On April 10, the CSBS sent a letter to Senator Jeff Merkley (D-OR) and Representative Suzanne Bonamici (D-OR) – the chief sponsors in their respective chambers of Congress of legislation related to online payday lending – to express support for the bills. The letter focuses on the provisions of the SAFE Lending Act, S. 172 and H.R. 990, that seek to (i) ensure consistent application of state usury laws and (ii) enhance state authority over online lenders. Noting that state regulators have found “countless instances of unlicensed and unregulated online payday lending” in violation of state law, the CSBS contends that the bills should be considered a “framework for the proper state-federal regulatory balance” with respect to online, short-term, small-dollar loans.
On April 22, House Financial Services Committee Chairman Jeb Hensarling (R-TX) sent letters to CFPB Director Richard Cordray and CFPB General Counsel Meredith Fuchs stating that the House Financial Services Committee cannot allow Director Cordray to testify on the CFPB’s semiannual report, as the Committee has in the past, because no nominee for CFPB Director has been confirmed. Citing the D.C. Circuit’s January 2013 decision in Noel Canning v. NLRB, which invalidated three presidential appointments to the NLRB, Mr. Hensarling asserted that “[a]bsent contrary guidance form the United States Supreme Court, Mr. Cordray does not meet the statutory requirements of a validly-serving Director” and the committee cannot legally accept testimony from him. Mr. Hensarling further indicated that the committee is not relinquishing its oversight role and expects the CFPB to make other employees and information available upon request. Committee Ranking Member Maxine Waters (D-CA) sent a letter one day later to the Chairman, stating that she will use the rules of the committee to allow Director Cordray to testify if the Chairman does not reverse his position.
On April 2, Representatives Suzanne Bonamici (D-OR) and Elijah Cummings (D-MD) sent letters to the CEOs of five large retail banks urging those institutions to voluntarily adopt certain consumer protections related to online payday lending. Those members and several others recently introduced the SAFE Lending Act, which the letter states would (i) allow consumers to prevent lenders form making automatic withdrawals and debits from their accounts, (ii) require all lenders to abide by state small-dollar lending rules, (iii) ban lead generators and anonymous payday lending, and (iv) increase enforcement authority to address offshore small-dollar lenders. Pending congressional action, the legislators asked the banks to “take every available step to prevent online payday lenders from accessing funds from consumer accounts when they are clearly operating in violation of state law.”
On March 19, the Senate Banking Committee and the House Financial Services Committee each held a hearing to review issues related to housing finance post-federal conservatorship of Fannie Mae and Freddie Mac. The House committee heard from Acting FHFA Director Edward DeMarco, while the Senate committee heard from non-governmental groups with reform proposals. The hearings mark the beginning of a process expected to play out over the course of the coming months to develop consensus on legislation to reform the housing finance sector. Each of the hearings covered numerous topics, but in each the central issue for debate was the appropriate level of government involvement in the mortgage market. On that primary issue, there was broad consensus that the current conservatorship role of the government should end. However, some stakeholders argued the government should play no role in the reformed market, while others believe a limited, protected government backstop would be necessary to support an affordable, stable housing market. Mr. DeMarco did not take positions on the broad policy issues, but repeated his commitment to implementing the FHFA’s Strategic Plan while positioning Fannie Mae and Freddie Mac to meet whatever requirements policymakers choose to impose.
On February 19, House Financial Services Committee members Shelley Moore Capito (R-WV) and Carolyn Maloney (D-NY) sent a letter to the Federal Reserve Board, the OCC, and the FDIC regarding the lawmakers’ concerns about the implementation of Basel III. Citing potential compliance costs and the potential derivative impact on consumers, Representatives Capito and Maloney ask that the agencies carefully tailor the Basel III capital requirements to ensure they are appropriate for community banks. The House and Senate have in recent months placed significant focus on the Basel III rulemakings, with both houses recently holding hearings on the issue and lawmakers previously sending letters to the regulators.
House Financial Services Ranking Member Seeks Additional Information Regarding Foreclosure Review Settlements
On February 15, House Financial Services Committee Ranking Member Maxine Waters (D-CA) sent an amended set of requests to the Federal Reserve Board and the OCC regarding the recent agreements in principle to end the Independent Foreclosure Review (IFR) established by consent orders issued in April 2011. Ms. Waters asks that, in advance of finalizing the terms of the agreements, the agencies produce by March 1, 2013: (i) policies and procedures about how loan files were to be reviewed by the IFR independent consultants, and any checklists used; (ii) calls or reports from the consultants to the agencies regarding error rates of reviewed files, or errors by analysts conducting the reviews; (iii) guidelines issued by the agencies to any consultant related to interpretation of the remediation framework; (iv) correspondence between the agencies and any consultant with regard to the servicing platform identified as “Loss Mitigation Notes,” and inconsistencies between the reported availability of borrower records provided by such a program and records entered into any other part of the servicing platform; and (v) any proposed plan for future reform or modification of servicing platforms or procedures generated or submitted by any consultant to the agencies. This request follows related requests made by Ms. Waters and other Democratic lawmakers seeking details pertaining to the settlement.
On February 7, 45 Democratic Members of the House of Representatives sent a letter to President Obama requesting he nominate a permanent director for the FHFA to replace Acting Director Edward DeMarco. The Members object to the FHFA’s decision not to direct Fannie Mae and Freddie Mac to offer principal reduction assistance to troubled borrowers. The FHFA and Mr. DeMarco believe that principal forgiveness does not improve foreclosure avoidance while reducing costs to taxpayers relative to existing policies. In their letter, the Members argue that the FHFA’s decision under Mr. DeMarco is contrary to the intent of the federal law that created the FHFA as conservator. Further, the Members charge that Mr. DeMarco’s stated reasoning has been contradicted by the FHFA’s own data, which indicates that principal reduction loan modifications could save U.S. taxpayers billions of dollars compared to both allowing underwater homes to go into foreclosure, and the FHFA’s preferred alternative of principal forbearance. In support of their position that a new director is needed to properly implement congressional directives meant to support the housing market, the Members also cite (i) the FHFA’s decision not to allow the implementation of a principle forgiveness pilot program, and (ii) recently proposed increased state-level guarantee fees charged by Fannie Mae and Freddie Mac in certain states.
On January 31, Senator Elizabeth Warren (D-MA) and Representative Elijah Cummings (D-MD), House Oversight Committee Ranking Member, sent a letter to the Federal Reserve Board and the OCC seeking documents and information regarding the regulators’ decision to enter into settlements with certain mortgage servicers subject to consent orders issued in April 2011 to (i) resolve allegations that the firms engaged in improper mortgage servicing and foreclosure practices and (ii) end the Independent Foreclosure Review process established by the prior consent orders. The lawmakers are seeking (i) all documents regarding the performance of the independent consultants engaged by the servicers to conduct the foreclosure reviews, (ii) all documents created by the servicers or the consultants to update the regulators on the status of the foreclosure review process, (iii) all documents compiled by the regulators indicating the total amount of settlement funds paid to each consultant, (iv) the number of borrowers who requested review, by gender, race, zip code, and property value, (v) the total number of reviews initiated by each contractor, and (vi) the average time each contractor required to complete a review of a borrower’s file.
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On January 22, House Financial Services Committee Chairman Jeb Hensarling (R-TX) announced the subcommittee assignments for the committee’s Republican members. Rep. Garrett (R-NJ) will again lead the subcommittee on Capital Markets and Government Sponsored Enterprises, while Rep. Capito (R-WV) remains as head of the subcommittee on Financial Institutions and Consumer Credit. Ranking Member Maxine Waters (D-CA) also recently announced as Ranking Members of those subcommittees Rep. Maloney (D-NY) and Rep. Meeks (D-NY), respectively, and released the full roster for each subcommittee. The subcommittee rosters reflect the new members joining the committee, including Reps. Barr (R-KY), Cotton (R-AR), Hultgren (R-IL), Mulvaney (R-SC), Pittenger (R-NC), Ross (Fla.), Stutzman (R-IN), and Wagner (R-MO) for the majority; and on the minority side Reps. Beatty (D-OH), Delaney (D-MD), Heck (D-WA), Foster (D-IL), Kildee (D-MI), Murphy (D-FL), Sewell (D-AL), and Sinema (D-AZ). Finally, earlier this month Chairman Hensarling announced majority staff positions, and followed with additional staff announcements on January 25, 2013.
On November 29, two Subcommittees of the House Financial Services Committee held a joint hearing regarding the federal banking agency proposals to implement the Basel III international regulatory capital accords. As with a Senate hearing on the same topic last week, committee members focused bipartisan attention on the proposals’ potential impact on community banks and insurance companies that are holders of depository institutions. The committee also explored the interplay between the Basel III proposals and the pending rules to set forth the “qualified mortgage” standard and the “qualified residential mortgage” standard. The regulators promised lawmakers that they would carefully consider the concerns of community bankers. The regulators did not provide a timeline for their final rulemaking.
Republican House Members Elect Representative Hensarling Financial Services Committee Chairman, Representative Waters Expected to Fill Ranking Member Position
On November 28, the Republican caucus of the House of Representatives elected Representative Jeb Hensarling (R-TX) Chairman of the House Financial Services Committee for the 113th Congress, which will convene next year. Mr. Hensarling has served as the vice-chair of the Committee under Representative Spencer Bachus (R-AL) who could not retain the position due to caucus-imposed term limits. In a statement, Mr. Hensarling expressed his commitment to “end[ing] the phenomenon of ‘too big to fail’ and reinstat[ing] market discipline,” as well as reducing taxpayer risk and cutting the weight, volume, complexity, and uncertainty of federal regulations. Democrats reportedly are expected to elect Representative Maxine Waters (D-CA) to succeed retiring Representative Barney Frank (D-MA) as Ranking Member on the Committee.
Banking Regulators Provide Guidance on Basel III Implementation Timeline, Congress Offers Additional Responses to Basel III Proposals
On November 9, the Federal Reserve Board, the OCC, and the FDIC announced that proposed rules to implement the Basel III regulatory capital accords will not take effect on January 1, 2013. The agencies cite the large volume of comments received in response to the proposed rules as the reason for the delay. Recently, members of three states’ congressional delegations joined others in submitting letters to the federal banking regulators in response to the proposed Basel III regulations. The letters all raise concerns about the potential disproportionate impact of the proposed rules on smaller, community and regional institutions, and challenge the attempt by regulators to apply international accords to all U.S. institutions regardless of size. Members of the Texas delegation focused on provisions that would require all unrealized gains and losses on available-for-sale securities to flow through to common Tier-1 equity, which the lawmakers believe will require community banks to divert capital resources from customer services and bank growth. Indiana Members added concerns about the effect of proposed excessive risk weighting and restrictions on dividends and discretionary bonuses, while Members from South Carolina echoed general concerns about the impact of the proposals on community banks. These legislators join other federal and state policymakers who have submitted similar comments in recent weeks. Scrutiny of the proposals will continue next week with a Senate Banking Committee hearing planned for November 14, 2012 to review the pending rules with representatives from the Federal Reserve Board, the OCC, and the FDIC.
This week, 90 members of the House of Representatives reportedly sent a letter to CFPB Director Richard Cordray urging the CFPB to include a clear and strong safe harbor in its final “ability to repay” or “qualified mortgage” (QM) rule. The rule would require creditors to verify a consumer’s ability to repay prior to making a residential mortgage loan and would define a QM that has a presumption of compliance with the ability to repay requirement. The letter, which was initiated by Representatives Capito (R-WV) and Sherman (D-CA), adds to a record that some Members of Congress have been building with regard to the QM rule. The Financial Institutions and Consumer Credit Subcommittee of the House Financial Services Committee chaired by Representative Capito held a hearing this week to receive testimony on the rule from stakeholders. While the witnesses generally agreed that the QM rule should be broad and provide clearly defined standards, differences of opinion remain with regard to the safe harbor issue. This week the extended comment period for the rule closed; the CFPB has indicated that it expects to issue its final rule before the end of 2012.