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  • HUD Secretary Carson Testifies at House Financial Services Committee Hearing, Discusses Use of FCA Against FHA Lenders

    Federal Issues

    On October 12, Secretary of HUD, Ben Carson, testified at a hearing before the House Financial Services Committee. The hearing entitled “The Future of Housing in America: Oversight of the Department of Housing and Urban Development,” provided an update on HUD’s vision for federal housing policy and touched upon topics such as the conservatorship of Fannie Mae and Freddie Mac, the agency’s role in hurricane disaster relief, and regulatory reform efforts. In his written testimony, Carson reaffirmed his personal interest, and that of the President Trump’s Administration, in working with the Committee on housing finance reform, specifically referencing the FHA mortgage insurance program and Ginnie Mae mortgage-backed security guaranty as “vital components” of the housing finance system. Towards the end of the three-hour-long hearing, Carson was asked by Representative Dave Trott (R-MI) about the federal government’s “unprecedented” use of the False Claims Act (FCA) as a means to “impose outrageous penalties against lenders for immaterial defects” in HFA loan originations, which, according to Rep. Trott, is turning lenders away from FHA lending and is resulting in increased costs to borrowers. Carson stated that his staff is already engaged in discussions with the DOJ staff and is “committed to getting that resolved, because it’s ridiculous, quite frankly.” Carson added, “I’m not exactly sure why there had been such an escalation previously, but the long-term effects of that escalation is obviously providing fewer appropriate choices for consumers, and that’s exactly the opposite of what we should be doing.”

    Federal Issues HUD House Financial Services Committee DOJ False Claims Act / FIRREA Mortgages FHA

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  • FHFA Director Provides Update on GSE Conservatorship to House Financial Services Committee

    Federal Issues

    On October 3, the Director of the Federal Housing Finance Agency (FHFA), Melvin L. Watt, testified at a hearing before the House Financial Services Committee. The testimony provided an update on FHFA’s conservatorship of Fannie Mae and Freddie Mac (GSEs) and Watt’s views on housing financing reform. In his prepared remarks, Watt informed the Committee that the GSEs’ financial performance has improved significantly over the course of the FHA’s conservatorship and that the GSEs continue to provide liquidity to the housing finance market. Nonetheless, Watt stressed that in less than three months, both Fannie Mae and Freddie Mac’s taxpayer-financed capital buffer will run out, and any loss the GSEs experience after that would require additional money from taxpayers. Watt warned that any additional draw of taxpayer support could erode investor confidence in the GSEs, which could result in reduced liquidity in the mortgage-backed securities market and increase the cost of credit for borrowers.

    Federal Issues House Financial Services Committee FHFA Fannie Mae Freddie Mac Mortgages

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  • House Financial Services Committee Issues Second Interim Report on Bureau’s Role in Fraudulent Accounts Scandal Investigation

    Federal Issues

    On September 19, the Majority Committee Staff of the House Financial Services Committee (Committee) released a second interim report and supporting documents on the investigation of the role the CFPB played in detecting and remedying a major national bank’s practice of opening unauthorized bank accounts. As previously covered in InfoBytes, the first interim report, issued June 6, accused Director Richard Cordray, among other things, of failing to cooperate with the Committee’s “comprehensive investigation.” The second interim report claims the CFPB and Director Cordray failed to comply with the Committee’s repeated requests for documents related to the investigation into the bank’s practices, never conducted its own independent investigation (but, instead, “relied primarily, if not exclusively,” on a third party report), and withheld a crucial Recommendation Memorandum from the Committee for over a year that disclosed analysis of the legal and factual components of the Bureau’s investigation, as well as an evaluation of whether to enter into a settlement. The Committee’s accusations also include claims that Director Cordray allegedly misled Congress about the agency's investigation into the bank’s illegal sales practices and may have “rushed” a settlement with the bank, which resulted in a $100 million fine when it was potentially liable for a statutory civil monetary penalty exceeding $10 billion. Chairman Jeb Hensarling (R-Tex.) said in a press release that “[t]he premature suspension of its investigation means that the CFPB also potentially lost the opportunity to discover recently revealed instances of further consumer harm.”

    Federal Issues CFPB House Financial Services Committee Settlement Enforcement Fraud Investigations

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  • DOJ Formally Ends Operation Chokepoint; Judicial and Financial Services Committee Leaders and Acting Comptroller of the Currency Respond

    Federal Issues

    On August 16, the DOJ sent a letter to House Judiciary Committee Chairman Bob Goodlatte (R-Va.) formally announcing the DOJ’s commitment to end its initiative known as Operation Chokepoint, which was designed to target fraud by investigating U.S. banks and the business they do with companies believed to be a higher risk for fraud and money laundering. Assistant Attorney General Stephen Boyd wrote: “All of the [DOJ]’s bank investigations conducted as part of Operation Chokepoint are now over, the initiative is no longer in effect, and it will not be undertaken again.” Boyd further reiterated that “the [DOJ] will not discourage the provision of financial services to lawful industries, including businesses engaged in short-term lending and firearms-related activities.” However, criminal activity discovered as a result from responses to subpoenas may continue to be pursued by the DOJ. Additionally, the FDIC also rescinded a list identifying “purportedly ‘high-risk’ merchants” and the DOJ noted that it “strongly agrees with that withdrawal.”

    On August 18, Rep. Goodlatte’s office, along with other judicial and financial services committee leaders, issued praise for the DOJ’s decision: “Targeted industries, such as firearms dealers, were presumed guilty by the Obama Justice Department until proven innocent, and many businesses are still facing the repercussions of this misguided program.”

    Separately, on August 21, Acting Comptroller of the Currency Keith A. Noreika sent a letter to House Financial Services Committee Chairman Jeb Hensarling (R-Tex.) repudiating Operation Chokepoint and claiming “the [OCC] rejects the targeting of any business operating within state and federal law as well as any intimidation of regulated financial institutions into banking or denying banking services to particular businesses.” Noreika further stated that the OCC “expects the banks it supervises to maintain banking relationships with any lawful businesses or customers they choose, so long as they effectively manage any risks related to the resulting transactions and comply with applicable laws and regulations.”

    The DOJ’s announcement comes after years of attempts by Congressional Republicans to end the initiative as well as lawsuits filed by payday lenders over claims that regulator interpretations of “reputational risk” violated their rights to due process. (See previous InfoBytes coverage here.)

    Federal Issues DOJ Operation Choke Point Payday Lending OCC House Financial Services Committee

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  • House Financial Services Committee Issues Report Accusing Bureau of Contempt Charges Relating to Investigation into Arbitration Rulemaking

    Federal Issues

    On August 4, the Majority Committee Staff of the House Financial Services Committee (Committee) released a report accusing CFPB Director Richard Cordray of failing to comply with an April 4, 2017 Congressional subpoena concerning the Committee’s on-going investigation into the Bureau’s arbitration rulemaking, and presenting a case for instituting contempt of Congress proceedings. According to the report, the Committee first requested documents relating to the CFPB’s pre-dispute arbitration rulemaking on April 20, 2016 but asserts it received a production that was “far from complete.” Subsequent document requests and “rolling” productions were also allegedly “incomplete.” In April 2017, the Committee issued a congressional subpoena in order to compel the CFPB to produce the relevant records, but the report claims that while Cordray was legally obligated to answer, he failed to adequately respond. Consequently, the Committee accused Cordray of defaulting on the subpoena and concluded that the CFPB’s argument regarding the burdensome nature of the request does not excuse the Bureau from producing records or “searching for and identifying sources of records in an effort to quantify the putative burden.” As a result, the Majority Committee Staff believes there is ample basis to proceed against Cordray for contempt of Congress.

    Federal Issues CFPB Arbitration House Financial Services Committee

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  • Treasury Secretary Mnuchin Testifies Before House Financial Services Committee, Provides Overview of Tailored Regulatory Approach

    Federal Issues

    On July 27, the House Financial Services Committee held a hearing entitled “The Annual Testimony of the Secretary of the Treasury on the State of the International Financial System.” Committee Chairman Jeb Hensarling (R-Tx.) opened the full committee hearing asserting that “the unaccountable Washington bureaucracy must finally be held accountable, [and we] must address the regulatory cost of doing business in the U.S. under Dodd-Frank.” Rep. Hensarling commended President Trump’s Executive Order establishing the core principles for regulating the U.S. financial system and called it “vitally important to us all.”

    Treasury Secretary Steven T. Mnuchin was the only witness at the June 27 hearing, offering testimony and answering questions concerning, among other things, (i) praise for the Committee’s passage of the Financial CHOICE act; (ii) tailoring capital requirements for small, mid-sized, and region banks; (iii) identifying a “single, lead regulator” to reduce regulatory overlap; (iv) remedying the Volcker Rule; (v) making the CFPB more accountable through statutory changes; (vi) reforming housing finance, noting that the current system, “in which the GSEs remain in perpetual Federal Housing Finance Agency conservatorship . . .  is not sustainable and leaves taxpayers at risk”; and (vii) addressing tax reform.

    Federal Issues Department of Treasury House Financial Services Committee Dodd-Frank Financial CHOICE Act

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  • Senate and House Committees File Separate Resolutions Disapproving of CFPB Arbitration Rule

    Federal Issues

    On July 20, the Senate Committee on Banking, Housing and Urban Affairs and the House Financial Services Committee each announced Congressional Review Act Joint Resolutions of Disapproval against the CFPB’s Arbitration Agreements final rule issued July 10. In a press release issued by the Senate Committee, 24 Republican senators—including Chairman Mike Crapo (R-Idaho)—expressed concern that the anti-arbitration measure will discourage cost-effective dispute resolution and push consumers into class action lawsuits causing more harm than good. House Republicans outlined similar concerns in a press release issued the same day. H.J. Res. 111, co-sponsored by all 34 Republican members of the House Financial Services Committee, will seek to nullify the rule, which they believe “punish[es] consumers with decreased access to financial products, increased costs for such products, or both.”

    The Congressional Review Act allows Congress to overturn agency rules by a simple majority if moved within 60 days from the rule’s publication.

    Federal Issues Agency Rule-Making & Guidance Arbitration CFPB Senate Banking Committee CRA House Financial Services Committee Congress Class Action

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  • House Committee Okays Five Additional Flood Insurance Bills

    Federal Issues

    On June 21, the House Financial Services Committee (Committee) approved changes to the National Flood Insurance Program (NFIP), passing five additional bills. As previously reported in InfoBytes, the committee passed two flood insurance measures on June 15. The approval of these latest bills completes a seven-bill package to reauthorize the NFIP.

    According to the committee’s press release, the five newly passed bills include:

    H.R. 2875 ,the “National Flood Insurance Program Administrative Reform Act of 2017”— introduced by Rep. Nydia Velazquez (D-N.Y.)— is intended to help NFIP policyholders when challenging claim denials and to also cut down on claim fraud. The bill passed in a 58-0 vote.

    H.R. 1558, the “Repeatedly Flooded Communities Preparation Act” —introduced by Rep. Ed Royce (R-Cal.)—was approved by the committee in a voice vote. The bill will “ensure community accountability for areas repetitively damaged by floods” by requiring these flood-prone areas to design mitigation plans.

    H.R. 1422, the “Flood Insurance Market Parity and Modernization Act”— introduced by Rep. Dennis Ross (R-Fla.)—allows homeowners to use private flood insurance to satisfy the flood insurance mandate, if the private policies are sufficiently similar to NFIP insurance policies. This bill passed by a vote of 58-0.

    H.R. 2246, the “Taxpayer Exposure Mitigation Act of 2017”—introduced by Rep. Blaine Luetkemeyer (R-Mo.)—eliminates the requirement that commercial properties located in flood hazard areas must maintain flood insurance coverage.  Additionally, the measure will “provide for greater transfer of risk . . . to private capital and reinsurance markets,” and will allow state and local governments to develop their own flood maps. The committee approved the bill in a 36-24 vote.

    H.R. 2565, also introduced by Rep. Luetkemeyer, will “require the use of replacement cost value in determining the premium rates for flood insurance coverage.” The committee approved it in a 34-25 vote.

    Federal Issues House Financial Services Committee National Flood Insurance Program Federal Legislation Flood Insurance

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  • CFPB Director Challenges House Financial Services’ Report on Bureau’s Role in Fraudulent Accounts Scandal Investigation

    Consumer Finance

    On June 14, CFPB Director Richard Cordray issued a letter to Rep. Jeb Hensarling (R-Tex.) in response to the House Financial Services Committee’s (Committee) June 6 interim majority staff report on the investigation of the role federal financial regulators played in detecting and remedying a major national bank’s practice of opening unauthorized bank accounts. As previously covered in InfoBytes, the Bureau issued a consent order to the bank last September over allegations that the bank employees’ improper sales practice of opening unauthorized accounts as part of an incentive compensation program was unfair and abusive. In his letter, Director Cordray defended the CFPB’s role in the investigation and detailed inaccuracies and errors in the Committee’s report.

    The Committee’s report notes that immediately after the September 8 CFPB announcement, the House Financial Services Committee began a “comprehensive investigation” to answer two questions: (i) “how and why [the bank] allowed these fraudulent activities to occur at a disturbing scale across the [b]ank for well over a decade”; and (ii) “whether or not federal financial regulators were effective in detecting and remedying [the bank’s] fraudulent branch sale practices.” According to the report, “[o]ver the course of six months, the CFPB only produced 1,010 pages of records comprised almost entirely of records easily obtainable from [the bank] or the OCC”—both of which, the report contends, have cooperated fully with the investigation. In April 2017, the CFPB received a subpoena but allegedly provided records previously produced by the bank. Due to a lack of cooperation, the Committee staff recommended the possibility of issuing deposition subpoenas to CFPB employees to investigate Director Cordray’s alleged failure to respond, as well as the suggestion of bringing contempt proceedings against Director Cordray to enforce compliance with the subpoena.

    Director Cordray responded that, among others things, the majority staff of the Committee refused to receive a September 2016 follow-up briefing from Bureau staff and failed to respond to his offer to publicly testify at a Committee hearing. Furthermore, Director Cordray states that the CFPB has submitted over 57,000 pages of records “in an effort to comply with the Committee’s broadly worded requests.” He notes the complaint about the documents in the CFPB’s production being “redundant of documents received from either [the bank] or the OCC, though the same point could be made in reverse,” and that his staff has repeatedly sought guidance from the Committee to narrow the scope but has yet to receive a response.

    In response to the Committee’s query as to why it took more than a decade to uncover the bank’s practice of opening unauthorized accounts, Director Cordray responded that the Bureau opened its doors in 2011—more than 10 years after the bank’s activities commenced according to the Committee’s report—and wasn't fully operational until 2014.

    Consumer Finance CFPB House Financial Services Committee Enforcement

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  • House Financial Services Committee Advances Two Flood Insurance Measures, Delays Action on Other Bills

    Federal Issues

    On June 15, the House Financial Services Committee announced it had passed two flood insurance measures during a meeting to consider several bills to reform and reauthorize the National Flood Insurance Program (NFIP).

    The Committee approved the 21st Century Flood Reform Act of 2017 (H.R. 2874) by a vote of 30-26. The bill, sponsored by Rep. Sean Duffy (R-Wis.), is designed to (i) improve the financial stability of the NFIP; (ii) improve the development of more accurate flood risk estimates through new technology and better maps; (iii) “increase the role of private markets in the management of flood insurance risks”; and (iv) “provide for alternative methods to insure against flood peril.”

    Also approved by a vote of 53-0 was the National Flood Insurance Program Policyholder Protection Act of 2017 (H.R. 2868). The bill, sponsored by Rep. Lee Zeldin (R-N.Y.), is designed to protect NFIP policyholders from “unreasonable premium rates” and require FEMA to analyze “the unique characteristics of flood insurance coverage of urban properties” such as cooperative housing projects.

    The Committee will consider additional measures the week of June 19.

    Federal Issues House Financial Services Committee National Flood Insurance Program

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