HFSC Markup of Legislation
House Financial Services Committee
Markup of Legislation
Wednesday, January 17, 2018
Summary
- All the bills considered were favorably reported out of Committee.
Legislation Considered
- HR 4768, the “National Strategy for Combating the Financing of Transnational Criminal Organizations Act”
- HR 1264, the “Community Financial Institution Exemption Act”
- HR 1426, the “Federal Savings Association Charter Flexibility Act of 2017”
- HR 2255, the “Housing Opportunities Made Easier Act”
- HR 2226, the “Portfolio Lending and Mortgage Access Act”
- HR 3746, the “Business of Insurance Regulatory Reform Act of 2017”
- HR 4607, the “Comprehensive Regulatory Review Act”
- HR 4725, the “Community Bank Reporting Relief Act”
- HR 4771, the “Small Bank Holding Company Relief Act of 2018”
- HR 2319, the “Consumer Financial Choice and Capital Markets Protection Act of 2017”
- HR 4061, the “The Financial Stability Oversight Council Improvement Act of 2017”
- HR 4566, the “Alleviating Stress Test Burdens to Help Investors Act”
- HR 4738, the “Mutual Fund Litigation Reform Act”
- HR 4785, the “American Customer Information Protection Act”
- HR 4792, the “Small Business Access to Capital After a Natural Disaster Act”
Opening Statements
Chairman Jeb Hensarling (R-Texas)
In his opening statement, Chairman Hensarling discussed the productivity of the House Financial Services Committee in 2017, noting that it held numerous markups and hearings. Hensarling also praised the recently passed tax bill, and argued that the combination of tax reform and regulatory reform will grow the economy and increase jobs. Hensarling argued that the bills under consideration today will reform the financial regulatory space and help community banks and investors.
Ranking Member Maxine Waters (D-Calif.)
Ranking Member Waters criticized many of the bills under consideration as harmful to consumers, though she conceded that several of the bills were bipartisan and helpful. Waters did directly criticize the Senate’s S.2155 (which recently cleared the Senate Banking Committee) as a “wolf in sheep’s clothing” that will help large banks at the expense of consumers and financial stability. Waters closed by calling for the Committee to take action on credit reporting agencies, financial technology, homelessness, and to impose more severe penalties on “megabanks” that harm consumers.
Markup
H.R. 4768, the “National Strategy for Combating the Financing of Transnational Criminal Organizations Act”
During its consideration, members from both parties spoke favorably about H.R. 4768. Waters offered an amendment to expand the scope of the bill to include trafficking in antiquities and the use of real estate assets by criminal organizations, which was adopted by a voice vote.
The measure was favorably reported by a vote of 53-0.
H.R. 1264, the “Community Financial Institution Exemption Act”
Rep. Roger Williams (R-Texas) introduced his bill and his Amendment in the Nature of a Substitute, which would exempt small financial institutions from certain rules promulgated by the Consumer Financial Protection Bureau (CFPB). Williams’ amendment would allow the CFPB to revoke the exemption if in certain cases, and if the Federal banking regulators agree with that revocation. The minority was generally critical of the bill, arguing that it goes too far in rolling back consumer protection rules, while the majority praised it as a necessary reform to help community banks and lenders.
The measure was favorably reported by a vote of 30-25.
H.R 1426, “Federal Savings Association Charter Flexibility Act of 2017”
Rep. Keith Rothfus (R-Pa.) introduced this bill, which he noted has passed the committee in previous Congresses, and is included in the Senate’s S. 2155. Waters praised the bill, noting its bipartisan support, and called for the Committee to approve it.
The measure was favorably reported by a vote of 55-0.
H.R. 2255, the “Housing Opportunities Made Easier Act”
Rep. David Trott (R-Mich.) introduced this bill, which would allow appraisers to donate their services to certain non-profit organizations.
The measure was favorably reported by a vote of 55-0.
H.R. 2266, the “Portfolio Lending and Mortgage Access Act”
Rep. Andy Barr (R-Ky.) introduced this legislation, that would grant a Qualified Mortgage (QM) rule safe harbor to small financial institutions that make mortgage loans, if the institution retains those loans on its balance sheet. Barr said this bill would encourage private sector risk retention, encourage small institutions to make more mortgage loans, and improve the business environment for small banks. Barr claimed that the QM and Ability to Repay (ATR) rules have cut some creditworthy individuals out of the market for home loans because they do not meet the requirements in those rules for their loans to qualify under the QM standards. Rep. David Scott (D-Ga.) praised the bill and noted that, while similar to the version passed in a previous Congress, this version had several important fixes that tailored the scope of the exemption.
Rep. Michael Capuano (D-Mass.) offered an amendment that he said would provide additional color to certain terms in the bill. Capuano argued that the amendment was necessary to prevent harmful pre-crisis practices from reemerging in lending markets, and would clarify the status of loans in the event of a merger. Waters called on the Committee to support the Capuano amendment. After significant discussion (and a minor revision to the amendment) the Capuano amendment was agreed to by a voice vote.
The full measure was favorably reported by a vote of 55-0.
H.R. 3746, the “Business of Insurance Regulatory Reform Act of 2017”
Reps. Sean Duffy (R-Wis.) and Gwen Moore (D-Wis.) introduced their bipartisan bill that would amendment Section 1027 of the Dodd-Frank Act regarding the definition of business of insurance.
The measure was favorably reported by a vote of 37-18.
H.R. 4607, the “Comprehensive Regulatory Review Act”
Rep. Barry Loudermilk (R-Ga.) explained that his bipartisan bill would require more frequent Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA) reports, moving the review cycle from 10 years to 7 years.
The measure was favorably reported by a vote of 38-17.
H.R. 4725, the “Community Bank Reporting Relief Act”
Rep. Randy Hultgren (R-Ill.) introduced his bill, which would require federal banking regulators to permit a short form call report every quarter for financial institutions, stating that this language was also included in the bipartisan regulatory relief bill that the Senate Banking Committee recently passed.
The measure was favorably reported by a vote of 55-0.
H.R. 4771, the “Small Bank Holding Company Relief Act of 2018”
Rep. Mia Love (R-Utah) explained that her bipartisan bill would help small and community banks access capital by raising the consolidated asset threshold from $1 billion to $3 billion in assets, allowing hundreds of more institutions to qualify for coverage and be exempt from certain regulatory and capital guidelines. While Reps. Blaine Luetkemeyer (R-Mo.) and Hensarling voiced their support for the bill, Rep. Dan Kildee (D-Mich.) noted his concern that raising the threshold will allow smaller institutions to take on “more debt than they need,” adding that the current $1 billion threshold “seems reasonable.”
The measure was favorably reported by a vote of 41-14.
HR 2319, the “Consumer Financial Choice and Capital Markets Protection Act of 2017”
Rothfus introduced his bill and an Amendment in the Nature of a Substitute, which he said is needed due to a “misguided SEC rule.” Rothfus said that the SEC’s amendments to Rule 2a-7 required institutional prime and tax-exempt funds to operate on a “floating net asset value (NAV) but exempted institutional funds that invest in Treasuries and Agency MBS, and funds offered to retail investors are exempt from this requirement. Rothfus also criticized the SEC’s rules as responsible for increasing the borrowing costs for state and local governments, and read statements of support for the legislation from various organizations and noted that his bill has bipartisan support.
Rep. Moore, a cosponsor, defended the bill as well, saying it would reduce financing costs for infrastructure products, because public funds are not allowed to park their cash in “risky instruments” and called on Congress to protect stable NAV funds. Rep. Steve Stivers (R-Ohio) criticized the SEC’s amendments as having “adverse consequences” for prime and municipal funds, and increased borrowing costs for state and local governments. Reps. Scott and Davidson supported the bill as well. Hensarling provided qualified support for the bill, saying he did not oppose the use of a stable NAV, though saying he was “not completely certain” that the legislation’s fee language was right. Hensarling said he would support [the bill] “with some reservations” though he said the bill might need “further work on the way to the floor.”
Rep. Carolyn Maloney (D-N.Y.) opposed the bill, saying that allowing money market funds to use a stable NAV lulled investors into a “false sense of security” when the value of the underlying assets declined in value. Maloney also said that this contributed to the runs in money markets during the 2008 financial crisis. Maloney praised the SEC’s amendments to require floating NAV for MMFs that invest in corporate and municipal debt, and said she would support a bill that would allow stable NAV for municipal debt funds only. Maloney also noted SEC Chair Clayton’s opposition to repealing the floating NAV amendments, as well as opposition from several large asset management firms, and urged her colleagues to oppose the bill. Reps. Bill Huizenga (R-Mich.), Brad Sherman (D-Calif.), and Ed Royce (R-Calif.) also opposed the bill.
The measure was favorably reported by a vote of 34-21.
H.R. 4061, the “The Financial Stability Oversight Council Improvement Act of 2017”
Rep. Dennis Ross (R-Fla.) explained that the FSOC has been tasked with identifying emerging threats and risks to financial stability, but that Dodd-Frank created an “adversarial relationship” between the FSOC and businesses, which has been “harmful” and created “unnecessary costs” for the economy.
He continued that his bill will create a “more effective” and “cooperative” approach to the FSOC, where they work with regulators and the private sector on threats “before becoming calamities,” adding that the FSOC could “very well become a liability without such changes.” Sherman argued the bill will encourage companies to de-risk, which is a “better outcome than a system that simply increases regulation.” Other supporters of the bill included Reps. Royce, Bruce Poliquin (R-Maine) Hultgren, Pittenger, Hensarling, and Huizenga.
Waters opposed the bill, calling it a “thinly veiled attempt to prevent the FSOC from doing its job.” She continued that the bill would lengthen the time it takes to designate a SIFI from two years to over four years, which could pose a threat to the financial system. While Maloney appreciated the FSOC for amending their designation process based on her recommendations in a letter she submitted to Treasury Secretary Steven Mnuchin, she opined that the bill would make other changes to the SIFI designation process that go “too far” and delays the designation process “for far too long.”
The measure was favorably reported by a vote of 45-10.
H.R. 4566, the “Alleviating Stress Test Burdens to Help Investors Act”
Poliquin introduced an amendment in the nature of a substitute, explaining that the bill will fix Section 165 of Dodd-Frank, which is currently “very problematic,” as the SEC has not been able to develop stress tests applicable to nonbank financial institutions. Rep. Tom Emmer (R-Minn.) voiced his support for the bill, explaining that it will exempt nonbanks, such as asset managers, who are not currently under the supervision of the Federal Reserve from stress testing requirements that Dodd-Frank created.
Waters voiced opposition to the bill, stating that it would prevent the Fed from stress testing nonbank financial institutions that the FSOC may be in the process of designating as a SIFI. She warned that removing the Fed’s authority would only make it harder for regulators to mitigate and identify future financial risk. Waters then quoted a SIFMA AMG letter stating that stress testing is part of an effective and coherent risk management process for asset managers, as well as citing a survey conducted by SIFMA AMG that reported two-thirds of asset managers surveyed already have stress tests for funds.
Maloney offered an amendment that would tailor stress tests for different financial institutions, as currently they are only capital-focused. She continued that the amendment would allow the SEC to create liquidity-focused stress tests for large asset managers, and the CFTC could focus on capital and liquidity for clearing houses. Maloney stated that the amendment would strike the provision allowing the Fed to limit stress tests to nonbank SIFIs, adding that the overall bill should be focused on nonbank SIFIs. Poliquin stated that the amendment is a “reasonable compromise” and voiced his support. Hensarling also voiced his support for the amendment, which was then adopted by voice vote. The amendment in the nature of a substitute was also adopted by voice vote.
The amended measure was favorably reported by a vote of 47-8.
H.R. 4738, the “Mutual Fund Litigation Reform Act”
Emmer explained that his bill is due to the flow of non-meritorious lawsuits against mutual fund advisors, adding that it will allow courts to review and potentially terminate certain lawsuits, and that it will not change existing fiduciary standards of investment fund advisors. Waters voiced her opposition to the bill, explaining that it will make it harder for mutual fund investors to “get their day in court.” Sherman expressed support for the pleadings portion of the bill only.
The measure was favorably reported by a vote of 31-25.
H.R. 4785, the “American Customer Information Protection Act”
Huizenga introduced this bill by discussing the importance of the Consolidated Audit Trail (CAT) as a mechanism for monitoring U.S. equity markets. Huizenga stressed the importance of ensuring the launch of the CAT is done in a safe and orderly manner (and noted comments by SEC Commissioner Piwowar that echoed this view). Huizenga then discussed his bill, which would adjust the CAT plan so that the database only gathered personally identifiable information (PII) on large traders, and not gather data on every individual investor. Huizenga said he had concerns about the safety of data within the CAT, and also for the ability of certain individuals to download data from the CAT on to their own systems. Hultgren and Hensarling also expressed support for the bill, saying it was necessary to protect Americans’ PII.
Waters opposed the bill, described it as “reckless,” and argued that a CAT that collects PII is necessary if regulators hope to use the CAT to prevent market manipulation. No other Democrats spoke when this bill was considered.
The measure was favorably reported by a vote of 31-25.
H.R 4792, the “Small Business Access to Capital after a Natural Disaster Act”
Rep. Nydia Velazquez introduced this bill, which she argued would help small businesses raise new capital after natural disasters strike. The bill was supported by Republicans and Democrats.
The measure was favorably reported by a vote of 57-0.
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