September 7, 2017
House Financial Services Subcommittee on Financial Institutions and Consumer Credit “Legislative Proposals for a More Efficient Federal Financial Regulatory Regime”
Key Topics & Takeaways
- Systemic Risk Designation Improvement Act of 2017: There was bipartisan support for H.R. 3312, with most panelists agreeing with the activities-based approach for determining risk in designating systemically important financial institutions (SIFIs), rather than the current $50 billion in assets threshold.
- FCRA Liability Harmonization Act: Rep. Robert Pittenger (R-N.C.) asked what the Consumer Financial Protection Bureau (CFPB) found from its study on the average dollar amount awarded to consumers through arbitration versus class action lawsuits. The Center for Capital Markets Competitiveness’s Quaadman replied that the CFPB found that consumers receive more money through arbitration than through class action. He continued that consumers face no arbitration costs, that all costs are absorbed by the company, and that arbitration is much faster than going through the court system, which benefits taxpayers by “not clogging the [court] system.”
- Facilitating Access to Credit Act: Rep. Ed Royce (R-Calif.) noted that the Credit Repair Organization Act (CROA) protects consumers from predatory practices, and that he intends to leave it in place when it comes to credit repair but amend the regulatory regime for credit education. Fortney voiced her support for the separate framework that would be created under the bill.
- Anne Fortney, Partner Emerita, Hudson Cook, LLP
- Charles Tuggle, Executive Vice President and General Counsel, First Horizon National Corporation
- Thomas Quaadman, Executive Vice President, Center for Capital Markets Competitiveness
- Chi Chi Wu, Staff Attorney, National Consumer Law Center
- H.R. 1849, the “Practice of Law Technical Clarification Act of 2017”
- H.R. 2359, the “FCRA Liability Harmonization Act”
- H.R. 3312, the “Systemic Risk Designation Improvement Act of 2017”
- H.R. ____, the “Facilitating Access to Credit Act”
- H.R. ____, the “Community Institution Mortgage Relief Act of 2017”
- H.R. ____, the “TRID Improvement Act of 2017”
Subcommittee Chairman Blaine Luetkemeyer (R-Mo.)
In his opening statement, Luetkemeyer explained that the subcommittee is examining six bills that will enable financial companies to serve their customers better by streamlining regulatory requirements and eliminating inefficiencies that impact consumers. He then discussed his proposed bill, H.R. 3312, the “Systemic Risk Designation Improvement Act of 2017,” explaining that the “arbitrary” $50 billion threshold for designating systemically important financial institutions (SIFIs) has a “real impact” on the economy and his bill offers a “more accurate measure of systemic importance.”
Subcommittee Ranking Member Wm. Lacy Clay (D-Mo.)
Clay recognized that improvements to the Dodd-Frank Act “can always be made,” but argued that it does not mean “less or no regulation.” He continued that laws and regulations should promote economic growth and protect consumers, and that “any efficient regulatory regime must minimize harm to consumers.” Clay concluded that policies should not “come at the expense of consumers,” and should strengthen financial stability.
Anne Fortney, Partner Emerita, Hudson Cook, LLP
In Fortney’s testimony, she focused on the Credit Services Protection Act (CSPA), H.R. 1849 (the Practice Law Clarification Act of 2017), and H.R. 2359 (the Fair Credit Reporting Liability Harmonization Act). She expressed strong support for all three bills and explained that they make current laws “more effective and fair for everyone […] by bringing common sense into the interpretation of each law,” as well as correcting misinterpretations. Regarding the CSPA, Fortney explained that bill sponsor Rep. Ed Royce (R-Calif.) created a narrow exemption in the Credit Repair Organization Act (CROA) for credit education services, as well as credit and identity protection services based on stakeholder feedback. She then discussed how H.R. 2359 brings relief to businesses by creating limits on liability under the Fair Credit Reporting Act (FCRA).
Charles Tuggle, Executive Vice President and General Counsel, First Horizon National Corporation
Tuggle testified that his bank is currently planning a merge with another bank that will bring their assets to $40 billion, close to the current $50 billion threshold for designating SIFIs. He voiced his support for H.R. 3312 and praised the establishment of a process for identifying globally systemic institutions “based on the nature of their business, not simply their size.” Tuggle also noted his support for the Community Institution Mortgage Relief Act and the TRID Improvement Act of 2017, explaining that both bills “take important steps toward enhancing consistency and efficiency in key aspects of the mortgage lending process.”
Thomas Quaadman, Executive Vice President, Center for Capital Markets Competitiveness
Quaadman first discussed his support for H.R. 3312, explaining that the application of enhanced prudential and supervisory standards Dodd-Frank required on midsize and regional banks “is entirely without warrant.” He cited several studies on the impact of enhanced prudential and supervisory standards on lending, specifically that 50 percent of respondents to one study named increased bank capital surcharges as the reason their costs increased and created financing challenges, and that 51 percent of small businesses from a separate survey believe current regulations inhibit small business lending. Quaadman then voiced his support for the Facilitating Access to Credit Act as it corrects any “unintended application” of CROA, as well as H.R. 2539 due to it “alleviat[ing] the uncertainty of the amount of liability that businesses face in class action lawsuits.” He concluded with his support of the TRID Improvement Act for creating a “cooling off period” to address “minor errors,” and added that he would work with Congress to create a broader “cure” package to provide “much-needed clarity.”
Chi Chi Wu, Staff Attorney, National Consumer Law Center
Wu voiced her strong opposition to all six bills and opined that they will all harm consumers. She stated that H.R. 2359 would “drastically” drop accountability and eliminate punitive damages under the FCRA. Wu then explained that the Credit Services Protection Act of 2017 would create a “harmful” exemption for credit bureaus from CROA, potentially allowing “illegitimate credit repair” agencies to “escape” CROA. Regarding H.R. 3312, she stated that the bill would increase systemic risk “by dramatically restricting prudential oversight” over large bank holding companies. Wu was critical of the Community Institution Mortgage Relief Act, stating that it creates loopholes for abuse, and that the TRID Improvement Act of 2017 “weakens crucial incentives for lenders to exercise due diligence and self-oversight.”
Question & Answer
H.R. 3312, the “Systemic Risk Designation Improvement Act of 2017”
Luetkemeyer noted that Tuggle’s bank will be close to the $50 billion threshold post-merger and asked if his bank plans to continue to grow and surpass the threshold or stay under. Tuggle replied that the threshold is a significant issue when his company considers future growth, and that banks face a difficult decision when figuring out if it is better to be a $49 billion or $51 billion bank. He argued that a $50 billion bank is not systemically important and that his bank only takes deposits and extends credit, but that if they do not continue to grow they will not be able to extend levels of credit.
Luetkemeyer asked Quaadman about the Chamber of Commerce study he cited in which 50 percent of small businesses have difficulty accessing capital. Quaadman explained that when banks cross over the $50 billion threshold, there are enhanced regulations that make small business loans “unattractive” and “more risky” according to regulators. He argued that regional banks have a better idea of loan worthiness than regulators.
Rep. David Scott (D-Ga.) stated that the $50 billion threshold is a “random number” and not a proper way to determine systemic importance. He continued that “regional and community banks should not be fed out of the same spoon” as the larger banks, and supported the judgment criteria the bill suggests.
Rep. Keith Rothfus (R-Pa.) asked if Tuggle’s company has quantified how much it will cost to pass the $50 billion threshold. Tuggle explained that another bank has conducted studies and found that crossing from $50 billion to $51 billion could cost $60 million to $80 million, with additional compliance costs costing $40 million to $60 million. He added that compliance with the liquidity coverage ratio (LCR) would result in losses of $15 million to $20 million per year of net interest income.
Rep. David Kustoff (R-Tenn.) asked how the SIFI designation impacts consumers in more rural areas. Tuggle responded that due to the increased expenses banks will have, there will be less credit for consumers. He added that there will also be less investment in products, services, and technology that would enable banks to deliver services and credit to consumers, no matter the location.
Rep. French Hill (R-Ark.) noted his support for the bill, explaining that while the Senate has tried to increase the $50 billion threshold, he is more interested in an activities-based approach for designation (as the bill includes).
Rep. Kyrsten Sinema (D-Ariz.) voiced her support for the bill and asked if the Fed will be able to apply some of the standards based upon circumstances of an institution under the proposed legislation. Quaadman replied that the bill would allow the Fed to still take action and have enhanced regulations, and that the bill does not prevent them from doing anything. He continued that the Fed will be able to tailor a regulatory scheme to fit each bank to ensure they are acting “properly.” Tuggle added that “regulation that identifies real risk is better than across-the-board regulation,” and gave the Volcker Rule as an example of applying to smaller banks even though they pose no risk to the financial system.
Sinema then asked if eliminating the $50 billion threshold would increase lending to small and medium businesses. Quaadman said yes, explaining that compliance is preventing banks from providing small loans, and continued that regulatory compliance people have more of a say when it comes to loans than the “people who understand the business.”
H.R. 2359, the “FCRA Liability Harmonization Act
Rep. Robert Pittenger (R-N.C.) asked what the Consumer Financial Protection Bureau (CFPB) found from its study on the average dollar amount awarded to consumers through arbitration versus class action lawsuits. Quaadman replied that the CFPB found that consumers receive more money through arbitration than through class action. He continued that consumers face no arbitration costs, that all costs are absorbed by the company, and that arbitration is much faster than going through the court system, which benefits taxpayers by “not clogging the [court] system.”
Clay questioned why consumers should not be entitled to punitive damages, to which Quaadman replied that the bill is simply trying to harmonize the FCRA with all of the different credit reporting and consumer statutes to put caps on liability and class action. He added that in the bill, consumers are still able to sue and recover damages. Wu argued that consumers will not be able to receive punitive damages under the bill.
Scott opined that something needs to be done about the frivolous lawsuits businesses deal with, and that the bill would not take away a consumer’s right to class action.
Scott asked how consumers could take action under the bill, to which Fortney replied that taking action under FCRA would not be rewarded “ridiculous” awards or settlements.
Rep. Scott Tipton (R-Colo.) noted that there is criticism the bill would reduce accountability for credit bureaus, to which Fortney explained that the FCRA scope is very broad and applies to credit bureaus, other companies, people who use consumer reports, employers, and more. Quaadman added that typically violations are technical, and that such violations can still be addressed. Fortney added that the bill will not impair consumers to protect themselves.
Rep. Barry Loudermilk (R-Ga.) voiced his support for his bill, explaining that it is “like every other financial services consumer protection act already in the books.”
H.R. ____, the “Facilitating Access to Credit Act”
Pittenger asked how consumers will benefit from legislation that protects them from “bad actors” who claim they can help rebuild credit. Fortney replied that nothing in the bill would interfere with CROA, and that the bill would simply create a new framework where consumer education services and identity theft detection services can be offered by companies.
Rep. Carolyn Maloney (D-N.Y.) asked what the best protection against identity theft is, to which Wu responded that security freezes are the best prevention, adding that credit monitoring only detects fraud after the theft occurs, and that subscription credit monitoring products “are not a great value.”
Rep. Ed Royce (R-Calif.) noted that CROA protects consumers from predatory practices, and that he intends to leave it in place when it comes to credit repair but amend the regulatory regime for credit education. Fortney voiced her support for the separate framework that would be created under the bill.
Royce and Rep. Roger Williams (R-Texas) asked about credit education and how consumers will benefit from education products, to which Quaadman replied that educating consumers on credit scores and how they are impacted makes “better consumers.”
H.R. ____, the “TRID Improvement Act of 2017”
Rep. Keith Ellison (D-Minn.) voiced his strong opposition to the bill, stating that homebuyers have been subject to “weird fees” wrapped in to closing costs that ordinary homebuyers may not realize. He criticized the increased error correction timing from 60 days to 210 days, and questioned how it will work with the Real Estate Settlement Procedures Act (RESPA) that gives homebuyers 365 days to pursue violations. Wu replied that with the 210-day window, there is a much shorter time period before the statute of limitations in RESPA.
Hill voiced his support for his bill, explaining that it tries to make sure accurate information is disclosed in title costs to the consumer, and that the extension to 210 days was made to align it with Dodd-Frank’s qualified mortgage rule. Quaadman replied that part of Dodd-Frank was supposed to streamline closing documents but that there is “still a lot of work to do,” though this bill is an “important first step.”
H.R. ____, the “Community Institution Mortgage Relief Act of 2017”
Rep. Claudia Tenney (R-N.Y.) asked Tuggle what recommendations he has for the bill, to which he explained the exemption is tied to the $50 billion threshold, which he would change due to it being an arbitrary number. He continued that rather than the $50 billion threshold, the number of loans could make sense, as it would show whether the company is a small lender.
For more information on this hearing, please click here.