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  • House Democrats Seek Full Review of Financial CHOICE Act by Appropriate Committees; Investor Group Claims Act Will Undercut Shareholder Rights

    Federal Issues

    As previously covered in InfoBytes, on May 4 the House Financial Services Committee approved the revised Financial CHOICE Act of 2017, H.R. 10, in a party-line vote, 34-26. Earlier this month the Ranking Members of two House committees sent letters to their respective Chairmen, urging their committees to not waive their jurisdiction over H.R. 10 and allow their respective committees to debate and vote on the legislation given its wide ranging effects on the U.S. economy. Ranking Member Bobby Scott (D-Va.) of the House Committee on Education and the Workforce stated in his letter that Democrats on the Education and the Workforce Committee “have expressed great concern over the attempts to weaken oversight and enforcement power of the [CFPB] and the important role it plays regarding the integrity of student loan finance services.” Ranking Member John Conyers Jr. (D-Mich.) of the House Committee on the Judiciary urged the Chairman in his letter that “[i]t is particularly critical that our Committee examine and vote on this legislation given numerous provisions squarely within our Rule X jurisdiction that will prevent government agencies from protecting the rights of consumers and hold the financial marketplace more accountable.” As reported previously in InfoBytes, Rep. Elijah Cummings (D-Md.) also called for the House Oversight and Government Reform Committee to assert jurisdiction over H.R. 10.

    Additionally, on May 17, an advocacy group of institutional investors called upon the House of Representatives to oppose H.R. 10, saying the bill will undercut shareholder rights. The Council of Institutional Investors (CII) submitted a letter to all members of the House, urging them to oppose the bill. It was signed by CII and 53 institutional investors that collectively hold more than $4 trillion in assets, including representatives from the California Public Employees’ Retirement System, Colorado Public Employees’ Retirement Association, and New York State Teachers’ Retirement System. The letter said the bill would rollback curbs on “abusive” executive pay practices, restrict shareholder rights in board elections, and raise the cost of proxy advisers. The letter also cautioned that the bill would impede the SEC’s oversight of financial markets by requiring “excessive cost-benefit analysis” and including “unwise limits on enforcement.”

    Federal Issues Financial CHOICE Act House Financial Services Committee CFPB

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  • Legislation Reintroduced to Make CFPB Spending Accountable to Congress

    Federal Issues

    On May 19, Rep. Andy Barr, (R-Ky.) reintroduced legislation that would amend the Consumer Financial Protection Act of 2010 to make the CFPB’s budget subject to congressional appropriations. As set forth in a press release issued by Rep. Barr’s office, the Taking Account of Bureaucrats’ Spending Act (H.R. 1486), first introduced in March 2015 to the House and referred to the House Financial Services Committee, would give Congress power over what Rep. Burr terms an “unaccountable agency.” “I am reintroducing the TABS Act because the Bureau deserves the same scrutiny and the same checks and balances as any other federal agency,” said Rep. Barr. “Congressional oversight and accountability will ensure that the Bureau stays true to its mission of consumer protection, and avoids politically motivated overreaches, wasteful spending, and unnecessary regulations.” Currently, the CFPB is funded directly by the Federal Reserve. As previously covered in InfoBytes, House Republicans are also trying to overhaul existing financial regulations with the approval of the Financial CHOICE Act (H.R. 10) by the House Financial Services Committee, which would subject the Bureau to greater congressional oversight and tighter budgetary control.

    Federal Issues CFPB House Financial Services Committee Financial CHOICE Act

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  • Rep. Cummings Calls for House Oversight Committee to Assert Jurisdiction Over Financial CHOICE Act

    Federal Issues

    As  covered in last week’s InfoBytes, on May 4 the House Financial Services Committee approved the revised Financial CHOICE Act of 2017, H.R. 10, in a party-line vote, 34-26. In a May 3 letter to House Oversight and Government Reform Committee Chairman Jason Chaffetz, Rep. Elijah Cummings (D-Md.), the Ranking Minority Member on that Committee,  urged the Committee “not to waive its jurisdiction over the Financial CHOICE Act, H.R. 10”—which he argues includes “numerous provisions that clearly fall within the legislative jurisdiction of the Committee.” Rep. Cummings also states in his letter that the proposed legislation would “destroy key financial regulations and consumer protections” and “place our economy at greater risk of another crisis.” Accordingly, he argues that “[i]t is imperative that the Committee review and vote on [H.R. 10’s] dangerous proposals.”

    Federal Issues Congress Financial CHOICE Act House Oversight Committee House Financial Services Committee

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  • Financial CHOICE Act of 2017 Approved by House Financial Services Committee

    Federal Issues

    On May 4, GOP efforts to overhaul existing financial regulations took a step forward as the House Financial Services Committee approved H.R. 10, a revised version of the “Financial CHOICE Act of 2017” in a party-line vote, 34-26. The vote concluded a two week period that included both a three-day markup, of the GOP-backed legislation—during which several Democrat committee members sought, unsuccessfully, to remove various provisions of the bill—and, a two-day hearing that included testimony from 18 different witnesses.

    • An Executive Summary of the proposed legislation is available here.
    • A Comprehensive Summary of the proposed legislation is available here.
    • A copy of the Legislative Text of the proposed legislation is available here.

    Originally introduced by Committee Chairman Jeb Hensarling (R-TX) in September 2016, the main focus of the CHOICE Act was to give financial institutions the option of avoiding many of the rules set up by the 2010 Dodd-Frank law if they maintain a high level of capital and are “well-managed” as defined in the bill. The legislation, if enacted, would also end the Dodd-Frank Act’s taxpayer-funded bailouts of large financial institutions and would impose greater penalties on those who commit fraud and insider trading, while also demanding greater accountability from banking regulators. A summary of changes incorporated in the latest iteration of the proposed legislation—recently referred to as “CHOICE Act 2.0”—was released by the Committee last week and included, among other things:

    • the elimination of the CFPB supervisory and examination authority;
    • a restructuring of the CFPB, FHFA, OCC, and FDIC into bipartisan commissions appointed by the President;
    • an opt-out of many regulatory requirements for banks and other financial institutions if they maintain a 10% leverage ratio (among other conditions);
    • subjecting the federal banking regulators to greater congressional oversight and tighter budgetary control;
    • reforms in bank stress tests;
    • materially reducing the authority of the Financial Stability Oversight Council (FSOC) and the establishment of a new process of identifying financial institutions as "systemically important";
    • a repeal of the Orderly Liquidation Authority and the creation of a new bankruptcy process for banks;
    • a repeal of the Volcker Rule; and
    • facilitated capital raising by small companies, including through crowd-funding.

    Looking ahead, the House could vote to pass the bill later this month. While a party-line vote would pass the House, the bill will likely need to pick up a minimum of 60 votes—including support from several Democrats—in order for it to pass in the Senate.

    Federal Issues House Financial Services Committee Financial CHOICE Act Congress Dodd-Frank CFPB FHFA OCC FDIC

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  • Following Hearing, House Financial Services Committee Chairman Formally Introduces Financial CHOICE Act of 2017

    Federal Issues

    On April 26, the House Financial Services Committee held a hearing to discuss The Financial CHOICE Act – a GOP proposal to “reform the financial regulatory system” that was initially introduced and considered, though differing in a number of respects from the current version, but not adopted in the last Congress. The hearing debated the merits of a discussion draft, which was released on April 19 by Committee Chairman Jeb Hensarling (R-TX). Shortly after Wednesday’s hearing, Chairman Hensarling formally introduced H.R. 10, The Financial CHOICE Act of 2017. An Executive Summary of the proposed legislation has also been released. 

    The April 26 hearing – a video of which can be accessed here – included testimony from the following witnesses:

    • Mr. Peter J. Wallison, a Senior Fellow and Arthur F. Burn Fellow, Financial Policy Studies with the American Enterprise Institute (prepared statement)
    • Dr. Norbert J. Michel, a Senior Research Fellow, Financial Regulations and Monetary Policy, with the Heritage Foundation (prepared statement)
    • The Honorable Michael S. Barr, a Professor of Law at University of Michigan Law School (prepared statement)
    • Mr. Alex J. Pollock, a Distinguished Senior Fellow with the R Street Institute (prepared statement)
    • Dr. Lisa D. Cook, an Associate Professor of Economics and International Relations at Michigan State University (prepared statement)
    • Ms. Hester Peirce, a Director in the Financial Markets Working Group and Senior Research Fellow at the Mercatus Center at George Mason University (prepared statement)
    • Mr. John Allison, Former President and Chief Executive Officer with the Cato Institute (prepared statement)

    On April 28, Democrats held a separate hearing pursuant to Clause (d)(5) of Rule 3 of the Committee rules, which entitles members of the minority party to call its own hearing on any matter that is the subject of a majority hearing. The second hearing day – a video of which can be accessed here – included testimony from the following witnesses:

    • The Honorable Elizabeth Warren, United States Senator
    • Rohit Chopra, Senior Fellow, Consumer Federation of America
    • Corey Klemmer, Corporate Research Analyst, Office of Investment, AFL-CIO
    • Rev. Willie Gable, Pastor, National Baptist Convention USA, Inc. (prepared statement)
    • John C. Coffee Jr., Adolf A. Berle Professor of Law, Columbia University (prepared statement)
    • Rob Randhava, Senior Counsel, Leadership Conference on Civil and Human Rights (prepared statement)
    • Melanie Lubin, Maryland Securities Commissioner, North American Securities Administrators Association (prepared statement)
    • Emily Liner, Senior Policy Advisor, Economic Program, Third Way (prepared statement)
    • Amanda Jackson, Organizing and Outreach Manager, Americans for Financial Reform
    • Ken Bertsch, Executive Director, Council of Institutional Investors (prepared statement)
    • Sarah Edelman, Director, Housing Policy, Center for American Progress (CAP)

    Ranking Minority Member Maxine Waters (D-CA) also used the hearing to express her strong disapproval of what she has dubbed the “Wrong Choice Act.” Among other things, the ranking member alleged that the proposed legislation would “destroy[] Wall Street reform, gut[] the Consumer Financial Protection Bureau, and returns us to the financial system that allowed risky and predatory Wall Street practices and products to crash our economy.” 

    Federal Issues Financial CHOICE Act House Financial Services Committee Congress Dodd-Frank CFPB FDIC FSOC OCC FHFA

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  • House Financial Services Committee to Discuss the “Financial CHOICE Act” at April 26 Hearing

    Federal Issues

    On April 19, House Financial Services Committee Chairman Jeb Hensarling (R-TX) announced that the Committee will hold a hearing to discuss the Financial CHOICE Act next Wednesday, April 26. Touted as a potential replacement for the Dodd-Frank Act, the proposed new law—which stands for Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs—was unveiled last June by Chairman Hensarling in a speech to the Economic Club of New York and was subsequently approved by the Committee last September. The hearing will focus on an updated discussion draft of the bill at next Wednesday’s hearing.

    If enacted, the Financial CHOICE Act would, among other things, tailor a bank’s supervision to its risk profile/business model and provide for an independent exam appeals process, while also providing for and imposing more stringent penalties in cases of fraud or deception. Other provisions of the bill would repeal the Volcker Rule, strip the CFPB of its examination powers, and “UDAAP” enforcement authority and also discontinue small business loan data collection.  And, finally, the Act would bring the CFPB, FDIC, OCC, FHFA, NCUA, and the Fed’s supervisory functions under the congressional appropriations process, thereby mandating a cost-benefit analysis and, in some cases, congressional approval prior to the release of any new regulations.

    According to a press release from GOP Committee members, the proposed new law is based upon two central principles: (i) “all banks need to be well-capitalized” but (ii) “Dodd-Frank’s one-size-fits-all regulations . . . make[] no sense and hurt[] smaller, hometown banks and credit unions that did nothing to cause the last financial crisis.” To this end, the Financial CHOICE Act seeks to ease capital standards for community banks and credit unions that “elect to maintain enough capital to ensure that if they get in trouble, taxpayers won’t be forced to bail them out.” Meanwhile, offering a very different response to the release of an updated draft of the bill, Maxine Waters (D-CA), the Ranking Member of the Financial Services Committee, released a statement reiterating numerous objections to what she terms “the Wrong Choice Act.” Among other things, Rep. Waters argues that the proposed law “prioritize[s] the needs of Wall Street over the needs of hard-working Americans,” and “would take away much needed protections and put our economic security at risk.”

    Federal Issues Consumer Finance Dodd-Frank House Financial Services Committee

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  • House Financial Services Committee Chairman Issues New Subpoena to CFPB

    Federal Issues

    On April 4, House Financial Services Committee Chairman Jeb Hensarling issued a new subpoena to the CFPB, giving the Bureau a May 2 deadline to comply with its request for documents, which related to auto lending, payday lenders, and investigations into a company that allegedly charged higher interest rates to minorities on auto loans, as well as a national bank allegedly involved in the improper sales practice of creating deposit and credit card accounts without consumer consent. The subpoena also repeats some requests made by the Committee in previous subpoenas as a response to the Bureau’s failure to perform its legal obligations to produce the requested documents. As outlined in Schedule A’s second item of the April 4 subpoena, the Committee requests “all records relating to any instance whatsoever, from January 4, 2012 – present, in which any CFPB employee directed another federal government  employee not to transmit to any Member, Committee, or Subcommittee of Congress records requested or subpoenaed by any Member, Committee, or Subcommittee of Congress.”

    As previously covered in InfoBytes, over the past 17 months, GOP members of the Committee, who believe that the CFPB likely has and continues to violate the Administrative Procedure Act, have issued three investigative reports based on internal CFPB documents obtained by the Committee.

    Federal Issues CFPB House Financial Services Committee Lending

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  • CFPB Director Cordray Faces Tough Questioning During House Financial Services Committee Hearing

    Consumer Finance

    On April 5, CFPB Director Richard Cordray appeared before the House Financial Services Committee in order to “report on the Bureau’s activities and face questions from lawmakers about the harm those activities cause consumers.” As explained in a memorandum issued by the Committee in advance of the hearing, Section 1016 of the Dodd-Frank Act requires the Bureau Director to publish a semi-annual report on the Bureau’s activities and to testify on the report before the House Financial Services and Senate Banking Committees. The April 5 hearing explored the Bureau’s most recent two reports—Spring 2016 and Fall 2016.

    Committee Chairman Jeb Hensarling (R-Texas) used Wednesday’s hearing to, among other things, make a case for the firing of the Director for cause. Describing the Bureau as an “unelected, unaccountable and unconstitutional” agency, the Chairman argued that “[f]or all the harm inflicted upon consumers, [Director Cordray] should be dismissed by the President.” The Chairman thereafter “call[ed] upon the president—yet again—to do just that, and to do it immediately.” In addition to debating the constitutionality of the agency, the Committee also spent time discussing the timing (and true extent) of the Bureau’s involvement in certain recent investigations and enforcement actions the CFPB has taken credit for.

    Meanwhile, the Democrats on the Committee urged Cordray to stand firm amid efforts to oust him. In her opening statement, the Panel’s Ranking Member, Rep. Maxine Waters (D-Calif.) thanked the Director for his “sustained strong leadership” and for “doing exactly the job [he is] supposed to do,” and “doing it well.” Rep. Waters also characterized the Bureau as “an invaluable ally to consumers” whose “work must continue.”

    As previously covered on InfoBytes, GOP committee members have been calling for the abolition of the CFPB, suggesting both that “President Trump should immediately fire CFPB Director Richard Cordray” and that “the agency must be functionally terminated,” so that “[c]onsumer protection can instead come through an accountable and constitutional process.” By contrast, Democrats on the committee have consistently urged the President to reject calls by GOP members to fire the CFPB Director noting, among other things, that an attempt by the President to fire Director Cordray “for cause” would be hard-pressed to withstand a legal challenge.

    Consumer Finance House Financial Services Committee CFPB Cordray

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  • Supporting America’s Innovators Act of 2017 Passes in House Vote

    Federal Issues

    On April 6, a bipartisan bill entitled, Supporting America’s Innovators Act of 2017 (H.R. 1219) was received in the Senate after passing through the House by a 417-3 margin. The securities-related bill – which is now pending before the Senate Committee on Banking, Housing, and Urban Affairs, amends the provisions of the Investment Company Act of 1940 that require venture capital funds with more than 100 investors to register with the SEC. As previously reported in InfoBytes, the bill would serve to raise the cap on the number of investors from 100 to 250, thereby facilitating greater access to venture capital funding for small businesses and startups. In a press release issued by the House Financial Services Committee, the bill’s sponsor, Rep. Patrick McHenry explains that H.R. 1219 is intended to, among other things, “address the challenges facing angel investing so that startups and small businesses can have better access to capital,” by “creating a regulatory framework that encourages innovation and growth, while ensuring that shareholder and investor protections remain strong.”

    Federal Issues House Financial Services Committee Securities Senate Banking Committee

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  • House Financial Institutions and Consumer Credit Subcommittee Examines Transparency in the Financial Regulatory System

    Federal Issues

    On March 6, the House Financial Institutions and Consumer Credit Subcommittee held a hearing to consider the need to increase transparency in the financial regulatory system and examine opportunities for reform. According to a committee memorandum, the purpose of the hearing was to examine both (i) “the impact the rules and processes from federal financial agencies . . . have had on financial companies and their customers”; and (ii) “opportunities for reform of these federal financial agencies, with the aim of improving transparency, accountability and due process for regulated persons and entities and their customers.” As explained by Chairman Blaine Luetkemeyer in a committee press release following the hearing, “ambiguous guidance, contradictory rules, and aggressive enforcement has led to confusion for financial companies seeking to comply with Dodd-Frank and other Obama-era rules.” And, the Chairman continued, “the greatest impact is on the customers of those financial companies, who in many cases have been left clamoring for access to financial services, and paying more for the ones they’ve been able to retain.”

    Four witnesses offered testimony and answered questions before the committee:

    • Greg Baer, President of the Clearing House Association, focused his testimony on the critical importance of the due process clause and the Administrative Procedure Act, and how “a transparent [rule-making] process tend[s] to produce better regulation,” while the lack thereof has “adverse consequences on the quality of rules being administered and the ability of our banking system to support economic growth.”
    • Norbert Michel, a senior Research Fellow at the Heritage Foundation, testified, among other things, that “for decades, the U.S. regulatory framework has increasingly made it more difficult to create and maintain jobs and businesses that benefit Americans,” and that, “[o]ne of the main reasons the regulatory regime has been counterproductive for so long is because it allows regulators to micromanage firms’ financial risk, a process that substitutes regulators’ judgments for those of private investors.”
    • Amias Moore Gerety, Former Acting Assistant Secretary for Financial Institutions, U.S. Department of the Treasury discussed both (i) how the post-crisis Wall Street Reforms “strengthened our financial system and supported our economic recovery,” and (ii) how “the ability to deliver regulation that is appropriate to the risk is the central question for policy makers designing financial regulation—both of individual institutions and for the constantly evolving financial system as a whole.”
    • Bill Himpler, an Executive Vice President at the American Financial Services Association shared what he viewed as a contradiction between his belief that “[c]redit should not be limited to the wealthy or those with perfect credit scores,” and his observation that the “CFPB seems to believe that credit should only be extended to those borrowers who do not present any risk.”

    Federal Issues House Financial Services Committee Bank Regulatory Bank Compliance

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