Bill to Change SIFI Determination Postponed

The House of Representatives delayed discussion of HR 1309, the Systemic Risk Designation Improvement Act, in an effort to give the bill’s sponsor Blaine Luetkemeyer (R-MO) additional time to propose a method to fund the estimated $115 million cost of implementing the changes in regulatory oversight. The increased oversight costs stem, in part, from provisions in the bill that would require closer involvement by the Financial Stability Oversight Council (FSOC) in determining whether a bank holding company is a Systemically Important Financial Institution (SIFI), and thus subject to enhanced supervision and macro-prudential standards by the Federal Reserve. Under the current law, originating from Title I of the Dodd-Frank Act, the FSOC looks only to whether the bank holding company has $50 billion in assets. Whereas under HR 1309, the FSOC would also factor whether a bank was subject to material financial distress, as well as the nature, scope, size, scale, concentration, interconnectedness or mix of the bank’s activities in making the SIFI designation.

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CFPB Imposes $8 Million Civil Penalty on For-Profit Company over Allegedly Deceptive Student Lending Practices

On September 12, the CFPB entered into a consent order with a San Diego-based for-profit education company to resolve allegations that its student lending practices were deceptive in violation of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Starting in 2009, the company, which owns two for-profit colleges, has operated an in-house institutional-lending program (Program). The CFPB alleged that under the Program thousands of students borrowed in the aggregate approximately $23,544,184, of which the company collected more than $4,900,000 in principle and interest, with more than $18,000,000 in debt remaining outstanding. The company claimed that, through the Program, students could repay their loans with a minimum monthly payment of $25; the CFPB contends, however, that the company’s marketing practices were deceptive because the typical loan payments under the Program exceeded $25. Pursuant to the consent order, the company must (i) provide cancellation of $18.5 million in existing student debt and pay $5 million in redress directly to affected students; (ii) ensure that students utilize the CFPB’s newly released Electronic Financial Impact Platform, which ultimately generates a customized disclosure for students regarding, among other things, finance offerings available and estimated post-graduate expenses; (iii) stop making allegedly misleading statements regarding students’ monthly payment obligations; (iv) remove any negative information that was reported to consumer-reporting agencies; and (v) pay an $8 million civil penalty.

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House Financial Services Committee Approves Financial CHOICE Act

On September 13, the House Financial Services Committee approved by a 30-26 vote the Financial CHOICE Act, Congressman Jeb Hensarling’s (R-TX) legislative replacement to the Dodd-Frank Act. In his opening remarks, Hensarling claimed that the bill aims to end bailouts, support economic growth, and provide regulatory relief to community banks. House Democrats did not offer amendments to the bill, although many expressed adamant disapproval. Congresswoman Carolyn Maloney (D-NY) claimed that the “deeply disturbing” legislation “would take us back to the regulatory stone age.” Various Democrats referenced the CFPB’s recent enforcement action against a national bank to argue that the Financial CHOICE Act’s attempt to remove the CFPB’s authority over abusive practices was one of many reasons to oppose the bill. Democrats unanimously voted against the legislation, while all but one Republican, Congressman Bruce Poliquin (R-ME), voted in favor of moving the legislation forward.

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House Financial Services Committee Schedules Debate on Financial CHOICE Act

On September 13, the House Financial Services Committee will meet to discuss the Financial CHOICE Act. As previously covered in InfoBytes, the Financial CHOICE Act is a Republican alternative to the Dodd-Frank Act. The Committee is scheduled to debate potential amendments to the Financial CHOICE Act and to vote on the legislation.

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White House Releases Report on the Dodd-Frank Act and Community Banking; ABA Refutes Claims

Recently, the White House Council of Economic Advisers issued a report titled “The Performance of Community Banks Over Time.” Seeking to address industry concern that Dodd-Frank regulations have negatively impacted community banks, the report presents research related to bank branching patterns and macroeconomic conditions as “evidence” to the contrary, maintaining that “community banks have remained healthy as the Dodd-Frank financial reform has been implemented.” The report presents the following five key points as indication that community banks “remain strong” under the Dodd-Frank Act: (i) with the exception of smallest community banks, the lending growth rate has increased since the financial crisis in 2010; (ii) evidence fails to suggest that Dodd-Frank led to a decline in the number of community banks across counties; (iii) since 1994, for community banks with assets between $100 million and $10 billion, the average number of branch offices has increased; (iv) the decline in the number and market share of community banks with assets totaling less than $100 million is a result of growth; and (v) a combination of macroeconomic factors, such as low equilibrium interest rates, contribute to “a substantial portion of the drop in new bank entry in recent years.” In closing, the report reasons that the Obama Administration “has taken important steps to ensure that regulatory requirements are implemented in a fair and equitable manner for community banks.”

ABA president Rob Nichols released a statement challenging the report’s findings, claiming a “serious disconnect between [the] report and the daily reality for America’s hometown banks and the communities they serve.” Although Nichols acknowledges that the Dodd-Frank Act is not the only contributing factor causing community banks to close, he suggests that the “more than 24,000 pages of proposed and final rules belies the idea that Dodd-Frank had no impact” and emphasizes that “[c]omprehensive regulatory relief is long overdue for community banks.”

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