Update 197 — HFSC’s Bipartisan Work:
Summer Surprises that Threaten DFA?
Before the quiet of recess settled into the Beltway, earlier this summer, the House Financial Services Committee’s GOP leadership opened up the first round of financial legislative debate with Jeb Hensarling’s Financial CHOICE Act.
The CHOICE Act proposed large scale deconstruction of the policy and authorities mandated by DFA — defanging the CFPB, stripping the FSOC’s SIFI designation, and repealing the FDIC’s Orderly Liquidation Authority, among other things.
The bill cleared on a party-line vote in June but the problem for HFSC Chair Hensarling — the Senate was never going to take his CHOICE Act up as a starting point for reform. So, with little fanfare and media attention, HFSC has reported out a three bipartisan bills on financial regulation of varying viability. More worth watching out for could be on the way in the fall.
Following the sprawling and DFA-mauling CHOICE Act and the Chair’s bluster about it, the Committee has trimmed its sails, chopped by CHOICE, and put forward several proposals that could survive even in the Senate.
Bipartisan Proposals Reported by HFSC
At the end of July, the HFSC marked up and unanimously approved the following bills:
• HR 2864: The Improving Access to Capital Act
— introduced by Sinema (D-AZ) and Hollingsworth (R-IN)
— current law excludes certain issuers that meet SEC disclosure requirements from using regulation A+ to raise fund
— bill would allow such SEC reporting companies to access regulation A+ to raise money, providing incentives to small companies to go public with a faster and cheaper fundraising alternative
The bill was approved by a 59-0 vote by HFSC. The measure would pass the House if considered and could earn consideration by the Senate. Unrelated to DFA, the legislation is not considered controversial.
• HR 1624: The Municipal Finance Act
— introduced by Messer (R-IN) and MaIoney (D-NY)
— a rule issued in 2014 provides a Liquidity Coverage Ratio to ensure banks maintain HQLA (High Quality Liquid Assets) to endure periods of financial stress
— the rule excludes the US municipal bonds, despite considering some corporate bonds and German municipal debt with similar liquidity features as HQLA. U.S. municipal projects/bonds are considered very safe
— state and local governments consequently face higher borrowing costs to finance municipal projects
The bill, approved by a 60-0 vote by HFSC, would direct the FDIC, Fed, and OCC to classify all investment-grade municipal securities as HQLA’s no lower than a level 2B liquid asset. The policy would lower the cost of infrastructure financing, spurring projects across the country. This could easily get traction in the Senate.
• HR 3110: The Financial Stability Oversight Council Insurance Member Continuity Act
— introduced by Hultgren (R-IL) and Waters (D-CA)
— ensures the insurance expertise member of FSOC is not vacant at the end of a given term, allowing a sitting member to serve for 18 months after term expiration or until a new member is nominated and confirmed.
The bill, approved by a 60-0 by the HFSC. The measure is likely to pass the House. Senators Crapo and Brown have already authored a Senate version, S.1463, which has been read twice and referred to the Senate Banking Committee. With the approaching expiration of S Roy Woodall Jr.’s term on September 30, this bill has a good chance of passage in the next month.
Bipartisan Proposals Considered
In a hearing in mid-July, the House Financial Services Committee examined proposals to provide targeted relief to community financial institutions. No markup for any of these proposals has been scheduled yet.
• HR 864, The Stop Debt Collection Abuse Act
— introduced by Love (R-NV) and Ellison (D-MN)
— The legislation would restrict federal debt collectors by ensuring fees are reasonable, authorized by a contract, and do not exceed than one tenth of the amount collected.
In addition to Reps. Love (R) and Ellison, the legislation is supported by Rep. Cleaver (D), Hill (R), Maloney (D), the measure is appealing because it contains reduces the punishment for holding debt. The next step for the measure would be a committee markup.
• HR 1457, the Making Online Banking Initiation Legal and Easy Act
— introduced by Rep. Tipton (R-CO)
— creates a uniform nationwide standard where banks can use a mobile device to allow access to online banking
— establishes requirements for use of a driver’s license or personal identification card by certain financial institutions for opening an account or obtaining a financial product or service
The bill is supported by Rep. Tipton (R), Rep. Maloney (D), and Rep. Scott (D). It both subtly undermines the GOP’s argument that DFA causes community bank consolidation and offers up a bipartisan idea. It creates a uniform nationwide standard where banks can use a mobile device to allow access to online banking, which accommodates the realities that fewer people physically walk into banks and citizens in rural communities have access to fewer branches.
• HR 2133, the Community Lending Enhancement and Regulatory Relief Act
— introduced by Luetkemeyer (R-MO)
— amends DFA Section 1461A and the Truth In Lending Act, the legislation would except from escrow requirements institutions up to $50,000,000 in assets
This proposal is partisan in the House, based on the inclusion of measures restricting the CFPB’s ability to penalize “abusive” practices, among other provisions controversial to Democrats. But it shares a feature with a bipartisan Senate bill (S. 1002) on the escrow provisions.
That provision differs with S. 1002 in that the Senate version excepts from escrow requirements institutions under $10,000,000 in assets. Send. Heitkamp and Tester introduced that version this year. Notably, Jeb Hensarling’s Financial CHOICE Act agrees with the Senate proposal to exempt institutions up to $10,000 in assets, not going as far as Rep. Luetkemeyer.
The House Financial Services Committee is not totally paralyzed by partisanship. The Committee has identified areas of common agreement. Three measures have been unanimously approved by the committee. Several more bipartisan measures await potential markup. Rep. Luetkemeyer says there will be another hearing on targeted provisions in the fall. These markups and hearings have not yet been scheduled.
The Senate may coordinate on the escrow requirements exemption for small institutions (as set forth in S. 1002) and could quickly pass a technical fix to rules on FSOC’s Insurance expert member (S. 1463). The Senate Banking Committee is in ongoing negotiations on relief for community banks and credit unions, and may consider more bipartisan proposals if they clear the House.