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Treasury Secretary Mnuchin Testifies Before House Financial Services Committee, Provides Overview of Tailored Regulatory Approach
On July 27, the House Financial Services Committee held a hearing entitled “The Annual Testimony of the Secretary of the Treasury on the State of the International Financial System.” Committee Chairman Jeb Hensarling (R-Tx.) opened the full committee hearing asserting that “the unaccountable Washington bureaucracy must finally be held accountable, [and we] must address the regulatory cost of doing business in the U.S. under Dodd-Frank.” Rep. Hensarling commended President Trump’s Executive Order establishing the core principles for regulating the U.S. financial system and called it “vitally important to us all.”
Treasury Secretary Steven T. Mnuchin was the only witness at the June 27 hearing, offering testimony and answering questions concerning, among other things, (i) praise for the Committee’s passage of the Financial CHOICE act; (ii) tailoring capital requirements for small, mid-sized, and region banks; (iii) identifying a “single, lead regulator” to reduce regulatory overlap; (iv) remedying the Volcker Rule; (v) making the CFPB more accountable through statutory changes; (vi) reforming housing finance, noting that the current system, “in which the GSEs remain in perpetual Federal Housing Finance Agency conservatorship . . . is not sustainable and leaves taxpayers at risk”; and (vii) addressing tax reform.
House Appropriations Committee Approves Fiscal Year 2018 Funding Bills Affecting Housing and Urban Development, and Cybersecurity
On July 17, the House Appropriations Committee (Committee) approved the fiscal year 2018 transportation, housing and urban development funding bill by a vote of 31-20. Of the total $56.5 billion in funding provided by the bill, $38.3 billion is allocated to the Department of Housing and Urban Development (HUD) for community planning and development, which is $487 million below fiscal year 2017 but $6.9 billion above President Trump’s request. According to Committee Chairman Rodney Frelinghuysen, the bill “includes responsible funding to ensure communities across the nation have access to necessary community development funds, and [will] provide housing to those who need it the most – including the poor, elderly, and disabled.”
- A summary of the bill is available here.
- A copy of the legislative text of the bill is available here.
- A copy of the bill report is available here.
On July 18, the Committee approved the fiscal year 2018 homeland security bill by a vote of 30-22. The bill allocates $703 million to cybersecurity programs, which is $18 million less than President Trump’s request but $33 million above fiscal 2017 levels.
House Appropriations Committee Approves Fiscal 2018 Funding Bill Designed to Overhaul Existing Financial Regulations
On July 13, the House Appropriations Committee approved the fiscal year 2018 financial services funding bill by a vote of 31-21. The bill totaling $20.231 billion—$1.284 billion below fiscal year 2017 and $2.483 billion less than President Trump’s budget request—incorporates several provisions of the Financial CHOICE Act designed to, among other things, overhaul existing financial regulations and restructure the CFPB. The bill provides funding for the Treasury Department, Judiciary, SEC, Federal Reserve, CFPB, and other related agencies. According to the press release issued by the committee, the bill “provides the funding necessary for federal regulators to do their jobs in a timely and appropriate manner, while stopping burdensome regulations before they can damage [the] economy irreparably.”
A summary of the bill is available here.
Special Alert: Treasury Issues Report Encouraging Sweeping Reforms to Regulation of Consumer Financial Products and Services
On June 12, the Treasury Department issued the first of four reports to the president detailing its review of financial regulation in the United States and making recommendations to reform federal regulatory oversight of depository institutions. For depository (and nondepository) institutions offering consumer financial products and services, the report sets forth a series of recommendations to reform the supervision and enforcement practices of federal financial regulators, and in particular the Consumer Financial Protection Bureau. The report also details a number of recommended reforms to regulations governing mortgage lending and servicing and indicates that the Treasury Secretary is particularly interested in modernizing the Community Reinvestment Act (CRA).
The report makes clear that the Treasury Department supports substantial structural reforms at the CFPB, many of which complement concepts included in the Financial CHOICE Act, which passed the House on June 8. The Treasury Department is particularly interested in reducing the autonomy of the CFPB by making the CFPB Director removable at will by the president or converting the CFPB to a commission, as well as by subjecting the CFPB’s budget to Congressional appropriations. The Treasury Department also proposes eliminating the CFPB’s supervisory authority, and would return that authority to the federal prudential regulators for depository institutions and to state regulators for other financial institutions, as applicable. The report also contains a number of recommendations to amend the CFPB’s enforcement authority, which are aimed at giving regulated institutions better advance notice of regulatory expectations and stronger procedural rights when responding to CFPB investigations. The proposed CFPB reforms come within a broader set of recommended reforms to the entire federal financial oversight structure designed to ensure consistency and fairness across regulators.
If you have questions about the ruling or other related issues, visit our Consumer Financial Protection Bureau practice page for more information, or contact a Buckley Sandler attorney with whom you have worked in the past.
On June 8, by a vote of 233-186 with no Democrats voting in favor of the bill and one Republican voting against, the House passed the Financial CHOICE Act of 2017 (H.R. 10), as amended, which would repeal or modify provisions of Dodd-Frank and restructure the CFPB. Committee Report 115-163 accompanying House Resolution 375, which provided for consideration H.R. 10 and recommended that the resolution be adopted, outlines the provisions introduced to overhaul existing financial regulations. Included were five additional amendments incorporated into H.R. 10 introduced by members of Congress:
- Rep. Jeb Hensarling (R-Tex.): “Revises provisions subjecting certain FDIC and National Credit Union Association functions to congressional appropriations, relating to appointments of positions created by [H.R. 10], and providing congressional access to non-public [Financial Security Oversight Council] information”;
- Rep. Joseph Hollingsworth (R-Ind.): “Allows closed-end funds that are listed on a national securities exchange, and that meet certain requirements to be considered ‘well-known seasoned issuers’”;
- Rep. Lloyd Smucker (R-Pa.): “Expresses the sense of Congress that consumer reporting agencies and their subsidiaries should implement stronger multi-factor authentication procedures when providing access to personal information files to more adequately protect consumer information from identity theft”;
- Rep. Martha McSally (R-Ariz.): “Requires the Department of Treasury” to submit a report to Congress regarding its efforts to work with Federal bank regulators, financial institutions, and money service businesses to ensure that legitimate financial transactions along the southern border move freely”; and
- Rep. Ken Buck (R-Colo.), “Requires the [General Services Administration] to study the [Consumer Law Enforcement Agency’s] real estate needs due to changes in the Agency’s structure. It would then authorize the GSA to sell the current CLEA building if CLEA’s real estate needs have changed and there is no government department or agency that can utilize the building.”
The bill now advances to the Senate where it is unlikely to pass in its current form—a fact acknowledged by both Democrats and Republicans.
On June 6, the White House Administration issued a statement supporting the Substitute Amendment to the Financial CHOICE Act of 2017. In the statement, the White House announced it is “committed to reforming the Nation’s financial system” and believes the substitute amendment drafted by House Financial Services Committee Chairman, Jeb Hensarling (R-Tex.) reflects the Administration’s Core Principles in a number of ways. Specifically, the Administration supports the following provisions outlined in H.R.10: (i) eliminating taxpayer bailouts; (ii) simplifying regulations and holding regulators accountable; (iii) facilitating capital formation to encourage economic growth; (iv) allowing identified financial institutions to “opt out of certain regulatory requirements”; (v) reducing the independence of the CFPB; (vi) increasing the use of cost-benefit analysis by financial regulators; and (vii) easing regulatory burdens for community banks.
“The administration supports these provisions, and looks forward to working with Congress to undo additional mandates from the Dodd-Frank law that unnecessarily raise costs and limit choices for consumers,” the White House asserted in the statement.
On the same day the White House issued its statement, the Congressional Budget Office (CBO) released a requested analysis of Hensarling's amendment for H.R. 10. The CBO discovered that the changes from the version the House Financial Services Committee initially approved would reduce deficits by an additional $9.5 billion, for a total reduction of $33.6 billion over the 2017-2027 period. CBO stated the majority of the budgetary savings comes from “eliminating the FDIC’s authority to use the Orderly Liquidation Fund and changing how the [CFPB] and certain other regulators are funded.” However, CBO noted it would cost an estimated $11.6 billion over the referenced time period to implement the bill.
On May 26, the House announced that the Financial CHOICE Act of 2017 is scheduled to hit the House floor the week of June 5. House Financial Services Committee Chairman, Jeb Hensarling (R-Tex.), drafted a Substitute Amendment and a corresponding summary of changes, which clarify that “rules promulgated under provisions of law repealed by H.R. 10 are no longer in effect.” Notably Hensarling agreed to strike Section 735, which would repeal the Durbin Amendment from the second discussion draft of the Act. The Durbin Amendment—an amendment to the EFTA added by section 1075 of the Dodd-Frank Act—requires the Federal Reserve Board to cap interchange fees that banks with assets of $10 billion or more may receive from payment card networks in debt card transactions. The decision to strike the Durbin Amendment happened despite bank support for the repeal.
Changes to the bill also include the following, among others: (i) Section 341 will be amended to clarify that “gaps or ambiguities found by a reviewing court in a statutory or regulatory provision are not to be construed as a delegation of rule-making authority to an agency, and that a reviewing court is not to use such a gap or ambiguity as grounds for expansively interpreting the agency’s authority or deferring to the agency’s interpretation of law;” and (ii) Section 571’s amendment will suspend HMDA data reporting requirements until January 1, 2019. Looking ahead, the House Rules Committee set a June 2 deadline for lawmakers to file amendments.
House Democrats Seek Full Review of Financial CHOICE Act by Appropriate Committees; Investor Group Claims Act Will Undercut Shareholder Rights
As previously covered in InfoBytes, on May 4 the House Financial Services Committee approved the revised Financial CHOICE Act of 2017, H.R. 10, in a party-line vote, 34-26. Earlier this month the Ranking Members of two House committees sent letters to their respective Chairmen, urging their committees to not waive their jurisdiction over H.R. 10 and allow their respective committees to debate and vote on the legislation given its wide ranging effects on the U.S. economy. Ranking Member Bobby Scott (D-Va.) of the House Committee on Education and the Workforce stated in his letter that Democrats on the Education and the Workforce Committee “have expressed great concern over the attempts to weaken oversight and enforcement power of the [CFPB] and the important role it plays regarding the integrity of student loan finance services.” Ranking Member John Conyers Jr. (D-Mich.) of the House Committee on the Judiciary urged the Chairman in his letter that “[i]t is particularly critical that our Committee examine and vote on this legislation given numerous provisions squarely within our Rule X jurisdiction that will prevent government agencies from protecting the rights of consumers and hold the financial marketplace more accountable.” As reported previously in InfoBytes, Rep. Elijah Cummings (D-Md.) also called for the House Oversight and Government Reform Committee to assert jurisdiction over H.R. 10.
Additionally, on May 17, an advocacy group of institutional investors called upon the House of Representatives to oppose H.R. 10, saying the bill will undercut shareholder rights. The Council of Institutional Investors (CII) submitted a letter to all members of the House, urging them to oppose the bill. It was signed by CII and 53 institutional investors that collectively hold more than $4 trillion in assets, including representatives from the California Public Employees’ Retirement System, Colorado Public Employees’ Retirement Association, and New York State Teachers’ Retirement System. The letter said the bill would rollback curbs on “abusive” executive pay practices, restrict shareholder rights in board elections, and raise the cost of proxy advisers. The letter also cautioned that the bill would impede the SEC’s oversight of financial markets by requiring “excessive cost-benefit analysis” and including “unwise limits on enforcement.”
On May 19, Rep. Andy Barr, (R-Ky.) reintroduced legislation that would amend the Consumer Financial Protection Act of 2010 to make the CFPB’s budget subject to congressional appropriations. As set forth in a press release issued by Rep. Barr’s office, the Taking Account of Bureaucrats’ Spending Act (H.R. 1486), first introduced in March 2015 to the House and referred to the House Financial Services Committee, would give Congress power over what Rep. Burr terms an “unaccountable agency.” “I am reintroducing the TABS Act because the Bureau deserves the same scrutiny and the same checks and balances as any other federal agency,” said Rep. Barr. “Congressional oversight and accountability will ensure that the Bureau stays true to its mission of consumer protection, and avoids politically motivated overreaches, wasteful spending, and unnecessary regulations.” Currently, the CFPB is funded directly by the Federal Reserve. As previously covered in InfoBytes, House Republicans are also trying to overhaul existing financial regulations with the approval of the Financial CHOICE Act (H.R. 10) by the House Financial Services Committee, which would subject the Bureau to greater congressional oversight and tighter budgetary control.
As covered in last week’s InfoBytes, on May 4 the House Financial Services Committee approved the revised Financial CHOICE Act of 2017, H.R. 10, in a party-line vote, 34-26. In a May 3 letter to House Oversight and Government Reform Committee Chairman Jason Chaffetz, Rep. Elijah Cummings (D-Md.), the Ranking Minority Member on that Committee, urged the Committee “not to waive its jurisdiction over the Financial CHOICE Act, H.R. 10”—which he argues includes “numerous provisions that clearly fall within the legislative jurisdiction of the Committee.” Rep. Cummings also states in his letter that the proposed legislation would “destroy key financial regulations and consumer protections” and “place our economy at greater risk of another crisis.” Accordingly, he argues that “[i]t is imperative that the Committee review and vote on [H.R. 10’s] dangerous proposals.”