HFSC Markup

House Financial Services Committee

Markup of Legislation

Tuesday, November 14, 2017

 Key Topics & Takeaways

  • Bills Sent to House Floor: All 23 bills were favorably reported to the House floor. See below for a full list of legislation considered and a summary of the markup.

Legislation

  • HR 4258, the “Family Self-Sufficiency Act”
  • HR 1638, the “Iranian Leadership Asset Transparency Act”
  • HR 4324, the “Strengthening Oversight of Iran’s Access to Finance Act”
  • HR 4270, the “Monetary Policy Transparency and Accountability Act of 2017”
  • HR 4278, the “Independence from Credit Policy Act of 2017”
  • HR 4302, the “Congressional Accountability for Emergency Lending Programs Act of 2017”
  • HR 1153, the “Mortgage Choice Act of 2017”
  • HR 3221, the “Securing Access to Affordable Mortgages Act”
  • HR 3978, the “TRID Improvement Act of 2017”
  • HR 4292, the “Financial Institution Living Will Improvement Act of 2017”
  • HR 4294, the “Prevention of Private Information Dissemination Act of 2017”
  • HR 4296, To place requirements on operational risk capital requirements for banking organizations established by an appropriate Federal banking agency.
  • HR 4015, the “Corporate Governance Reform and Transparency Act of 2017”
  • HR 4248, To amend the Securities Exchange Act of 1934 to repeal certain disclosure requirements related to conflict minerals, and for other purposes.
  • HR 3093, the “Investor Clarity and Bank Parity Act”
  • HR 4263, the “Regulation A+ Improvement Act of 2017”
  • HR 4267, the “Small Business Credit Availability Act”
  • HR 4281, the “Expanding Access to Capital for Rural Job Creators Act”
  • HR 4279, the “Expanding Investment Opportunities Act”
  • HR 4293, the “Stress Test Improvement Act of 2017”
  • HR 3299, the “Protecting Consumers’ Access to Credit Act of 2017”
  • HR 4247, the “Restoring Financial Market Freedom Act of 2017”
  • HR 4289, To amend the Dodd-Frank Wall Street Reform and Consumer Protection Act to repeal certain disclosure requirements related to coal and mine safety.

Opening Statements

Chairman Jeb Hensarling (R-Texas)

In his opening statement, Hensarling provided an overview of the current economic landscape and drew attention to positive news, including rising consumer confidence, growing stock prices, and low unemployment. Hensarling briefly introduced the legislation to be considered the markup, which he said would boost economic growth, provide regulatory relief to financial institutions (especially community banks), encourage accountability from the Federal Reserve, and degrade Iran’s ability to access financial markets.

Ranking Member Maxine Waters (D-Calif.)

In her opening statement, Waters was generally critical of the bills under consideration, saying that many of them were simply parts of H.R. 10, which she called the “Wrong Choice Act.” She said the bills would weaken capital requirements and stress tests and limit the Federal Reserve’s ability to respond to financial crises. She also criticized legislation that would affect Dodd-Frank Act (DFA) disclosures, continuing that the Minority would prevent the Majority from “doing favors for Wall Street,” and that banks are posting record profits despite being more highly regulated than before the crisis.

 Markup

H.R. 4258, the Family Self-Sufficiency Act

Rep. Sean Duffy (R-Wis.) introduced this bill, which would make changes to the Department of Housing and Urban Development’s (HUD’s) Family Self Sufficient (FSS) program, which is designed to help families receiving housing assistance achieve economic stability and mobility. Duffy argued the bill would expand the scope of services offered by the FSS program to include GED training and postsecondary education, and expand the program to include families who live in privately-owned properties. The bill received broad bipartisan support and Reps. Keith Ellison (D-Minn.) Joyce Beatty (D-Ohio), Nydia Velazquez (D-N.Y.), Michael Capuano (D-Mass.), Rep. Dennis Ross (R-Fla.), and Hensarling all spoke in favor of it.

The measure was favorably reported by a vote of 58-0

H.R. 1638, the Iranian Leadership Asset Transparency Act

Rep. Bruce Poliquin (R-Maine) introduced the bill and his amendment in the nature of a substitute. Poliquin’s bill would direct the Department of the Treasury to post information on its website about the assets of certain officials in the Iranian government. Poliquin argued that this would allow the Iranian people to gather information about their government officials and allow businesses to learn information about the Iranian officials they deal with. Several Democratic Representatives (including Ellison and Waters) spoke against the bill, arguing that it runs counter to the terms of the Joint Comprehensive Plan of Action (JCPOA) between the U.S. and Iran.

The measure was favorably reported by a vote of 43-16.

H.R. 4324, the Strengthening Oversight of Iran’s Access to Finance Act

Rep. Roger Williams (R-Texas) introduced this bill, which would require the Secretary of the Treasury to certify that aircraft transactions with Iran do not pose money laundering or terrorism financing risks, or that the transaction will not aid Iranian efforts to transport certain military weaponry or operations in Syria. Reps. Ann Wagner (R-Mo.). Lee Zeldin (R-N.Y.). and Poliquin all spoke in favor of the bill, while numerous Democrats criticized the bill for running counter to the terms of the JCPOA.

The measure was favorably reported by a vote of 38-21.

H.R. 4270, the Monetary Policy Transparency and Accountability Act of 2017

Rep. Andy Barr (R-Ky.) introduced the bill that would require the Federal Reserve to establish “exactly one” monetary policy strategy and require the Federal Reserve to explain its monetary policy strategy to the public and notify the public when it deviates from its strategy. Barr said that the requirements on the Federal Reserve created by the bill are not onerous and has widespread support from academics across the political spectrum, and that it would give investors, businesses, and households more clarity about monetary policy decisions. Hensarling and Reps. Bill Huizenga (R-Mich.), French Hill (R-Ark.), Warren Davidson (R-Ohio), and Williams all spoke in favor of the bill as necessary to create certainty and transparency about central bank operations, and argued that it did not undermine the Federal Reserve’s operational independence.

Waters argued that the Federal Reserve already provides sufficient information to the public about its monetary policy strategy and criticized the bill as being overly reliant on “simplistic” policy tools. Rep. Ed Perlmutter (D-Colo.) also opposed the legislation, saying it could have a “chilling” effect on Federal Reserve activity in a financial crisis.

The measure was favorably reported by a vote of 33-26.

H.R. 4278, the Independence from Credit Policy Act of 2017

Hill introduced this bill, which he said would limit the Federal Reserve’s balance sheet exclusively to Treasury securities and provide several guidelines for the Federal Reserve to wind down its current balance sheet. Hill and other Republicans argued that the Fed’s quantitative easing policy and the purchase of large numbers of non-Treasury securities represents credit allocation policy and hurts price discovery in other asset classes. Williams, Hensarling, Huizenga, and Rep. Tom Emmer (R-Minn.) all spoke in favor of the bill, and Huizenga said the bill would not prevent Federal Reserve purchases of non-Treasury assets, it would only require that they exchange those assets to Treasury securities within a given time window. Barr also defended the bill, arguing that the Federal Reserve should remain focused on monetary policy instead of credit policy.

Waters said she opposed the bill and defended the Federal Reserve’s purchases of agency mortgage-backed securities (MBS) in the aftermath of the 2008 financial crisis, and introduced a letter from the Mortgage Bankers Association opposing the bill into the record. Rep. Gwen Moore (D-Wis.) and Perlmutter also opposed the bill, and Perlmutter and Hill had several exchanges about the bill and its various provisions.

The measure was favorably reported by a vote of 33-26.

H.R. 4302, the “Congressional Accountability for Emergency Lending Programs Act of 2017

Rep. Scott Tipton (R-Colo.) introduced this bill, which he said would create Congressional accountability for the Federal Reserve’s emergency lending programs. The bill would require the Secretary of the Treasury and 2/3 of the members of the Federal Open Market Committee (FOMC) to approve emergency lending. The bill would also prevent the Federal Reserve from lending to insolvent institutions and prohibit the use of equity as collateral for loans. The bill also required Congressional approval of any lending within 30 days.

Rep. Brad Sherman (D-Calif.) supported the bill, but said he hoped the House of Representatives could work in a bipartisan way to tailor the scope of the bill. He specifically noted that the House may want to reevaluate the prohibition on accepting equity as collateral, and that the definition of the term “insolvent” in the bill should be clarified. However, he described the bill as “a good first step” and that it lets the Federal Reserve make loans in a crisis with an appropriate amount of Congressional oversight.

Waters sharply opposed the bill, saying it effectively makes Congress a lender of last resort and that Congress is unequipped to make lending judgements. She also noted a comment from Better Markets that was critical of expanding the size of the vote necessary to engage in emergency lending at the FOMC.

The measure was favorably reported by a vote of 34-25.

H.R. 1153, the Mortgage Choice Act of 2017

Huizenga introduced this bill, which would amend the Truth in Lending Act to exempt from the qualified mortgage cap on fees and points any affiliated title charges, and escrow charges for taxes and insurance. The bill had bipartisan cosponsors, and Reps. Blaine Luetkemeyer (R-Mo.), Keith Rothfus (R-Pa.) and Robert Pittenger (R-N.C.) spoke in favor of it. Hensarling noted that this bill passed by a voice vote on the House floor in the 114th Congress.

Waters opposed the bill, saying the bill would encourage lenders to steer borrowers to their affiliated businesses to reap higher fees, because those fees would be excluded from the Qualified Mortgage (QM) rule cap on fees.

The measure was favorably reported by a vote of 46-13.

H.R. 3221, the Securing Access to Affordable Mortgages Act

Kustoff introduced this bill, which would provide exemptions to appraiser requirements on mortgage loans for low-cost dwellings if the loan stays on the balance sheet of the lender. Kustoff argued the bill is necessary due to the disproportionately high cost of appraisals for low-dollar value loans, and that many community banks, especially in rural areas, must hire appraisers from outside their area. Kustoff said the bill would expand access to affordable housing and reduce costs for the lowest income homebuyers, and especially help rural areas and empower community banks, allowing them to bypass regulations that were intended for large institutions. Reps. Trey Hollingsworth (R-Ind.), Luetkemeyer, and Barry Loudermilk (R-Ga.) spoke in favor the bill.

Waters noted that many commenters had written in opposition to the bill, and that it diminishes consumer protections. She conceded that the appraisal industry faced problems that the committee should face, but that H.R. 3221 would make appraiser misconduct more likely. Sherman said he would support the bill if it was tailored exclusively to rural areas.

The measure was favorably reported by a vote of 32-26.

H.R. 3978, the “TRID Improvement Act of 2017”

Hill introduced this bill, which amends the Real Estate Settlement Procedures Act of 1974 to modify requirements related to mortgage disclosures. Hill noted that Congress has asked the Consumer Financial Protection Bureau (CFPB) several times for clarification on the TRID rules, and said that this bill only covers how title insurance is disclosed on the RESPA form. Luetkemeyer said the bill will help consumers understand the exact cost of their title insurance. Hensarling also expressed support for the bill. Rep. Ruben Kihuen (D-Nev.) a cosponsor, also spoke in favor of the bill, as did Sherman.

Waters opposed the bill, saying it gives the CFPB too little flexibility to tailor the rules. Rep. David Scott (D-Ga.) said he wants to find a way to be supportive of the bill, but that at present it is too blunt an instrument.

The measure was favorably reported by a vote of 53-5.

H.R. 4292, the “Financial Institution Living Will Improvement Act of 2017”

Zeldin introduced this bill and argued it is necessary due to federal regulators having too much discretion to restructure regulated entities without any check on their powers. This bill would, among other things, require federal banking regulators to provide feedback to regulated entities regarding their living wills within six months of submission. Zeldin also criticized the lack of transparency surrounding the living will assessment. Rep. Carolyn Maloney (D-N.Y.) a cosponsor, also spoke in favor of the bill, calling it a “commonsense” measure that would codify several Government Accountability Office (GAO) recommendations on changes to the living will process and will improve the resolution plan process. Maloney also noted that regulators have already expressed support for the provisions of this bill, as well. Luetkemeyer also supported the bill, saying resolution plans are important but that the regulatory “pendulum” may have swung too far. Hensarling supported the bill as well.

Waters introduced an amendment that would require federal banking regulators to decertify living wills for large systemically important financial institutions (SIFIs) if they are found to have engaged in a pattern of harming consumers. The amendment was not agreed to in a 26-34 vote. Waters then introduced a second, bipartisan amendment that Zeldin supported that would set a minimum 2-year cycle for resolution plan review, and allow regulators to request additional information relating to living wills on an as-needed basis. That amendment was adopted by voice vote.

The bill as amended was favorably reported by a vote of 60-0.

H.R. 4294, the “Prevention of Private Information Dissemination Act of 2017”

Rep. David Kustoff (R-Tenn.) introduced this bill, which would provide criminal penalties for unauthorized disclosures of information about financial institutions or of personally identifiable information (PII) by regulators. Poliquin, Tipton and Hensarling also supported the bill.

Waters opposed its passage, saying there are already statutory penalties for disclosure like this, and that the committee’s time could be better spent elsewhere.

The measure was favorably reported by a vote of 60-0.

H.R. 4296, to place requirements on operational risk capital requirements for banking organizations established by an appropriate Federal banking agency.

Luetkemeyer introduced this bill, which he said would set “reasonable parameters” for federal financial regulators setting operational risk capital (ORC) requirements. Luetkemeyer said that while the Base Committee’s ORC rules were well-intentioned, their implementation has had unintended consequences, and the Basel Committee has created uncertainty by rewriting its standards several times. Luetkemeyer said H.R. 4296 would create clear guardrails for setting ORC requirements based on forward-looking requirements, and allow regulators to tailor ORC requirements to specific financial institutions’ risk profiles. Hensarling, Zeldin, and Hollingsworth all spoke in favor of the bill, and Hollingsworth stressed that ORC requirements should not rely on “look back” standards but should instead be calibrated with a view to the future.

Waters opposed the bill, saying the concerns raised by Luetkemeyer and the majority lacked credibility. Ellison also opposed the bill, and said that he believed that the financial sector’s size and profitability may be harming the real economy. He criticized the financial sectors earnings as a possible cause for stagnated wages, and said that only 15 percent of capital in financial institutions today is used for business lending.

The measure was favorably reported by a vote of 42-18.

H.R. 4015, the “Corporate Governance Reform and Transparency Act of 2017”

Duffy introduced the bill, which would require proxy advisors to register with the SEC, and supply the SEC with information regarding how they formulate recommendations and disclose possible and actual conflicts of interest. Duffy defended the proposal as necessary to create “guardrails” for these firms to prevent unethical business practices. Huizenga, Hultgren, and Hollingsworth all supported the bill.

Waters opposed H.R. 4015, saying it would “compromise [the] independence” of proxy advisors and undermine the current regulatory regime for those firms. Waters further argued that proxy advisors’ interests are aligned with shareholders and said the bill would harm investors. Scott also opposed the bill, saying that he agreed with Ranking Member Waters’ points and that he was worried the bill would reduce corporate accountability.

The measure was favorably reported by a vote of 40-28.

H.R. 4248, to amend the Securities Exchange Act of 1934 to repeal certain disclosure requirements related to conflict minerals, and for other purposes.

Huizenga introduced this bill, which would repeal the disclosure requirements for public companies related to sourcing materials from the Democratic Republic of the Congo (DRC). Huizenga argued that the bill has disproportionately harmed the legitimate mining industry while not stanching the flow of conflict minerals. Huizenga noted that the DRC government, other African officials, and academics all weighed in against the rule (DFA S. 1502) at the time the SEC promulgated it, and that the rule has raised 1st Amendment concerns in the courts. Hollingsworth also expressed support for the bill, saying that large companies have pushed the compliance costs related to S. 1502 down their supply chain to smaller suppliers.

Waters said she supported retaining S. 1502 and argued against passage of H.R. 4248.

The measure was favorably reported by a vote of 32-27.

H.R. 3093, the “Investor Clarity and Bank Parity Act”

Rep. Michael Capuano (D-Mass.) introduced this bill, which would amend the Volcker Rule to permit certain investment advisors to share a name with hedge funds or private equity funds. Stivers and Huizenga also briefly spoke in favor of the bill.

The measure was favorably reported by voice vote.

H.R. 4263, the “Regulation A+ Improvement Act of 2017”

Rep. Tom MacArthur (R-N.J.) introduced this bill, which would amend the Securities Act of 1933 to raise the threshold for exempted securities under Regulation A+ from $50 million to $75 million of issuance in a given year, and would index the new threshold for inflation. MacArthur said the bill would help small businesses and build on the success of the JOBS Act of 2012, and particularly help biopharmaceutical companies.  He also thanked Rep. Kyrsten Sinema (D-Ariz.) for her work on the bill.

The measure was favorably reported by a vote of 37-23.

H.R. 4267, the “Small Business Credit Availability Act”

Stivers introduced this bill, which would amend the 1940 Act to change certain requirements relating to the capital structure of business development companies. Stivers said the bill would create commonsense offerings reforms and allow just 200% leverage. Stivers noted that a previous version of this bill passed the House of Representatives in the 114th Congress, but that this version had been pared down to address concerns in the Senate. Hensarling also spoke in favor of the bill.

The measure was favorably reported by a vote of 58-2.

H.R. 4281, the Expanding Access to Capital for Rural Job Creators Act

Rep. Ruben Kihuen (D-Nev.) introduced this bill, which would direct the SEC’s Advocate for Small Business Capital Formation to identify unique challenges rural businesses face in accessing capital. Hultgren also spoke in favor of the bill.

The measure was favorably reported by a vote of 60-0.

H.R. 4279, the “Expanding Investment Opportunities Act”

Hollingsworth introduced this bill, which he said would direct the SEC to create rules to allow closed-end funds to meet the well-known seasoned issuer (WKSI) status and take advantage of offering and proxy rules available to other WKSIs. The bill would also allow closed-end funds to offer new shares through the automatic shelf registration. Hollingsworth argued that the bill would reduce time and costs to both issuers and the SEC, was narrowly tailored, and allows closed end funds to more quickly raise new capital, helping investors.

Rep. Bill Foster (D-Ill.) offered an amendment to the bill that would direct the SEC to propose a rule within 180 days that would allow closed end funds that have periodic redemptions (interval funds) to also qualify as WKSIs. The amendment was a bipartisan one that Hollingsworth and Huizenga both endorsed.

The measure was favorably reported by a vote of 58-2.

H.R. 4293, the “Stress Test Improvement Act of 2017”

Zeldin introduced this bill, which he said would rationalize the stress test regime and provide certainty to financial institutions regarding the content of stress tests that he said the Federal Reserve had failed to provide. The bill would also eliminate the qualitative portion of the stress tests. Zeldin argued that stress tests are imperfect tools and are not able to accurately model the risks faced by financial institutions, and criticized the opacity of the tests themselves. Barr spoke in favor of the bill, arguing that stress tests today run afoul of the vagueness principle and due process, and criticized regulators for using a qualitative portion to assess their safety and soundness.

Waters opposed the bill, saying she was “disappointed” in the majority’s attempts to roll back regulations that preserve the stability of the financial sector.

Scott introduced a bipartisan amendment to the bill that would direct regulators to streamline the administration of stress tests by eliminating the adverse scenario (not the seriously adverse scenario). The amendment would also limit the Federal Reserve’s ability to reject a capital plan solely on the qualitative portion of the test. The amendment would also change the internal testing requirement to be on an annual basis. Zeldin supported the amendment, and Hensarling thanked Scott for his “constructive engagement” and recommended the amendment be adopted. Scott’s amendment was adopted by a voice vote.

Waters also proposed an amendment to the bill that would prevent SIFIs from distributing dividends to shareholders for five years in the event that the CFPB finds the bank has engaged in consumer abuses. Hensarling ruled the amendment out of order on germaneness grounds. Perlmutter proposed an amendment that would allow states that have legalized marijuana to be exempt from federal banking laws that prohibit transactions with financial institutions, though Hensarling ruled the amendment out of order on germaneness grounds.

The measure was favorably reported by a vote of 38-21.

H.R. 3299, the “Protecting Consumers’ Access to Credit Act of 2017”

Rep. Patrick McHenry (R-N.C.) introduced the bill, of which he was the sponsor, which he said would preserve the “valid when made” doctrine regarding interest rates that was undermined in the case of Madden v Midland. McHenry said that the decision has created legal uncertainty for financial technology (FinTech) companies and reduced credit availability for Americans. McHenry thanked several Democrats and Republicans in Congress for cosponsoring the legislation, and noted that the bill has a bipartisan companion in the Senate. Hollingworth, Rothfus, and Hensarling supported the bill, arguing the “valid when made” doctrine is critical for securitization markets and boost access to capital. Meeks (a cosponsor) also spoke in favor of the bill, saying it would ameliorate some of the harm done by branch closings, especially in urban areas, preserve partnerships between banks and FinTech companies, and reduce the need for underbanked individuals to get credit from alternative financial institutions (such as payday lenders).

Waters said she did not support the bill, saying that third parties have taken advantage of provisions in law that allow them to charge usurious interest rates after purchasing debt from banks. Waters then proposed an amendment to the bill that would preserve the ability of state regulators to set and enforce usury standards by setting an upper limit on interest rates at 36%. Meeks, Beatty, and Rep. Al Green (D-Texas) supported the amendment, while McHenry, Hensarling, and Luetkemeyer opposed it. The amendment was ultimately rejected.

The measure was favorably reported by a vote of 42-17.

H.R. 4247, the “Restoring Financial Market Freedom Act of 2017”

Rep. Ted Budd (R-N.C.) introduced this bill, which would repeal Title VIII of the DFA and all accompanying regulations. Budd argued that clearinghouses, which were subjected to new regulations by Title VIII, were not a major cause of the financial crisis, and that they should not have access to the Federal Reserve’s discount window. Budd noted that Title VIII was opposed by then-Rep. Barney Frank. Zeldin, Wagner, Hultgren, and Huizenga spoke in favor of the bill as well. Hensarling argued that Title VIII concentrated risk instead of reducing it.

Waters opposed the bill and called it “dangerous” for repealing important financial regulations put in place after the 2008 financial crisis. Waters argued that over-the-counter (OTC) trading of credit default swaps (CDS) played a major role in the financial crisis and that these swaps require close oversight to prevent a repeat of 2008. Scott also opposed the bill, arguing that repeal of Title VII would create enormous new risks for the financial sector.

The measure was favorably reported by a vote of 33-25.

H.R. 4289, To amend the Dodd-Frank Wall Street Reform and Consumer Protection Act to repeal certain disclosure requirements related to coal and mine safety

Rep. Alex Mooney (R-W.Va.) introduced the bill, which would repeal the provisions in the DFA that put requirements on publicly reporting mining companies and that he argued were duplicative.

Waters opposed the bill, saying that these requirements are not unduly burdensome on companies and that the SEC itself has had little to criticize regarding mine safety disclosures by issuers.

The measure was favorably reported by a vote of 33-25.

For more information on this markup, please click here.