Senate Passes Financial Regulatory Relief Bill In Bipartisan Vote — When Will It Become Law?
By Gary Kasper, President at New Vista Solutions
On March 14, 2018, the Senate passed the Economic Growth, Regulatory Relief, and Consumer Protection Act (known as S.2155) in a bipartisan 67-31 vote. Supporters of the bill claim this legislation provides much needed relief from the onerous restrictions placed on the banking industry by the Dodd-Frank Act of 2010.
The Dodd-Frank Act has been widely criticized by Republicans (and some Democrats) for making little distinction between the larger banks that contributed to the Great Recession of 2009 and the smaller community banks and credit unions.
Senator Mike Crapo (R-Idaho), Chairman of the Senate Banking Committee and the lead sponsor of the bill, said in a press release, “A strong and vibrant economy is important for American consumers, businesses, and the stability of the financial sector. This bipartisan legislation will significantly improve our financial regulatory framework and foster economic growth by right-sizing regulation, particularly for smaller financial institutions and community banks.”
What Does the Bill Do for Banks and Consumers?
Raises the threshold for being designated as a “systemically important financial institution” (SIFI) from $50 billion to $250 billion in assets. This allows some larger banks to operate with less scrutiny from the Financial Stability Oversight Council (FSOC).
- Ends stress tests entirely for banks with under $100 billion in assets.
- Exempts banks with less than $10 billion in assets from the Volcker Rule. This Rule prohibits commercial banks from engaging in speculative trading and from owning or investing in a hedge fund or private equity fund.
- Deems mortgage loans held in portfolios by insured institutions with less than $10 billion in assets to be “qualified mortgages” under The Truth in Lending Act (TILA), which would allow community banks and credit unions to expand the types of mortgages they offer. It also removes the three-day waiting period for TILA-RESPA Integrated Disclosures (TRID) if the second credit offer is at a lower rate.
- Requires the Federal Reserve to take the size of banks into account when creating regulations rather than treating all banks the same as they have in the past.
- Eases appraisal requirements on smaller mortgage loans.
- Exempts smaller banks from some HMDA disclosure requirements.
- Eliminates escrow requirements for some mortgages made by banks with assets under $10 billion (up from $2 billion)
- Requires the Federal Housing Finance Agency (FHFA) to establish a process for Fannie Mae and Freddie Mac to use credit score models other than FICO for mortgages.
- Requires credit bureaus to provide free security freezes, during which a consumer’s credit information can’t be disclosed.
- Provides for longer exam cycles for community banks.
What Opponents Are Saying
Many Democrats fear this legislation has gone too far in the wrong direction, even though it appears that over 90 percent of Dodd-Frank is unchanged. For example, the Consumer Financial Protection Bureau (CFPB), one of the main components of the Dodd-Frank bill, will remain intact.
Former Rep. Barney Frank (D-MA), who co-authored the Dodd-Frank Act in 2010, writes, “I'm especially troubled by the insertion into the rules governing the FSOC's assertion of authority over banks in the $100 to $250 billion range requirements that approximate the kind of rigid cost benefit analysis that are nearly impossible to satisfy when the benefit is the avoidance of a threat to financial stability.”
Sen. Elizabeth Warren (D-MA) slammed Republicans and her Democratic colleagues who supported the bill. In an email, she stated, “Republicans AND Democrats are gutting the rules on Wall Street.”
All that said, the bill is a welcomed alternative to the rigid requirements in Dodd-Frank for lending institutions around the country. The American Bankers Association along with state bankers associations worked hard to promote the bill.
Rob Nichols, ABA President and CEO, said, “This bill is an important step in right-sizing the rules for America’s banks, and it will allow financial institutions to better serve their customers and communities while maintaining safety and soundness.”
The bill now moves to the House of Representatives, where it will undergo another round of scrutiny. Republican leaders have several provisions they want to add to the bill.
Jeb Hensarling (R-TX), the House Financial Services Chairman, released a list of 30 bipartisan regulatory relief bills already passed by the House. Even though Sen. Crapo and other Senators considered some of the provisions already approved by the House while negotiating the Senate version of the bill, House leaders want more.
Any significant changes at this point would likely be met with diminished support from Senate Democrats whose votes are needed for final approval. House Republicans believe they can come to an agreement without upsetting the delicate bipartisan balance achieved in the Senate.
So, now we wait…again. Will it be weeks or months? No one knows for sure, but bankers around the country are optimistic…especially the smaller community banks. It’s been a long eight years but relief is in sight.