Senate Passage Next Step for Regulatory Overhaul Effort
If – and it is a big if – Congress is going to enact regulatory overhaul for the financial services industry, the next step must be the passage of a bill in the Senate.
A bipartisan group of 24 senators, led by Banking Committee Chairman Mike Crapo (R-Id.), has set the stage for the Senate to act by approving an overhaul bill that some are calling “modest.”
It now awaits floor action. While credit unions and other financial services organizations have endorsed the Senate bill, consumer groups have condemned it, stating it rolls back many of the safeguards established in Dodd-Frank following the financial crisis.
The delicate bipartisan deal that resulted in the bill was solidified during the Banking Committee markup last month. Several sponsors of the bill made it clear they would oppose any changes proposed by other senators in an effort to ensure support for the measure.
“This legislation represents a significant breakthrough in bipartisan negotiations, and contains many provisions that would improve the operating environment for credit unions and allow them to more effectively help their members realize their financial goals,” CUNA President/CEO Jim Nussle said in a letter supporting the measure.
NAFCU officials also expressed support for the bill, although they said they had hoped for a more ambitious piece of legislation.
“While the bill does not have everything that credit unions would like to see in a package, S 2155 contains a number of key provisions … that will help credit unions continue to meet the needs of their members,” Carrie Hunt, NAFCU's EVP of government affairs and chief counsel, said in a letter to senators.
The consumer groups, on the other hand, expressed concern about the bill.
“We understand and support the need for appropriate and tailored regulatory flexibility for small depositories,” the Center for Responsible Lending, National Community Reinvestment Coalition and National Consumer Law Center said in a letter to senators. “We oppose any effort to use regulatory relief for community banks and credit unions as a vehicle for larger financial institutions to avoid having the regulatory scrutiny and oversight that proved lacking in the build up to the financial crisis.”
If the Senate passes the bill, lawmakers could face a difficult task: Reconciling their bill with the bill already passed by the House. The Financial CHOICE Act, sponsored by House Financial Services Chairman Jeb Hensarling (R-Texas), is a much more ambitious rollback of Dodd-Frank.
It includes provisions that roll back many of the CFPB's powers; senators steered clear of including CFPB changes. And while the Senate bill is a bipartisan compromise, the House bill passed with no Democratic support.
Any House-Senate conference report would likely have to garner 60 votes in the Senate, and many senators have expressed support for the CFPB. It is unclear whether the House would be willing to jettison some of its more controversial features in an effort to enact more modest changes to Dodd-Frank.
Nonetheless, credit union trade groups said there are several specific provisions in the Senate bill that appeal to them.
For instance, Nussle said one section would offer relief from some of the requirements of the so-called qualified mortgage rule for some lenders that hold mortgage loans in their portfolios. He said treating loans held on balance sheets in this way is particularly appropriate for credit unions because they retain all the risk for these mortgages and are subject to safety and soundness supervision from the NCUA. In addition, he said, credit unions have unique relationships with their members and are more aware of their financial conditions than other financial institutions.
Hunt said many of the loans held by credit unions fit the spirit of the Qualified Mortgage Standards even if they do not fit into the QM “box.”
Another section changes Home Mortgage Disclosure Act reporting requirements by increasing the threshold for reporting to 500 closed-end and open-end loans in a calendar year.
One provision of the bill specifically applies to credit unions. It would specify that loans made for one-to-four-unit, non-owner-occupied residential properties would not be considered business loans. Banks already count those types of loans as residential real estate loans.
“This is a key provision for credit unions and we would urge you to oppose any efforts to remove this provision from the legislation,” Hunt wrote in her letter.
Nussle said as much as $4 billion in capital could be freed up if Congress makes this change.
The bill also contains a credit union-endorsed provision that would provide legal immunity for trained financial services employees who disclose information concerning the financial exploitation of senior citizens.
During the Banking Committee markup, the committee adopted a bi-partisan amendment that makes several changes to the bill. The amendment added a provision that would require the NCUA to publish its budget in the Federal Register and hold a public hearing on its proposal.
For the past two years, the NCUA board has held a hearing and made its budget public before adopting the document.
However, the bill's provision would require the board to institute such transparency measures.
Hunt also called for the Senate to require the NCUA to repeal its risk-based capital rule, stating credit unions must have modernized capital standards that reflect a 21st Century marketplace.
She said NCUA Chairman J. Mark McWatters has expressed a desire to repeal the rule.
The House Financial Services Committee has passed separate legislation that would repeal the risk-based capital rule, but the House has not yet considered the measure.