Regulatory Relief Moves Forward—How Far Will It Go?

Financial Services Law

Congress is considering some significant regulatory relief for financial institutions, including a rollback of certain provisions of the Dodd-Frank Act. Just how much will depend on a number of factors.

What happened

On March 14, 2018, the Senate passed the Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Act”) by a vote of 67 to 31, with some bipartisan support. The Act would provide regulatory relief to financial institutions generally, with a particular emphasis on those with total assets of less than $10 billion. Some of the major changes include:

  • For insured depository institutions and credit unions with less than $10 billion in total assets, the Act would establish a new exemption from the ability-to-repay requirements for certain qualified residential mortgage loans.
  • The Act would amend the Home Mortgage Disclosure Act to exempt insured depository institutions and credit unions from the Consumer Financial Protection Bureau’s (CFPB’s) reporting rule on closed-end mortgage loans or home equity lines of credit if the bank originated fewer than 500 of such loans or credit lines in each of the preceding two calendar years. The exemption is limited to those institutions that have not received a rating of “needs to improve record of meeting community credit needs” from its last two Community Reinvestment Act examinations or “substantial noncompliance in meeting community credit needs” in its last CRA exam.
  • Banks with less than $10 billion in assets would obtain relief from the Volcker Rule’s prohibitions on proprietary trading and certain relationships with hedge funds and private equity funds. The exemption would apply where the total trading assets and liabilities of the bank (and any company that controls the bank) are less than 5 percent of the total consolidated assets.
  • Federal regulators would be required by the Act to simplify call reports in the first and third calendar quarters for supervised insured depository institutions that have less than $5 billion in total consolidated assets and that satisfy other criteria established by the regulators.
  • The Federal Reserve System Board of Governors would revise the “Small Bank Holding Company and Savings and Loan Holding Company Policy Statement” to increase the consolidated assets threshold from $1 billion to $3 billion, allowing more institutions to avoid certain regulatory requirements and paving the way for additional flexibility in capital-raising activities, including a likely increase in the use of debt financing at the holding-company level.
  • For federal savings associations seeking to operate as a national bank, the Act would permit such operations for those with total consolidated assets equal to or less than $15 billion with notice provided to the Office of the Comptroller of the Currency.
  • The 18-month examination cycle currently available to those institutions with total consolidated assets under $1 billion would be available to those with less than $3 billion in assets.
  • Consumers would be given the ability to place or remove a freeze on their credit reports at no cost pursuant to the Act. The Fair Credit Reporting Act amendment would be limited to the three major credit bureaus, would preempt state credit freeze laws, and would not extend to other types of consumer reports.

The Act now moves on to the House for consideration, where it still faces an uphill battle to passage. Representatives have already been busy with financial services-related legislation, however, recently passing two measures.

By a vote of 382 to 133, and also with bipartisan support, the House passed the Financial Institutions Examination Fairness and Reform Act, a measure that would amend the Federal Financial Institutions Examination Council Act of 1978. H.R. 4545 would set deadlines for final examination reports and exit interviews of a financial institution by a federal financial regulatory agency and establish the Office of Independent Examination Review to adjudicate appeals and investigate complaints from financial institutions concerning examination reports.

The bill—which is now being considered by the Senate Committee on Banking, Housing, and Urban Affairs—would also require the establishment of an independent internal agency appellate process at the CFPB for the review of supervisory determinations made at institutions supervised by the Bureau.

A second measure, the Taking Account of Institutions with Low Operation Risk (TAILOR) Act, would require new regulations to focus more carefully on the institutions involved. Passed by a vote of 247 to 169, H.R. 1116 would mandate that federal agencies tailor any regulatory action “so as to limit burdens on the institutions involved, with consideration of the risk profiles and business models of those institutions.”

The bill’s tailoring requirement applies not just to future regulations but has a seven-year lookback period as well.

Why it matters

There is some optimism that a combination of these initiatives will become law. While the Senate bill is less comprehensive than the far-reaching Financial CHOICE Act, it would repeal many unpopular Dodd-Frank Wall Street Reform and Consumer Protection Act provisions. Among its many changes, the legislation would create a new qualified mortgage category for insured depository institutions that have less than $10 billion in total consolidated assets, provide relief from the Volcker Rule’s prohibitions on proprietary trading and certain relationships with hedge funds and private equity funds, and raise the threshold from $1 billion to $3 billion in total consolidated assets for small institutions eligible for beneficial capital treatment and that have an 18-month examination cycle. The measure now moves to the House for consideration, where legislators have also been busy with financial services-related legislation. Despite all the progress in passing legislation, the final form of any joint compromise legislation which would arrive on President Trump’s desk for signature is still in doubt.



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