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Trump signs legislation enacting bipartisan regulatory relief bill
On May 24, President Trump signed the Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155) (the bill) — which modifies provisions of the Dodd-Frank Act and eases certain regulations on certain smaller banks and credit unions. Upon signing, the White House released a statement quoting the president, “[c]ommunity banks are the backbone of small business in America. We are going to preserve our community banks.”
The House, on May 22, passed the bipartisan regulatory reform bill by a vote of 258-159. The bill was crafted by Senate Banking, Housing, and Urban Affairs Committee Chairman Mike Crapo, R-Idaho and passed by the Senate in March. The House passed the bill without any changes to the Senate version, even though House Financial Services Chairman, Jeb Hensarling, originally pushed for additional reform provisions to be included. Specifically, the bill does not include certain provisions that were part of Hensarling’s Financial CHOICE Act, such as (i) a complete repeal of the Volker Rule; (ii) subjecting the CFPB to the Congressional appropriations process and restructure the agency with a bipartisan commission; and (iii) reducing the Financial Stability Oversight Council’s (FSOC) authority to designate nonbank financial institutions as Systemically Important Financial Institutions (SIFIs).
In response to the bill’s passage, the OCC’s Comptroller of Currency, Joseph Otting, issued a statement supporting the regulatory changes and congratulating the House, “[t]his bill restores an important balance to the business of banking by providing meaningful reductions of regulatory burden for community and regional institutions while safeguarding the financial system and protecting consumers.” Additionally, acting Director of the CFPB, Mick Mulvaney, applauded Congress, noting that the reforms to mortgage lending were “long overdue” and called the bill “the most significant financial reform legislation in recent history.”
As previously covered by InfoBytes, the highlights of the bill include:
- Improving consumer access to mortgage credit. The bill’s provisions state, among other things, that: (i) banks with less than $10 billion in assets are exempt from ability-to-repay requirements for certain qualified residential mortgage loans held in portfolio; (ii) appraisals will not be required for certain transactions valued at less than $400,000 in rural areas; (iii) banks and credit unions that originate fewer than 500 open-end and 500 closed-end mortgages are exempt from HMDA’s expanded data disclosures (the provision would not apply to nonbanks and would not exempt institutions from HMDA reporting altogether); (iv) amendments to the S.A.F.E. Mortgage Licensing Act will provide registered mortgage loan originators in good standing with 120 days of transitional authority to originate loans when moving from a federal depository institution to a non-depository institution or across state lines; and (v) the CFPB must clarify how TRID applies to mortgage assumption transactions and construction-to-permanent home loans, as well as outline certain liabilities related to model disclosure use.
- Regulatory relief for certain institutions. Among other things, the bill simplifies capital calculations and exempts community banks from Section 13 of the Bank Holding Company Act if they have less than $10 billion in total consolidated assets. The bill also states that banks with less than $10 billion in assets, and total trading assets and liabilities not exceeding more than five percent of their total assets, are exempt from Volcker Rule restrictions on trading with their own capital.
- Protections for consumers. Included in the bill are protections for veterans and active-duty military personnel such as: (i) permanently extending from nine months to one year the protection that shields military personnel from foreclosure proceedings after they leave active military service; and (ii) adding a requirement that credit reporting agencies provide free credit monitoring services and credit freezes to active-duty military personnel. The bill also addresses the creation of an identity theft protection database. Additionally, the bill instructs the CFPB to draft federal rules for the underwriting of Property Assessed Clean Energy loans (PACE loans), which would be subject to the TILA ability-to-repay requirement.
- Changes for bank holding companies. Among other things, the bill raises the threshold for automatic designation as a SIFI from $50 billion in assets to $250 billion. The bill also subjects banks with $100 billion to $250 billion in total consolidated assets to periodic stress tests and exempts from stress test requirements entirely banks with under $100 billion in assets. Additionally, certain banks would be allowed to exclude assets they hold in custody for others—provided the assets are held at a central bank—when computing the amount such banks must hold in reserves.
- Protections for student borrowers. The bill’s provisions include measures to prevent creditors from declaring an automatic default or accelerating the debt against a borrower on the sole basis of bankruptcy or cosigner death, and would require the removal of private student loans on credit reports after a default if the borrower completes a loan rehabilitation program and brings payments current.
Each provision of the bill will take effect at various intervals from the date of enactment up to 18 months after.
Trump signs legislation repealing CFPB auto guidance, Mulvaney praises action; CFPB to reexamine ECOA requirements
On May 21, President Trump signed resolution S.J. Res. 57, which repeals CFPB Bulletin 2013-02 on indirect auto lending and compliance with the Equal Credit Opportunity Act (ECOA). The president’s signature completes the disapproval process under the Congressional Review Act (CRA), which began after the Government Accountability Office (GAO) issued a letter in December 2017 to Senator Pat Toomey (R-Pa) stating that “the Bulletin is a general statement of policy and a rule” that is subject to override under the CRA. The Senate passed the disapproval measure in April and the House approved it in the beginning of May. (Previously covered by InfoBytes here.)
The repeal responds to concerns that the bulletin improperly attempted to regulate auto dealers, which the Dodd-Frank Act excluded from the Bureau’s authority. In a statement after the president’s signing, CFPB acting Director Mick Mulvaney praised the action and thanked the president and Congress for “reaffirming that the Bureau lacks the power to act outside of federal statutes.” He also stated that the repeal “clarifies that a number of Bureau guidance documents may be considered rules for purposes of the CRA, and therefore the Bureau must submit them for review by Congress. The Bureau welcomes such review, and will confer with Congressional staff and federal agency partners to identify appropriate documents for submission.”
Additionally, acting Director Mulvaney announced plans to reexamine the requirements of ECOA, “[g]iven a recent Supreme Court decision distinguishing between antidiscrimination statutes that refer to the consequences of actions and those that refer only to the intent of the actor.” Although the decision is not identified, it is likely the June 2015 Supreme Court decision in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc., which concluded that disparate impact claims are permitted under the Fair Housing Act but acknowledged some limitations on its application. (Covered by a Buckley Sandler Special Alert.)
House approves repeal of CFPB’s 2013 indirect auto guidance
On May 8, the House voted to repeal, under the Congressional Review Act (CRA), CFPB Bulletin 2013-02 (Bulletin) on indirect auto lending and compliance with the Equal Credit Opportunity Act (ECOA). As previously covered by InfoBytes, the Senate approved the resolution on April 18 and the White House issued a Statement of Administrative Policy supporting the Senate resolution; it is expected that President Trump will sign the measure soon.
If the measure is successful, this would be the first time that Congress has used the CRA to repeal a regulatory issuance outside the statute’s general 60-day period. In December 2017, the Government Accountability Office (GAO) issued a letter to Senator Pat Toomey (R-Pa) stating that “the Bulletin is a general statement of policy and a rule” that is subject to override under the CRA, which allowed for the Senate to introduce the resolution measure years after the CFPB released the Bulletin.
House passes measures to address identity theft
On April 18, the House passed H.R. 2905 by a vote of 403-3. The “Justice for Victims of IRS Scams and Identity Theft Act of 2017,” would direct the DOJ and the Treasury Department to submit reports to Congress detailing identity theft prosecutions. The DOJ’s report must contain the number of identity theft cases referred to the agency during the previous five years, along with recommendations for improving fraud deterrence, prevention, and interagency collaboration. The bill would also require Treasury to report on efforts to assist in the prosecution of individuals who fraudulently posed as IRS agents, in addition to trends and resources needed to improve the prosecution of IRS impostors. All reports would be due 120 days after the bill's enactment.
On April 17, the House voted 420-1 to pass H.R. 5192, which would, among other things, require the Social Security Administration to provide a database for financial institutions to validate fraud protection data (an individual’s name, social security number, and date of birth) when attempting to “reduce the prevalence of synthetic identity fraud.” In particular, H.R 5192 is designed to protect the needs of vulnerable consumers, including minors and recent immigrants, and limits inquiries to those with a permissible purpose in accordance with section 604 of the Fair Credit Reporting Act. Further, prior to submitting a verification request, a financial institution must receive electronic consumer consent.
House passes bipartisan bill granting Federal Reserve exclusive authority to implement Volcker Rule
On April 13, the House passed H.R. 4790, the “Volcker Rule Regulatory Harmonization Act,” by a vote of 300-104. The bipartisan bill designates the Federal Reserve Board (Fed) as the exclusive regulatory authority to implement and amend rules under Section 13(b) of the Bank Holding Company Act. (Currently the Fed, the OCC, the FDIC, the SEC, and the CFTC share rulemaking authority under the rule.) H.R. 4790 also provides clear exemptions for banking entities with $10 billion or less in consolidated assets or those comprised of five percent or less of trading assets and liabilities. A similar exemption is included in the bipartisan Senate financial regulatory reform bill, S.2155, which passed the Senate in March (previously covered by InfoBytes here). According to a press release issued by the House Financial Services Committee, while H.R. 4790 does not repeal the Volcker Rule—which restricts banking entities from engaging in proprietary trading or entering into certain relationships with hedge and private equity funds—it does create a streamlined, efficient framework to provide increased regulatory clarity for entities required to comply with the rule.
Houses passes two bipartisan bills to ease stress test requirements and nonbank challenges to SIFI designations
On April 11, by a vote of 245-174, the House passed H.R. 4293, the “Stress Test Improvement Act of 2017,” which would amend the Dodd-Frank Act to modify stress test requirements for bank holding companies and certain nonbank financial companies. Among other things, H.R. 4293 prohibits the Federal Reserve Board’s (Board) to object to a company’s capital plan “on the basis of qualitative deficiencies in the company’s capital planning process” when conducting a Comprehensive Capital Analysis and Review (CCAR), and reduces the frequency of stress testing from semiannual to annual. As previously covered in InfoBytes, on April 10, the Board issued its own proposed changes intended to simplify the capital regime applicable to bank holding companies with $50 billion or more in total consolidated assets by integrating the Board’s regulatory capital rule and CCAR and stress test rules.
Separately on April, 11, the House passed H.R. 4061 by a vote of 297-121. The bipartisan bill, “Financial Stability Oversight Council (FSOC) Improvement Act of 2017,” would require FSOC to consider the appropriateness of subjecting nonbank financial companies (nonbanks) designated as systemically important to prudential standards “as opposed to other forms of regulation to mitigate the identified risks.” Among other things, the bill would also require FSOC to allow nonbanks the opportunity to meet with FSOC to present relevant information to contest the designation both during an annual reevaluation, as well as every five years after the date of final determination.
House passes several bills focused on regulatory relief
On March 6, the House passed H.R. 2226, the “Portfolio Lending and Mortgage Access Act,” amending TILA and expanding the safe harbor provisions provided to qualified residential mortgages held in portfolio by banks with less than $10 billion in assets. Under the bill, a mortgage lender would not be subject to civil liability for violating specified ability-to-repay requirements if, among other things, the loan was originated and held continuously in portfolio by a covered institution and complies with certain limitations and requirements related to prepayment penalties and points and fees..
On the same day, the House also passed H.R. 4725, the “Community Bank Reporting Relief Act,” to amend the Federal Deposit Insurance Act to reduce the regulatory reporting burden on community banks. Specifically, federal banking agencies would be required to issue regulations allowing qualified depository institutions with less than $5 billion in assets to submit abbreviated call reports (consolidated reports of condition and income) every other quarter rather than submitting full call reports every quarter.
Finally, by a vote of 264-143, the House passed H.R. 4607, the “Comprehensive Regulatory Review Act,” a measure to amend the Economic Growth and Regulatory Paperwork Reduction Act of 1996’s regulatory review process. Among other things, the bill requires federal financial regulators to perform a comprehensive review at least every seven years, instead of every ten years as currently required, to identify regulations that may be tailored to limit burdens on insured depository institutions.House passes bill to ease operational risk capital requirements for banks
On February 27, in a bipartisan vote of 245-169, the House passed H.R. 4296, which would ease the operational risk capital requirements for banks based on several factors. Specifically, the bill would prohibit the establishment of such requirements unless they are based primarily on the risks posed by a bank's current activities and are determined by a forward-looking assessment of its potential losses and not solely on historic losses. The requirements must also allow for certain adjustments based on certain operational risk mitigants. House Financial Services Committee Chairman Jeb Hensarling stated in a press release issued by the Committee that “H.R. 4296 simply amends the method of how reserve capital is calculated” and that “banks would still retain sufficient reserves to weather an economic storm, but they would also be able to put the billions of dollars currently sitting on the sidelines to work to help fuel the economy.”
House passes bill that would effectively overturn Madden; others amend RESPA disclosure requirements and adjust points and fees definitions under TILA
On February 14, in a bipartisan vote of 245-171, the House passed H.R. 3299, the “Protecting Consumers Access to Credit Act of 2017,” to codify the “valid-when-made” doctrine and ensure that a bank loan that was valid as to its maximum rate of interest in accordance with federal law at the time the loan was made shall remain valid with respect to that rate, regardless of whether the bank subsequently sells or assigns the loan to a third party. As previously covered in InfoBytes, this regulatory reform bill would effectively overturn the 2015 decision in Madden v. Midland Funding, LLC, which ruled that debt buyers cannot use their relationship with a national bank to preempt state usury limits. Relatedly, the Senate Banking Committee is considering a separate measure, S. 1642.
The same day, in a separate bipartisan vote of 271-145, the House approved H.R. 3978, the “TRID Improvement Act of 2017,” which would amend the Real Estate Settlement Procedures Act of 1974 (RESPA) to modify disclosure requirements applicable to mortgage loan transactions. Specifically, the bill states that “disclosed charges for any title insurance premium shall be equal to the amount charged for each individual title insurance policy, subject to any discounts as required by either state regulation or the title company rate filings.”
Finally, last week on February 8, the House voted 280-131 to pass H.R. 1153, the “Mortgage Choice Act of 2017,” to adjust definitions of points and fees in connection with mortgage transactions under the Truth in Lending Act (TILA). Specifically, the bill states that “neither escrow charges for insurance nor affiliated title charges shall be considered ‘points and fees’ for purposes of determining whether a mortgage is a ‘high-cost mortgage.’” On February 12, the bill was received in the Senate and referred to the Committee on Banking, Housing, and Urban Affairs.
House passes HMDA relief for small banks
On January 18, by a vote of 243-184, the House passed H.R. 2954, to amend HMDA to exempt low-volume mortgage lenders from certain disclosure requirements. If enacted, the bill would exempt depository institutions from maintenance of records and disclosure requirements if, (i) for closed-end mortgage loans, “the depository institution originated less than 500 closed-end mortgage loans in each of the 2 preceding calendar years”; and (ii) for open-end lines of credit, “the depository institution originated less than 500 open-end lines of credit in each of the 2 preceding calendar years.” On January 19, the bill was received in the Senate and referred to the Committee on Banking, Housing, and Urban Affairs.