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From Banking and Finance Law Daily, July 30, 2015

House marks up bills affecting Operation Choke Point, Fed transparency

By Colleen M. Svelnis, J.D.

The House Financial Services Committee has marked up and approved several bills, including ones aimed at stopping Operation Choke Point and increasing the transparency of the Federal Reserve Board. “Complicated and costly regulations serve as barriers that too often keep small competitors off the playing field. With regulatory relief, we can level that playing field between big corporations and small businesses and create a healthier economy. We can also help create a healthier economy by bringing greater accountability and transparency to the Federal Reserve,” said Chairman Jeb Hensarling (R-Tex). Financial Institutions and Consumer Credit Subcommittee Chairman Rep. Randy Neugebauer (R-Tex) praised the committee for acting to “provide regulatory relief for our community financial institutions and the hardworking Americans they serve.”

FORM Act. One of the most talked about bills the committee considered is H.R. 3189, The Fed Oversight Reform and Modernization Act (FORM Act), sponsored by Rep. Bill Huizenga (R-Mich). The legislation would require the Fed to transparently communicate its monetary policy decisions to the American people. Additionally, the Fed must generate a monetary policy strategy of its own choosing in order to provide added transparency about the factors leading to its monetary policy decisions.

Hensarling commented on the bill, saying “the FORM Act protects the Fed’s independence to chart whatever monetary policy course it deems appropriate, but it has to give the American people a greater accounting of its actions.” Monetary Policy and Trade Subcommittee Chairman Huizenga said, “With the Federal Reserve having more power and responsibility than ever before, it is imperative the Fed changes its opaque structure and becomes more transparent and accountable to the American people. The Fed’s recent high degree of discretion and its lack of transparency in how it conducts monetary policy demonstrate that not only are reforms needed, but more importantly that reforms are necessary. We need to modernize the Federal Reserve and bring it into the 21st Century.”

The FORM Act also

  • requires the Fed to conduct cost-benefit analysis when it adopts new rules;

  • requires transparency about stress tests and international financial regulatory negotiations conducted by the Fed, Treasury Department, Office of the Comptroller of the Currency, Securities and Exchange Commission, and Federal Deposit Insurance Corporation;

  • requires the Fed to disclose the salaries of highly paid employees, provides for at least two staff positions to advise each member of the Board of Governors, and requires Fed employees to abide by the same ethical requirements as other federal financial regulators;

  • clarifies the “blackout period” governing when Fed Governors and employees may publicly speak on certain matters; provides for a more balanced representation of voters on the Federal Open Market Committee (FOMC); and provides additional assurances that the Fed’s emergency lending powers are used only in emergencies;

  • requires the full FOMC to decide policy rates on excess balances maintained at a Federal Reserve Bank by a depository institution; and

  • removes restrictions placed on the Government Accountability Office’s ability to audit the Fed, directs the GAO to conduct an audit of the Fed within 12 months of enactment, and requires the GAO to report to Congress within 90 days of completion of the audit.

Safe harbor. Another high profile bill is H.R. 3192, the Homebuyers Assistance Act, sponsored by Rep. French Hill (R-Ark), which would provide a temporary legal safe harbor for those making a good-faith effort to comply with the TILA-RESPA Integrated Disclosure (TRID) rule. Hill released a statement following the vote stating his belief that “a formal hold-harmless period” is necessary to “guarantee no punishment for good-faith compliance efforts.” Hill said the “temporary grace period will allow the industry to work with the CFPB to help ensure a smooth transition and prevent costly market disruptions and delays from consumers.”

The bills advanced by the Financial Services committee are:

  • H.R. 766, the “Financial Institution Customer Protection Act of 2015, introduced by Blaine Luetkemeyer (R-Mo), which is a response to Operation Choke Point. H.R. 766 passed 35-19.

  • H.R. 1210, the “Portfolio Lending and Mortgage Access Act,” sponsored by Andy Barr (R-Ky). H.R. 1210 passed 38-18.

  • H.R. 1317, sponsored by Gwen Moore (D-Wis), would amend the Commodity Exchange Act and the Securities Exchange Act of 1934 to specify how clearing requirements apply to certain affiliate transactions, and for other purposes. H.R. 1317 passed 58-0.

  • H.R. 1553, sponsored by Scott Tipton (R-Colo), the “Small Bank Exam Cycle Reform Act of 2015” would provide relief for well-managed community financial institutions to qualify for modified exam cycles. H.R. 1553 passed 58-0.

  • H.R. 1737, the “Reforming CFPB Indirect Auto Financing Guidance Act,” sponsored by Frank Guinta (R-NJ), would repeal a Consumer Financial Protection Act bulletin relating to indirect auto lending compliance and the Equal Credit Opportunity Act. H.R. 1737 passed 47-10.

  • H.R. 1839, the “Reforming Access for Investments in Startup Enterprises Act of 2015,” sponsored by Rep. Patrick McHenry (R-NC), would promote a liquid secondary market for shareholders seeking to sell private securities. H.R. 1839 passed 58-0.

  • H.R. 1941, the “Financial Institutions Examination Fairness and Reform Act,” sponsored by Lynn Westmoreland (R-Ga), would provide financial institutions with more ability to appeal or oppose exam findings without incurring retaliation from a regulator. H.R. 1941 passed 45-13.

  • H.R. 2091, the “Child Support Assistance Act of 2015,” was sponsored by Rep. Bruce Poliquin (R-Maine). H.R. 2091 passed 56-2.

  • H.R. 2243, the “Equity in Government Compensation Act of 2015,” sponsored by Rep. Ed Royce (R-Calif), would reinstate the salary caps for the CEOs at Fannie Mae and Freddie Mac. H.R. 2243 passed 57-1.

  • H.R. 2643, the “State Licensing Efficiency Act of 2015,” sponsored by Rep. Roger Williams (R-Tex), ensures state regulatory agencies have access to the most up-to-date criminal background information from the FBI for their licensing purposes. H.R. 2643 passed 57-0.

  • H.R. 2912, the “Centennial Monetary Commission Act of 2015,” sponsored by Rep. Kevin Brady (R-Tex), would establish a 14-member Centennial Monetary Commission charged with studying monetary policy. H.R. 2912 passed 35-22.

  • H.R. 3032, the “Securities and Exchange Commission Reporting Modernization Act,” sponsored by Rep. Kyrsten Sinema (D-Ariz), would eliminate a reporting requirement for the SEC that has already been eliminated for all other federal agencies. H.R. 3032 passed 58-0

  • H.R. 3189, the “Fed Oversight Reform and Modernization Act of 2015,” sponsored by Rep. Bill Huizenga (R-Mich), aims to bring greater accountability and transparency to the Fed. H.R. 3189 passed 33-25.

  • H.R. 3192, the “Homebuyers Assistance Act,” sponsored by Rep. French Hill (R-Ariz), would delay enforcement of a CFPB regulation surrounding the home buying process. H.R. 3192 passed 45-13.

Important step, says ABA. American Bankers Association released a statement by its President and CEO, Frank Keating, in response to the mark-up calling the votes “an important step toward removing statutory and regulatory barriers that constrain lending and make it harder for banks to meet the needs of their local communities.”

Keating continued by stating that the ABA “strongly support bills passed by the committee to roll back Operation Choke Point, designate portfolio loans as Qualified Mortgages, make more institutions eligible for the 18-month exam cycle, improve exam fairness and institute a hold-harmless period for the TILA-RESPA integrated disclosures.”

Debt collection. ACA International, the Association of Credit and Collection Professional (ACA) CEO Pat Morris said in response to the advancement of H.R. 766, which would prohibit federal regulators from directly or indirectly coercing banks to terminate relationships with legitimate business entities: “ACA applauds the House Financial Services Committee for taking this important step to end Operation Choke Point, an initiative that ultimately harmed legal and legitimate businesses – including our nation’s debt collectors.”

ICBA advocated for bills. The Independent Community Bankers of America (ICBA) responded positively to the advancement of bills advocated for by the association (H.R. 766, H.R. 1210, H.R. 1553, H.R. 1737, H.R. 1941, H.R. 3192), which it says will relieve community banks from excessive regulation to promote local economic growth. “ICBA strongly supports the House Financial Services Committee’s efforts to advance bipartisan legislation taking on community bank overregulation for the benefit of local customers and communities,” ICBA President and CEO Camden R. Fine said. “Regulations tiered to bank size and complexity will help community banks make loans, promote economic growth and create jobs in local communities. ICBA and the nation’s community banks urge the House to take up and pass these important bills.”

Background checks. The Conference of State Bank Supervisors (CSBS) thanked the committee for the unanimous approval of H.R. 2643, which would allow for background check processing for state regulators using the Nationwide Multistate Licensing System and Registry, or NMLS. After the vote, CSBS released a statement: “NMLS has transformed state licensing, enhancing efficiency for regulators and regulated entities, all while improving consumer protection. This commonsense bill allows state regulators to leverage the benefits of NMLS for all non-depository financial services, reducing regulatory burden and allowing financial services providers to focus their time and effort on better serving their communities.”

‘Path to deregulation’. Americans for Financial Reform, which has already submitted letters of opposition to seven of the proposals before the committee, warns that the committee “is threatening to take America back down the road of Wall Street deregulation.” AFR said of the passed bills: “most of them have a common theme: in one way or another, they would make it easier for banks, lending companies and other inside players to take advantage of consumers, homeowners, or taxpayers.” The AFR statement highlighted H.R. 1210—saying it “effectively exempt many mortgage loans from the ability-to-repay standard established by the [CFPB]” and—H.R. 1737, saying it “would frustrate the Bureau’s efforts to combat racially discriminatory auto lending practices.”

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