Subcommittee discusses proposals to alter CFPB structure; industry responds

By Colleen M. Svelnis, J.D.

The House Financial Services Financial Institutions and Consumer Credit Subcommittee held a hearing to discuss legislative proposals related to relieving the regulatory burden financial institutions face. Chairman Randy Neugebauer (R-Tex) said the legislation “covers a wide array of financial services issues. Legislation amending the bank examination and supervision process. Legislation addressing consumer lending concerns. Legislation facilitating a healthy child support system.” The hearing, entitled “Examining Legislative Proposals to Preserve Consumer Choice and Financial Independence,” also considered a bill (H.R. 1266) that would change the structure of the Consumer Financial Protection Bureau from a single director to a bipartisan five-person commission that would be appointed by the president.

Neugebauer, spoke about H.R. 1266, The Financial Product Safety Commission Act of 2015, in his opening statement, pointing out that the bill has bipartisan support, and stating “As we consider this new CFPB structure, I would like to remind members who are still formulating a position of the long standing Democratic support of a five person, bipartisan commission at the CFPB.” H.R. 1266 would require the Commission to be appointed by the President and confirmed by the Senate with no more than three being members of one political party.

Legislative proposals. The proposed legislation discussed by the subcommittee includes:

• H.R. 766, Financial Institutions Customer Protection Act, introduced by Rep. Blaine Luetkemeyer (R-Mo); 
• H.R. 1210, Portfolio Lending and Mortgage Access Act, introduced by Rep. Andy Barr (R-Ky); 
• H.R. 1266, The Financial Product Safety Commission Act of 2015, introduced by Neugebauer; 
• H.R. 1413, Firearms Manufacturers and Dealers Protection Act of 2015, introduced by David Schweikert (R-Ariz); 
• H.R. 1553, Small Bank Exam Cycle Reform Act of 2015 (H.R. 1553), introduced by Rep. Scott Tipton (R-Colo);
• H.R. 1660, Federal Savings Association Charter Flexibility Act, introduced by Rep. Keith Rothfus (R-Penn); 
• H.R. 1737, Reforming CFPB Indirect Auto Financing Guidance Act, introduced by Rep. Frank Guinta (R-NH);
• H.R. 1941, Financial Institutions Examination Fairness and Reform Act, introduced by Reps. Lynn Westmoreland (R-Ga) and Carolyn Maloney (D-NY);
• H.R. 2091 Child Support Assistance Act of 2015, introduced by Rep. Bruce Poliquin (R-Maine); 
• H.R. 2213, Enforcement Safe Harbor for TRID Implementation, introduced by Reps. Steve Pearce (R-NM) and Brad Sherman (D-Calif); and
• H.R. 2287, National Credit Union Administration Budget Transparency Act, introduced by Rep. Mick Mulvaney (R-SC).

Longer examination cycle. H.R. 1553 would allow well-managed banks with under $1 billion in total assets to be eligible for an 18-month bank examination cycle by the Office of the Comptroller of the Currency. Currently, only banks with assets below $500 million are eligible for the 18-month cycle, while other small banks are required to undergo an exam every year.

“One of the most pressing concerns I hear from locally owned community banks in my district is the cost of compliance. Our commonsense legislation reduces the heavy red tape burden facing well-managed small banks, and frees up additional resources for bank examiners so they can focus their attention on high-risk institutions,” said Tipton. “This good government bill provides regulatory relief on small banks, allowing them to focus on running their businesses, investing in their communities and helping create economic opportunity on Main Street.”

Committee promotes stability. Oliver Ireland, a partner at financial services practice Morrison and Foerster stated his support for the Subcommittee’s efforts to examine the bank regulatory system, saying the benefit of hindsight, can help determine if “our bank regulatory system has become overly constraining whether due to the remedial legislation or to the normal evolution of banking services and market.” Ireland stated his strong support of H.R. 1266, saying that the board or commission structure provides greater continuity and stability of policy than does an individual head of an agency, which “helps to foster public confidence in our regulated financial institutions.”

Ireland continued, “Even the most vigorous consumer advocate should recognize that dramatic shifts in policy in consumer protection will not be in consumers’ longer run interests. Replacing the director of the Consumer Financial Protection Bureau with a bipartisan commission, particularly now that the Bureau is established, would provide for an approach to consumer protection that benefits from the views of the differing members of the commission and that is not subject to abrupt changes in direction that could come from individual directors.”

Ireland also testified that “H.R. 1553 would increase the size (asset threshold) of depository institutions eligible for an eighteen-month examination cycle instead of an annual examination cycle. This change would benefit both banks and bank regulators without jeopardizing the stability of our financial system. Examinations consume time and resources at both the examining regulator and at the institution examined. Reducing the examination frequency for smaller institutions would facilitate a more risk-based approach to examinations.”

Goal is competitiveness in market. Jess Sharp, Managing Director, U.S. Chamber of Commerce Center for Capital Markets Competitiveness, testified that the bills “reflect the broad range of its efforts to make financial markets stronger and more competitive to meet the needs of the American consumer.” He said, “many of the proposals under consideration at today’s hearing would help address the problems businesses wrestle with every day in the consumer financial services marketplace.”

Sharp emphasized the following principles:

• companies and consumers benefit from clear rules of the road;
• rationing credit does not protect consumers;
• the bureau must respect clear limits on its authority;
• the bureau must be transparent to consumers and Congress; and
• if everyone is in charge, no one is in charge.

According to Sharp, “the subcommittee is focused on the goal of “ensuring that consumers have access to the products they want through safe and competitive marketplaces.” Of H.R. 1553, Sharp said that “the Chamber strongly supports measures that would provide them with regulatory relief. H.R. 1553 simply allows more of our small banks to be examined on an 18-month cycle, reducing the cost and burden of supervision, and allowing them to redirect those resources into serving their communities.” According to Sharp, the Chamber also supports H.R. 766, H.R. 2287, H.R. 1941, H.R. 1210, H.R. 1737, and H.R. 2213.

Burden on smaller institutions. Hester Peirce, Director of Financial Markets Working Group and Senior Research Fellow, Mercatus Center, George Mason University, said the proposed bills “include measures that could encourage financial institutions to take responsibility for their lending decisions, could limit bank regulators’ discretion by enhancing regulatory accountability, and could streamline the regulatory framework to enable it to operate more effectively.” Peirce did not take a position on the bills, instead she discussed ways in which the proposed changes could:

• encourage financial institutions to take responsibility for their decisions;
• limit bank regulators’ discretion and enhance regulatory accountability; and
• update the regulatory framework to enable it to operate more effectively.

With regard to reform of the examination processes, Peirce stated that “The burden of these exams falls disproportionately on smaller institutions.”

Miller testimony. Former Congressman Brad Miller, Senior Fellow at the Roosevelt Institute, testified that the proposed bills would “unlearn the real lessons of the crisis.” Miller said in discussing H.R. 1941, that it “would obviously make it very difficult for regulators to keep a problem from becoming a catastrophe, not just for a given institution but for the financial system.” The bill also creates an appeal from any supervisory determination that provides far more process than is due.

“H.R. 1210 exempts depository institutions, also large and small alike, from the ability-to-repay rules for mortgages held in an institution’s portfolio, not sold to the securitization market.” He continued that “the purpose of the ability-to-repay rule is equally to protect consumers against predatory, equity-stripping mortgages. Asset-based predatory mortgages are no less predatory if held in portfolio, and homeowners can lose all of the equity in their homes, which for most homeowners is the bulk of their life’s savings, and still pose no risk to predatory lenders even if held entirely in portfolio.” Miller also said the purpose of the bill is intended to serve was “not supported by the experience of the financial crisis.”

Industry support. A coalition of trade associations, including the American Bankers Association, the Mortgage Bankers Association, and the Credit Union National Association, issued a joint statement on H.R. 1266: “Concentrating the CFPB’s authority in a sole director jeopardizes the foundation of the Bureau as an objective, neutral consumer protection agency. A commission would serve as a source of balance and stability for consumers and the financial services industry by encouraging internal debate and deliberation, ultimately leading to increased transparency.”

After noting that a commission was the originally intended structure for the CFPB, the coalition concluded that “To preserve the CFPB as a strong and effective regulator, with a mission to protect consumers regardless of which political party is in the White House, Congress should return the CFPB to its originally intended structure, from a sole director to a bipartisan commission.” The statement also noted the CFPB’s “tremendous authority” in supervising a multi-trillion dollar industry. Additionally, the statement stated that “it is imperative the CFPB remain stable, be deliberative, and remain bipartisan—for the sake of the American consumer and the U.S. economy.

ICBA. The Independent Community Bankers of America also issued a statement for the record in support of H.R. 1266 and other proposed legislation that “reflect provisions of ICBA’s Plan for Prosperity community bank regulatory relief agenda.” In addition to H.R. 1266, ICBA supports the following bills discussed at the hearing:

• H.R. 766;
• H.R. 1210; 
• H.R. 2213;
• H.R. 1553; 
• H.R. 1660;
• H.R. 1941; and 
• H.R. 1737.

AFR opposition. Americans for Financial Reform, on the other hand, released a letter to Congress in opposition to seven “ill-considered deregulatory measures which would significantly reduce protections for consumers and for the financial system as a whole.” Of H.R. 1266, AFR said “there is no measurable evidence that boards or commissions work better,” and that multi-member boards “often fall into a pattern of gridlock.” Additionally, AFR stated concern that the change in structure would “reduce the accountability of its leadership.”

AFR also opposes the following bills:

• H.R. 1941; 
• H.R. 766;
• H.R. 1413; 
• H.R. 1210; 
• H.R. 1737;
• H.R. 2213;
• H.R. 2091; and
• H.R. 2287.

This story previously appeared in the Banking and Finance Law Daily.