S. 2155, The Economic Growth, Regulatory Relief, and Consumer Protection Act
Background: S. 2155, the Economic Growth, Regulatory Relief, and Consumer Protection Act was introduced by Banking, Housing, and Urban Affairs Committee Chairman Mike Crapo on November 16, 2017. It has 25 cosponsors: 12 Republicans, 12 Democrats, and one independent. The legislation was favorably reported out of the Banking Committee by a vote of 16-7.
Floor Situation: On March 1, 2018, Majority Leader Mitch McConnell filed cloture on the motion to proceed to S. 2155. The Senate is expected to vote to invoke cloture on the motion to proceed on Tuesday, March 6.
Executive Summary: The legislation offers much-needed reforms to help ensure that financial regulators can focus on the financial institutions that pose the greatest systemic risk to the economy. It reduces unnecessary burdens on small, midsized, and regional banks and credit unions so they can use more of their capital to serve customers, rather than to comply with federal regulations. It also adds protections for veterans, seniors, and other consumers against fraud and identity theft.
OVERVIEW OF THE ISSUE
The Dodd-Frank Wall Street Reform and Consumer Protection Act was enacted in July 2010, in response to the financial crisis. The massive 849-page bill spawned almost 400 separate rulemakings by a wide variety of regulators and led to more than 27,000 new federal mandates on American businesses. It increased regulations on almost every participant in the financial sector, including those that had little to do with the financial crisis.
The new regulations have hit small, midsized, and regional banks and credit unions particularly hard. These institutions play a key role in the economy, particularly for small business and in rural and underserved areas. Dodd-Frank imposed disproportionate compliance costs on small, midsized, and regional banks and credit unions, especially given the improbability that any one smaller financial institution poses much risk to the safety and soundness of the financial system. Industry groups have pointed to these compliance costs as a significant reason for consolidation and closures among smaller banks, leading to fewer financial options for Americans.
In June 2017, the Treasury Department reported that regulatory burdens caused by Dodd-Frank have reduced economic growth. It said that these regulations “have undermined the ability of banks to deliver attractively priced credit in sufficient quantity to meet the needs of the economy.”
S. 2155 is a bipartisan effort to reduce unnecessary burdens on small, midsized, and regional banks and credit unions so they can focus their resources on families and businesses, not bureaucrats. Reducing the reporting and compliance requirements on smaller, financially sound businesses will also allow regulators to concentrate on the financial institutions that pose the greatest systemic risk to the economy.
The bill includes a number of provisions recommended by the Treasury Department. One such provision simplifies capital requirements for community banks with ample capital. The complicated capital requirements make little sense for highly capitalized smaller banks that engage only in straightforward banking activities and pose little risk to the financial system.
The legislation also increases the monetary thresholds that trigger more extensive and frequent reports and examinations for small banks. It exempts them from complex rules restricting their investments that are a poor fit for small banks in most cases. Another provision makes it easier for small banks and credit unions to originate residential mortgages to qualified borrowers.
It also tailors the Dodd-Frank enhanced prudential standards so that they apply only to the largest and most systemically important banks for which they were originally intended. The legislation fixes problems with rules that have disproportionately affected banks predominantly engaged in custody, safekeeping, and asset servicing activities.
The legislation improves protections for victims of identity theft and fraud. It requires credit bureaus to allow consumers to freeze and unfreeze their credit report an unlimited number of times each year. It also limits credit bureaus from adding negative information to veterans’ credit reports based on debt stemming from medical treatment under the Veterans Choice Program. It removes liability for financial services institutions and professionals reporting suspected fraud of senior citizens to the authorities.
NOTABLE BILL PROVISIONS
Title I – Improving Consumer Access to Mortgage Credit
Section 101 – Minimum standards for residential mortgage loans
Treats certain mortgages originated and retained by banks or credit unions with less than $10 billion in total assets as “qualified mortgages.” Financial institutions face reduced regulatory and liability burdens when issuing qualified mortgages. This adds loans that are held in eligible financial institutions’ portfolio and meet certain underwriting and structural requirements to the definition of qualified mortgage.
Section 102 – Safeguarding access to Habitat for Humanity homes
Clarifies that appraisal services donated voluntarily by an appraiser to charities will be considered “customary and reasonable” for the purposes of compliance with Dodd-Frank appraisal rules. Charities such as Habitat for Humanity have raised concerns that donated appraisals could conflict with Dodd-Frank rules requiring that appraisers charge customary and reasonable fees.
Section 103 – Access to affordable mortgages
Exempts from appraisal requirements certain loans for homes costing less than $400,000 in rural areas if the mortgage originator is unable to find a qualified appraiser.
Section 104 – Home Mortgage Disclosure Act adjustment and study
Reduces reporting requirements under the Home Mortgage Disclosure Act for small depository institutions that have originated fewer than 500 closed-end mortgage loans or 500 open-end lines of credit in each of the two preceding years.
Section 105 – Credit union residential loans
Provides that loans from credit unions to members for non-owner-occupied one- to four-family residences are not considered member business loans under the Federal Credit Union Act, which limits member business loans.
Section 106 – Eliminating barriers to jobs for loan originators
Allows mortgage loan originators to work temporarily in a new state or for a new financial institution while their applications for new licenses are pending.
Section 107 – Protecting access to manufactured homes
Clarifies that manufactured- or modular-home retailers and their employees are not “mortgage originators” subject to licensure and other regulation if they are not compensated for taking residential mortgage loan applications and do not directly negotiate loan terms.
Section 108 – Real property retrofit loans
Directs the Consumer Financial Protection Bureau to establish regulations on underwriting standards for Property Assessed Clean Energy home renovation loans for making energy improvements.
Section 109 – Escrow requirements relating to certain consumer credit transactions
Exempts qualified loans made by banks and credit unions with less than $10 billion in total assets that had originated 1,000 or fewer mortgages from certain escrow requirements.
Section 110 – No wait for lower mortgage rates
Allows a lender to offer a lower rate to a borrower without triggering a three-day waiting period for mortgage disclosures.
Title II – Regulatory Relief and Protecting Consumer Access to Credit
Section 201 – Capital simplification for qualifying community banks
Simplifies capital requirements for banks with less than $10 billion in total assets that meet certain capital standards. The Philadelphia Fed and the Treasury Department have identified intricate rules on the makeup of capital as a particularly expensive compliance issue for small banks and as ill-suited for institutions that tend not to engage in complex financial activity.
Section 202 – Limited exception for reciprocal deposits
Provides that a limited amount of funds deposited by one bank into another bank are not subject to restrictions on funds deposited by deposit brokers. A deposit broker is a person that places deposits in various banks for another person. Banks that do not meet certain capital requirements are restricted from taking brokered deposits.
Section 203 – Community bank relief
Exempts banks with $10 billion or less in total assets and with less than 5 percent of their assets comprising trading assets and liabilities from the Volcker Rule, which restricts proprietary trading and ownership of investment funds by banks. In its June 2017 report, the Treasury Department recommended instituting this exemption It noted that the “relatively small risk that these institutions pose to the financial system does not justify the compliance burden of the rule, and the risk posed by the limited amount of trading that banks of this size could engage in can easily be addressed through existing prudential regulation and supervision.”
Section 204 – Removing naming restrictions
Allows certain hedge or private equity funds to share names with their bank-affiliated investment adviser under certain circumstances.
Section 205 – Short form call reports
Directs financial regulators to streamline reporting requirements for banks with less than $5 billion in total assets.
Section 206 – Option for federal savings associations to operate as covered savings associations
Permits federal savings associations with less than $15 billion in total assets to choose to be regulated like national banks without changing their charter. Although both organizations are regulated by the Office of the Comptroller of the Currency, different restrictions, including limits on commercial and consumer loans, apply to the activities of federal savings associations than do to the activities of national banks.
Section 207 – Small bank holding company policy statement
Allows otherwise qualified banks with up to $3 billion in total assets to be eligible for the increased balance-sheet flexibility to make acquisitions under the Federal Reserve’s Small Bank Holding Company Policy Statement. Currently, the policy statement applies only to banks with up to $1 billion in total assets.
Section 208 – Application of the Expedited Funds Availability Act
Applies the Expedited Funds Availability Act, which governs the availability of bank deposits, to American Samoa and the Commonwealth of the Northern Mariana Islands.
Section 209 – Small public housing agencies
Reduces regulatory burdens on, and increases flexibility for, small public housing agencies in rural areas.
Section 210 – Examination cycle
Allows well-managed and highly capitalized banks with up to $3 billion in assets to have full-scope, on-site examinations every 18 months, rather than every 12 months. Under current law, only banks with up to $1 billion in assets may qualify for the 18-month examination cycle.
Section 211 – National securities exchange parity
Clarifies that issuers are exempt from state regulation of securities when they offer securities on any “national securities exchange.” Current law lists specific securities exchanges.
Section 212 – International insurance capital standards accountability
Establishes an international insurance advisory committee at the Federal Reserve Board and requires financial regulators and officials to report on international insurance matters.
Section 213 – Budget transparency for the NCUA
Directs the National Credit Union Association to publish and hold a public hearing on its budget every year.
Section 214 – Making online banking initiation legal and easy
Allows banks and credit unions to use customers’ driver’s licenses or personal identification cards for opening accounts or providing services. The provision preempts state laws that prohibit making copies of driver’s licenses.
Title III – Protections for Veterans, Consumers, and Homeowners
Section 301 – Protecting consumers’ credit
Directs credit bureaus to keep fraud alerts in credit reports for at least a year when a consumer informs them that he or she may be a victim of identity theft or fraud. Current law requires that such fraud alerts be included in credit reports for 90 days.
Requires that credit bureaus allow consumers to institute an unlimited number of security freezes and unfreezes on their credit report each year and provide additional protections to minors.
Section 302 – Protecting veterans’ credit
Restricts credit bureaus from adding negative information to veterans’ credit reports based on debt stemming from medical treatment under the Veterans Choice Program.
Section 303 – Aiding senior protection
Provides immunity from liability to financial services professionals who and institutions that alert law enforcement or a regulatory agency to the suspected financial exploitation of a senior.
Section 304 – Restoration of the Protecting Tenants at Foreclosure Act of 2009
Reinstates the Protecting Tenants at Foreclosure Act, which expired at the end of 2014. The act restricted the eviction of tenants due to the foreclosure of properties that they occupied.
Section 305 – Remediating lead and asbestos hazards
Authorizes the Treasury Department to assist homeowners in remediating lead and asbestos hazards.
Section 306 – Family self-sufficiency program
Improves the administration of the Department of Housing and Urban Development Family Self-Sufficiency Program by combining the public housing and housing choice voucher programs, which are currently separate. It also expands the services that can be provided to participants and allows tenants who receive assistance while living in privately owned properties to participate in the program.
Section 307 – Rehabilitation of qualified education loans
Allows people who defaulted on a qualified student loan to request that the default be removed from their credit report if they successfully participate in a rehabilitation program offered by the lender.
Title IV – Tailoring Regulations for Certain Bank Holding Companies
Section 401 – Enhanced prudential standards for certain bank holding companies
Raises the asset threshold for automatic application of Dodd-Frank enhanced prudential standards from $50 billion to $250 billion and gives the Federal Reserve the authority to tailor regulations to a bank’s business model and risk profile. The Federal Reserve would also be required to conduct periodic supervisory stress tests on banks with between $100 billion and $250 billion in total assets. Raises the threshold for required annual company-run stress tests for midsized banks from $10 billion to $250 billion and adjusts other stress-testing requirements. Maintains the Federal Reserve’s authority to apply any enhanced prudential standard to any bank with total assets of more than $100 billion as necessary to mitigate risks to financial stability or promote safety and soundness.
Currently, banks with $50 billion or more in assets are automatically subject to heightened standards for liquidity, risk management, and capital as systemically important financial institutions. Experts, including bank regulators, have suggested that the $50 billion threshold is set too low. The June 2017 report by the Treasury Department also recommended that the threshold for enhanced prudential standards be modified.
Section 402 – Supplementary leverage ratio for custodial banks
Tailors capital requirements for banks predominantly engaged in custody, safekeeping, and asset servicing activities by exempting their low-risk deposits held at central banks from their leverage ratios. Due to their holdings of cash and low-risk securities, these banks have found it particularly difficult to comply with new rules setting out maximum absolute leverage ratios without regard to risk.
Section 403 – Treatment of certain municipal obligations
Title V – Studies
Section 501 – Treasury report on risks of cyber threats
Requires the Treasury Department to report on risks of cyber threats to U.S. financial institutions and capital markets.
Section 502 – SEC study on algorithmic trading
Requires the SEC to report on the effects of algorithmic trading.
Section 503 – GAO report on consumer reporting agencies
Directs the GAO to study the consumer credit reporting industry.
As of March 5, 2018, the administration has not released a statement of administration policy on S. 2155.
A manager’s amendment is expected to be offered.
No cost estimate is available.
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