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The Financial CHOICE Act - Summary of Changes
House Financial Services Committee (HFSC) Chairman Jeb Hensarling (R-TX) on Tuesday, April 11, 2017, released a summary of changes to his financial regulatory reform bill, The Financial CHOICE Act. (Remember, the HFSC passed the original CHOICE Act in September of 2016). We expect bill language to be released by the end of April with a possible markup and passage in Committee by the end of May. The bill remains highly partisan and will pass on a majority-only basis in the Financial Services Committee. Full House of Representative passage of the CHOICE Act is likely, but we believe it will not proceed in the Senate due to the inability for it to garner the 60 votes needed for passage. Senate Banking Committee Chairman Mike Crapo and ranking member Sherrod Brown have pledged to work on a bipartisan basis to pass regulatory relief. What the Crapo/Brown regulatory relief package will entail is unknown at this time, but many speculate it will focus on relief for community-based financial institutions and not delve too deeply in reforms to the Dodd-Frank Act. With respect to the CHOICE Act, some key changes to the bill are below:
- *Requires a leverage ratio of at least 10% Tier 1 capital must be held for a bank to qualify for Basel capital relief.
- Banks qualified for Basel relief will not have to undergo Fed stress testing.
- Enhances stress test relief.
- Changes to the CFPB.
*Clarification as of 4/19/2017
In regard to changes to the CFPB, a few additional notes:
- CFPB leadership would remain a sole Director, but the President would be permitted to remove the Director at will—essentially codifying the position taken by the three judge panel in the PHH case. CBA as well as numerous trade associations and lawmakers continue to argue for a commission to replace the sole Director. The Deputy Director would be appointed and removable by the President. Though it does not say so, this would presumably require Senate confirmation as well - an important change because the Deputy Director has complete power to run the Bureau in the absence of the Director. Other structural changes would eliminate the mandatory advisory boards (such as the Consumer Advisory Board) and offices (such as the Office of Financial Education and the Office of Fair Lending and Equal Opportunity), giving the Bureau more flexibility in creating its own structure and organization. However, an Office of Economics would be created to review rulemaking and enforcement and would report to the Director.
- The CFPB would be an enforcement agency only and its supervisory authority would be eliminated. There is no information given about who would then take over the supervision of consumer compliance. It is possible the outline contemplates a return to compliance supervision by the prudential regulators for banks over $10 billion. Presumably, the CFPB would continue to share enforcement authority with the FTC over nonbanks.
- The CFPB's authority to enforce unfair, deceptive or abusive acts or practices would be eliminated, retaining only its authority to enforce only the enumerated regulations. If the FTC Act's UDAP provisions remain, prudential regulators would still have UDAP authority over the banks they regulate, and the FTC would still have UDAP enforcement authority over nonbanks. Also, it is not clear from the outline if only the CFPB's authority would be eliminated, or the prohibition against unfair, deceptive or abusive acts and practices would be eliminated. The distinction is important, since retaining the prohibition against UDAAP would permit enforcement by others, including state attorneys general.
- The outline contemplates prohibiting the public release of the complaint database, a welcome change for many in the industry because the database has often been used by the CFPB to censure the companies it supervises, without commensurate benefit to consumers. All market monitoring authority would be eliminated, which would end much of the data collection and reporting requirements of the Bureau.
For more information on this issue, contact CBA's Sam Whitfield.
Learn more about CBA's position on a CFPB Commission: