower costs for Americans and combat unfair business practices in the banking industry.
Chopra testifies at House, Senate committee hearings
On June 12, the Senate Committee on Banking, Housing, and Urban Affairs held a hearing to address the CFPB’s Semi-Annual Report to Congress. The CFPB Director, Rohit Chopra, in his opening statement addressed the Committee to report on the agency's recent activities and initiatives including its efforts in financial data privacy, open banking rules, and the protection of financial data from surveillance and misuse. Additionally, Chopra highlighted the CFPB’s work in the credit card market, having issued rules seeking to reduce certain credit card fees, foster competition, and protect consumers’ points and rewards. Chopra expressed a willingness to collaborate with the Committee to further address the country’s financial challenges.
Ranking Member Tim Scott (R-SC) warned that the Supreme Court’s recent ruling on the constitutionality of the CFPB’s funding structure was “not a green light for your progressive wish list.” Ranking Member Scott also questioned the CFPB’s issuance of civil investigative demands (CIDs), providing an example of a lengthy multi-year audit that resulted in no CFPB action. Additionally, Senator Reed (D-RI) raised concerns about the Buy Now, Pay Later (BNPL) market, noting that unlike credit card companies, BNPL firms do not consistently report consumer repayments to credit bureaus. He noted that the situation could lead to issues where consumers do not receive credit score benefits for responsible credit usage and where the industry lacks visibility into a consumer's total debt burden. Director Chopra acknowledged Reed’s concerns, citing that auto and mortgage lenders are worried about the lack of BNPL data in credit reports, which could affect their ability to assess borrowers' creditworthiness. Chopra suggested that while reporting is not currently mandated by federal law, it was an area of concern for the CFPB. Additionally, Senator Lummis (R-WY) highlighted “junk fees” and how the concept is being applied in the mortgage industry. Lummis mentioned a working paper by CFPB staff that credited consumer education provided by banks for a particular finding regarding rural borrowers’ understanding of the mortgage process. She followed by asking Chopra if the Bureau considered consumer education a valuable service provided by community banks because, according to Lummis, the cost to educate consumers was being labeled as a “junk fee” by the administration. Chopra’s response noted that there was no attempt to label all mortgage closing costs as “junk fees.” Senator Kennedy (R-LA) expressed confusion regarding the funding of the CFPB, referencing a distinction between revenue and earnings. He cited the statute that governs the CFPB's funding, which stated the agency received its funds from the combined earnings of the Fed. Kennedy pointed out that since September 2022, the Fed had been losing money and therefore had no earnings to transfer, questioning how the CFPB was entitled to any funds under these circumstances. Director Chopra acknowledged the concern and suggested that it was a theory the CFPB has previously explored.
The following day, the House Financial Services Committee also held a hearing to address the CFPB’s Semi-Annual Report. Representative McHenry (R-NC) reflected on the Supreme Court's decision to uphold the funding structure of the CFPB as established by the Dodd-Frank Act. He interpreted the court's opinion as affirming Congress's authority over funding mechanisms and suggested that Democrats join Republicans in creating legislative plans to make the CFPB more accountable. McHenry criticized Director Chopra's leadership, claiming the CFPB under Chopra had become politicized and was neglecting consumer protection in favor of political objectives. He also accused the CFPB of unfairly characterizing financial institutions and questioned Chopra's involvement in the FDIC's internal issues, referencing a toxic workplace culture and leadership problems. On the other hand, Representative Waters (D-CA) highlighted that the CFPB was “combating excessive and illegal junk fees, fighting against housing discrimination and redlining, and holding mega-banks accountable for breaking the law and harming consumers.”
Addressing the Bureau’s proposed rule under Section 1033 of the Dodd-Frank Act, which governed consumer access to financial records, McHenry expressed concerns that the CFPB's proposed regulations might “entrench” those in the financial industry by valuing their hold on financial data. Director Chopra responded by emphasizing the need to prevent practices like bait-and-switch, where financial products such as auto loans are offered with the ulterior motive of “harvesting” and selling data. When McHenry asked for a timeline, Chopra indicated the aim to finalize the rule by October.
Among questions from other representatives, Representative Wagner (R-MO) questioned Director Chopra about the principles of risk-based pricing in the financial industry. Chopra stated that while it was not mandated, risk-based pricing was commonly used by institutions to appropriately measure risk. Wagner expressed concerns that the CFPB's new rules on credit card late fees and overdrafts could undermine this principle. Chopra disagreed, arguing that the rules would encourage better risk-based pricing, and he did not see a connection between aligning late fees with Congressional guidelines and undermining risk-based pricing. Wagner then suggested the new rules could increase persistent debt among consumers. Throughout the discussion, Chopra insisted that the CFPB's actions were in line with common sense and Congressional prohibitions against unreasonable fees.
House Democrats urge agencies to finalize Basel III Endgame rule
On February 16, the Ranking Member for the House Committee on Financial Services, Maxine Waters (D-CA), and 41 other House Democrats sent a letter to the FDIC, Fed, and OCC regarding the Basel III Endgame and the proposed rule which would impose higher capital requirements. The letter urged the agencies to finalize the rule, highlighting the purpose of capital requirements “to shield banks from unexpected losses, preventing their failure, while serving as a source of funding that banks use…” The letter commended the agencies for providing the public with almost six months to comment and argued the endgame rule’s impact on access to credit is low. The letter also noted that the expected funding impact on a large bank’s average lending portfolio is expected to increase by just 0.03 percent, which it describes as “insignificant” compared to Fed interest rate increases. The letter specifically urged the heads of the agencies to finalize the rules this year “to ensure we have a banking system that will promote stable economic growth.”
Senators, Reps request record retention information from the FTC
On August 18, members of the House and the Senate issued a letter to the FTC with various inquiries related to the FTC’s preservation of agency records. The letter notes that the FTC “has struggled to comply” with the Federal Records Act citing a February 2022 memo from the FTC Inspector General issuing two recommendations for improving records management. The letter further indicates that the FTC has not provided explanations for instances of document deletion and have asked for responses by the end of the month to identify (i) what records have been deleted and why; (ii) how the FTC is working to company with retention requirements; (iii) whether it has notified National Archives and Records Administration of any deleted records; and (iv) how it has addressed prior recommendations.
Waters asks Treasury, SEC to comment on crypto framework
On June 23, Representative Maxine Waters solicited viewpoints, analysis, and recommendations in letters sent to the Department of Treasury and the SEC regarding a recently introduced discussion draft of cryptocurrency framework. In her letters, Waters requested insight on how the proposed legislation would impact the federal regulators’ ability to conduct oversight, among other things. Waters specifically asked the SEC for recommended amendments to existing law, outside of the bill, to further protect investors in the digital assets space. In her letter to the Treasury, she asked for insight on how the bill would address or conflict with its policy recommendations, and if the bill or specific provisions of it are needed. Waters requested that both regulators provide a written response by June 30 and be prepared to brief the House Financial Services Committee.
Introduced on June 2, the discussion draft to which Waters referred would impact the jurisdiction of the CFTC over digital commodities and the SEC’s authority over digital assets. Committee Chairman Patrick McHenry is a co-author of the discussion draft and also the primary sponsor of newly proposed bills regarding financial statement requirements of emerging growth companies that if passed, will indirectly impact regulators’ oversight in the crypto space. HR 2608 would limit the financial information an emerging growth company would be required to submit to the SEC, among other things. Specifically, “an emerging growth company is not required to present a financial statement for any period prior to the earliest audited period of the emerging growth company in connection with its initial public offering, such as a statement for an acquired company.” Additionally, HR 2610 would amend the Securities Exchange Act of 1934, so emerging growth companies would only need to submit the last 2 years of their profit and loss statements (previously 3 years). Among other things, the bill allows an issuer of securities to submit a draft registration statement to the SEC for confidential review prior to a public filing. Both bills have passed the House.
Republicans seek to overturn CFPB small-biz lending rule; Georgia AG says rule is unnecessary and burdensome
Recently, several House Republicans introduced a joint resolution of disapproval (H.J. Res. 66) under the Congressional Review Act to overturn the CFPB’s small business lending rule. As previously covered by InfoBytes, last month the Bureau released its final rule implementing Section 1071 of the Dodd-Frank Act. Effective August 29, the final rule will require financial institutions to collect and provide to the Bureau data on lending to small businesses (defined as an entity with gross revenue under $5 million in its last fiscal year). Both traditional banks and credit unions, as well as non-banks, will be required to collect and disclose data about small business loan recipients’ race, ethnicity, and gender, as well as geographic information, lending decisions, and credit pricing. The final rule prescribes a tiered compliance date schedule, with the earliest compliance date being October 1, 2024, for financial institutions that originate at least 2,500 covered small business loans in both 2022 and 2023 (financial institutions with lower origination amounts have later compliance dates).
Also opposing the final rule, Georgia Attorney General Christopher M. Carr sent a letter to CFPB Director Chopra requesting that the final rule be rescinded. Carr argued that the final rule places an unnecessary and expensive burden on financial institutions, and that “[w]ith the current uneasiness in the market and a plethora of other challenges facing community banks, now is not the time to require them to gather more information that has absolutely nothing to do with the process of evaluating which applicants are the strongest and most deserving of capital.” Carr further contended that if lending discrimination is a “rampant problem,” the Bureau should use channels already in place to address this issue. Pointing out that states already have their own consumer protection and anti-discrimination statutes in place, Carr argued that the final rule imposes redundant compliance requirements on financial institutions, particularly community banks. Carr asked the Bureau to “allow states to continue to address lending issues as they occur, rather than saddling small businesses with burdensome regulations.”
Additionally, in April, a group of plaintiffs, including a Texas banking association, filed a lawsuit against the Bureau seeking to invalidate the final rule. (Covered by InfoBytes here.) Plaintiffs argued that the final rule will drive from the market smaller lenders who are not able to effectively comply with the final rule’s “burdensome and overreaching reporting requirements” and decrease the availability of products to customers, including minority and women-owned small businesses.