[Congressional Record Volume 164, Number 46 (Thursday, March 15, 2018)]
[House]
[Pages H1624-H1634]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
FINANCIAL INSTITUTIONS EXAMINATION FAIRNESS AND REFORM ACT
Mr. HENSARLING. Madam Speaker, pursuant to House Resolution 773, I
call up the bill (H.R. 4545) to amend the Federal Financial
Institutions Examination Council Act of 1978 to improve the examination
of depository institutions, and for other purposes, and ask for its
immediate consideration in the House.
The Clerk read the title of the bill.
The SPEAKER pro tempore. Pursuant to House Resolution 773, an
amendment printed in part A of House Report 115-595 is adopted, and the
bill, as amended, is considered read.
The text of the bill, as amended, is as follows:
H.R. 4545
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Financial Institutions
Examination Fairness and Reform Act''.
SEC. 2. AMENDMENT TO DEFINITION OF FINANCIAL INSTITUTION.
Section 1003(3) of the Federal Financial Institutions
Examination Council Act of 1978 (12 U.S.C. 3302(3)) is
amended to read as follows:
``(3) the term `financial institution'--
``(A) means a commercial bank, a savings bank, a trust
company, a savings association, a building and loan
association, a homestead association, a cooperative bank, or
a credit union; and
``(B) for purposes of sections 1012, 1013, and 1014,
includes a nondepository covered person subject to
supervision by the Bureau of Consumer Financial Protection
under section 1024 of the Consumer Financial Protection Act
of 2010 (12 U.S.C. 5514).''.
SEC. 3. TIMELINESS OF EXAMINATION REPORTS.
The Federal Financial Institutions Examination Council Act
of 1978 (12 U.S.C. 3301 et seq.) is amended by adding at the
end the following:
``SEC. 1012. TIMELINESS OF EXAMINATION REPORTS.
``(a) In General.--
``(1) Final examination report.--A Federal financial
institutions regulatory agency shall provide a final
examination report to a financial institution not later than
60 days after the later of--
``(A) the exit interview for an examination of the
institution; or
``(B) the provision of additional information by the
institution relating to the examination.
``(2) Exit interview.--If a financial institution is not
subject to a resident examiner program, the exit interview
shall occur not later than the end of the 9-month period
beginning on the commencement of the examination, except that
such period may be extended by the Federal financial
institutions regulatory agency by providing written notice to
the institution and the Independent Examination Review
Director describing with particularity the reasons that a
longer period is needed to complete the examination.
``(b) Examination Materials.--Upon the request of a
financial institution, the Federal financial institutions
regulatory agency shall include with the final report an
appendix listing all examination or other factual information
relied upon by the agency in support of a material
supervisory determination.''.
SEC. 4. INDEPENDENT EXAMINATION REVIEW DIRECTOR.
The Federal Financial Institutions Examination Council Act
of 1978 (12 U.S.C. 3301 et seq.), as amended by section 3, is
further amended by adding at the end the following:
``SEC. 1013. OFFICE OF INDEPENDENT EXAMINATION REVIEW.
``(a) Establishment.--There is established in the Council
an Office of Independent Examination Review (the `Office').
``(b) Head of Office.--There is established the position of
the Independent Examination Review Director (the `Director'),
as the head of the Office. The Director shall be appointed by
the Council and shall be independent from any member agency
of the Council.
``(c) Term.--The Director shall serve for a term of 5
years, and may be appointed to serve a subsequent 5-year
term.
``(d) Staffing.--The Director is authorized to hire staff
to support the activities of the Office.
``(e) Duties.--The Director shall--
``(1) receive and, at the Director's discretion,
investigate complaints from financial institutions, their
representatives, or another entity acting on behalf of such
institutions, concerning examinations, examination practices,
or examination reports;
``(2) hold meetings, at least once every three months and
in locations designed to encourage participation from all
sections of the United States, with financial institutions,
their representatives, or another entity acting on behalf of
such institutions, to discuss examination procedures,
examination practices, or examination policies;
``(3) in accordance with subsection (f), review examination
procedures of the Federal financial institutions regulatory
agencies to ensure that the written examination policies of
those agencies are being followed in practice and adhere to
the standards for consistency established by the Council;
``(4) conduct a continuing and regular review of
examination quality assurance for all examination types
conducted by the Federal financial institutions regulatory
agencies;
``(5) adjudicate any supervisory appeal initiated under
section 1014; and
``(6) report annually to the Committee on Financial
Services of the House of Representatives, the Committee on
Banking, Housing, and Urban Affairs of the Senate, and the
Council, on the reviews carried out pursuant to paragraphs
(3) and (4), including compliance with the requirements set
forth in section 1012 regarding timeliness of examination
reports, and the Council's recommendations for improvements
in examination procedures, practices, and policies.
``(f) Standard for Reviewing Examination Procedures.--In
conducting reviews pursuant to subsection (e)(4), the
Director shall prioritize factors relating to the safety and
soundness of the financial system of the United States.
``(g) Removal.--If the Director is removed from office, the
Council shall communicate in writing the reasons for any such
removal to the Committee on Financial Services of
[[Page H1625]]
the House of Representatives and the Committee on Banking,
Housing, and Urban Affairs of the Senate not later than 30
days before the removal.
``(h) Confidentiality.--The Director shall keep
confidential all meetings with, discussions with, and
information provided by financial institutions.''.
SEC. 5. RIGHT TO INDEPENDENT REVIEW OF MATERIAL SUPERVISORY
DETERMINATIONS.
The Federal Financial Institutions Examination Council Act
of 1978 (12 U.S.C. 3301 et seq.), as amended by section 4, is
further amended by adding at the end the following:
``SEC. 1014. RIGHT TO INDEPENDENT REVIEW OF MATERIAL
SUPERVISORY DETERMINATIONS.
``(a) In General.--A financial institution shall have the
right to obtain an independent review of a material
supervisory determination contained in a final report of
examination.
``(b) Notice.--
``(1) Timing.--A financial institution seeking review of a
material supervisory determination under this section shall
file a written notice with the Independent Examination Review
Director (the `Director') within 60 days after receiving the
final report of examination that is the subject of such
review.
``(2) Identification of determination.--The written notice
shall identify the material supervisory determination that is
the subject of the independent examination review, and a
statement of the reasons why the institution believes that
the determination is incorrect or should otherwise be
modified.
``(3) Information to be provided to institution.--Any
information relied upon by the agency in the final report
that is not in the possession of the financial institution
may be requested by the financial institution and shall be
delivered promptly by the agency to the financial
institution.
``(c) Right to Hearing.--
``(1) In general.--The Director shall determine the merits
of the appeal on the record or, at the financial
institution's election, shall refer the appeal to an
Administrative Law Judge to conduct a confidential hearing
pursuant to the procedures set forth under sections 556 and
557 of title 5, United States Code, which hearing shall take
place not later than 60 days after the petition for review
was received by the Director, and to issue a proposed
decision to the Director based upon the record established at
such hearing.
``(2) Standard of review.--In rendering a determination or
recommendation under this subsection, neither the
Administrative Law Judge nor the Director shall defer to the
opinions of the examiner or agency, but shall conduct a de
novo review to independently determine the appropriateness of
the agency's decision based upon the relevant statutes,
regulations, and other appropriate guidance, as well as
evidence adduced at any hearing.
``(d) Final Decision.--A decision by the Director on an
independent review under this section shall--
``(1) be made not later than 60 days after the record has
been closed; and
``(2) subject to subsection (e), be deemed a final agency
action and shall bind the agency whose supervisory
determination was the subject of the review and the financial
institution requesting the review.
``(e) Limited Review by FFIEC.--
``(1) In general.--If the agency whose supervisory
determination was the subject of the review believes that the
Director's decision under subsection (d) would pose an
imminent threat to the safety and soundness of the financial
institution, such agency may file a written notice seeking
review of the Director's decision with the Council within 10
days of receiving the Director's decision.
``(2) Standard of review.--In making a determination under
this subsection, the Council shall conduct a review to
determine whether there is substantial evidence that the
Director's decision would pose an imminent threat to the
safety and soundness of the financial institution.
``(3) Final determination.--A determination by the Council
shall--
``(A) be made not later than 30 days after the filing of
the notice pursuant to paragraph (1); and
``(B) be deemed a final agency action and shall bind the
agency whose supervisory determination was the subject of the
review and the financial institution requesting the review.
``(f) Right to Judicial Review.--A financial institution
shall have the right to petition for review of final agency
action under this section by filing a Petition for Review
within 60 days of the Director's decision or the Council's
decision in the United States Court of Appeals for the
District of Columbia Circuit or the Circuit in which the
financial institution is located.
``(g) Report.--The Director shall report annually to the
Committee on Financial Services of the House of
Representatives and the Committee on Banking, Housing, and
Urban Affairs of the Senate on actions taken under this
section, including the types of issues that the Director has
reviewed and the results of those reviews. In no case shall
such a report contain information about individual financial
institutions or any confidential or privileged information
shared by financial institutions.
``(h) Retaliation Prohibited.--A Federal financial
institutions regulatory agency may not--
``(1) retaliate against a financial institution, including
service providers, or any institution-affiliated party (as
defined under section 3 of the Federal Deposit Insurance
Act), for exercising appellate rights under this section; or
``(2) delay or deny any agency action that would benefit a
financial institution or any institution-affiliated party on
the basis that an appeal under this section is pending under
this section.
``(i) Rule of Construction.--Nothing in this section may be
construed--
``(1) to affect the right of a Federal financial
institutions regulatory agency to take enforcement or other
supervisory actions related to a material supervisory
determination under review under this section; or
``(2) to prohibit the review under this section of a
material supervisory determination with respect to which
there is an ongoing enforcement or other supervisory
action.''.
SEC. 6. ADDITIONAL AMENDMENTS.
(a) Riegle Community Development and Regulatory Improvement
Act of 1994.--Section 309 of the Riegle Community Development
and Regulatory Improvement Act of 1994 (12 U.S.C. 4806) is
amended--
(1) in subsection (a), by inserting after ``appropriate
Federal banking agency'' the following: ``, the Bureau of
Consumer Financial Protection,'';
(2) in subsection (b)--
(A) in paragraph (2), by striking ``the appellant from
retaliation by agency examiners'' and inserting ``the insured
depository institution or insured credit union from
retaliation by the agencies referred to in subsection (a)'';
and
(B) by adding at the end the following flush-left text:
``For purposes of this subsection and subsection (e),
retaliation includes delaying consideration of, or
withholding approval of, any request, notice, or application
that otherwise would have been approved, but for the exercise
of the institution's or credit union's rights under this
section.'';
(3) in subsection (e)(2)--
(A) in subparagraph (B), by striking ``and'' at the end;
(B) in subparagraph (C), by striking the period and
inserting ``; and''; and
(C) by adding at the end the following:
``(D) ensure that appropriate safeguards exist for
protecting the insured depository institution or insured
credit union from retaliation by any agency referred to in
subsection (a) for exercising its rights under this
subsection.''; and
(4) in subsection (f)(1)(A)--
(A) in clause (ii), by striking ``and'' at the end;
(B) in clause (iii), by striking ``and'' at the end; and
(C) by adding at the end the following:
``(iv) any issue specifically listed in an exam report as a
matter requiring attention by the institution's management or
board of directors; and
``(v) any suspension or removal of an institution's status
as eligible for expedited processing of applications,
requests, notices, or filings on the grounds of a supervisory
or compliance concern, regardless of whether that concern has
been cited as a basis for another material supervisory
determination or matter requiring attention in an examination
report, provided that the conduct at issue did not involve
violation of any criminal law; and''.
(b) Federal Credit Union Act.--Section 205(j) of the
Federal Credit Union Act (12 U.S.C. 1785(j)) is amended by
inserting ``the Bureau of Consumer Financial Protection,''
before ``the Administration'' each place such term appears.
(c) Federal Financial Institutions Examination Council Act
of 1978.--The Federal Financial Institutions Examination
Council Act of 1978 (12 U.S.C. 3301 et seq.) is amended--
(1) in section 1003, by amending paragraph (1) to read as
follows:
``(1) the term `Federal financial institutions regulatory
agencies'--
``(A) means the Office of the Comptroller of the Currency,
the Board of Governors of the Federal Reserve System, the
Federal Deposit Insurance Corporation, and the National
Credit Union Administration; and
``(B) for purposes of sections 1012, 1013, and 1014,
includes the Bureau of Consumer Financial Protection;''; and
(2) in section 1005, by striking ``One-fifth'' and
inserting ``One-fourth''.
SEC. 7. REDUCTION OF SURPLUS FUNDS OF FEDERAL RESERVE BANKS.
(a) In General.--Section 7(a)(3)(A) of the Federal Reserve
Act (12 U.S.C. 289(a)(3)(A)) is amended by striking
``$7,500,000,000'' and inserting ``$7,324,285,000''.
(b) Effective Date.--Subsection (a) shall take effect on
June 1, 2018.
The SPEAKER pro tempore. The bill, as amended, shall be debatable for
1 hour equally divided and controlled by the chair and ranking minority
member of the Committee on Financial Services.
After 1 hour of debate, it shall be in order to consider the further
amendment printed in part B of House Report 115-595, if offered by the
Member designated in the report, which shall be considered read, shall
be separately debatable for the time specified in the report equally
divided and controlled by the proponent and an opponent, and
[[Page H1626]]
shall not be subject to a demand for a division of the question.
The gentleman from Texas (Mr. Hensarling) and the gentleman from
Missouri (Mr. Cleaver) each will control 30 minutes.
The Chair recognizes the gentleman from Texas.
General Leave
Mr. HENSARLING. Madam Speaker, I ask unanimous consent that all
Members may have 5 legislative days within which to revise and extend
their remarks and include extraneous material on the bill under
consideration.
The SPEAKER pro tempore. Is there objection to the request of the
gentleman from Texas?
There was no objection.
Mr. HENSARLING. Madam Speaker, I yield myself such time as I may
consume.
Madam Speaker, I rise today in very strong support of H.R. 4545, the
Financial Institutions Examination Fairness and Reform Act.
It is a strongly bipartisan bill, having come out of our committee by
a vote of 50-10. It is authored by the gentleman from Colorado (Mr.
Tipton), who serves as the vice chairman of our Subcommittee on
Oversight and Investigations and is, indeed, one of the leaders in the
House in bringing regulatory relief to our community financial
institutions. I want to thank him for his leadership on this very, very
important issue.
H.R. 4545 creates transparency and accountability among regulators by
improving the timeliness of examinations, while also creating a new
more independent examination appeals process.
{time} 1315
Madam Speaker, this is about, again, transparency. It is about due
process. The Office of Independent Examination Review created under
this bill will ensure accountability and fairness for financial
institutions during their supervisory examinations. It does so by
providing the right for these institutions to obtain an independent
review of a material supervisory determination contained in a final
examination report.
The creation of this independent review process is particularly
important for our Nation's community banks and credit unions that will
now be able to appeal their examination decisions without fear of
reprisal from their regulator.
By reforming the process for examining financial institutions to
ensure it is fair and consistent, Congress will indeed enhance the
safety and soundness of the financial system overall while ensuring
Main Street businesses can access the liquidity and capital resources
they need to grow and create jobs. Again, Madam Speaker, this is why
this is so important. Ultimately, this is about ensuring a free flow of
credit to Main Street businesses and families.
Many of our community financial institutions have felt a very, very
heavy hand of burdensome Federal regulations that were intended--or so
we were told--for the largest and most complex institutions; and
regulators, unfortunately, seem to ignore congressional directive and
apply each one of these standards to our smallest institutions. Thus,
yesterday, Madam Speaker, we voted on the TAILOR Act, also authored by
the gentleman from Colorado, that would also help ensure these
regulations are tailored to the size and complexity of the institution.
Without having due process and fairness in this exam review, the
result has been catastrophic. This regulatory burden, of which this is
a part, has been resulting in the closing or merger of one community
bank or credit union per day, on average. And again, they are not being
lost to natural causes.
Our community financial institutions serve as the backbone of our
American economy, and we simply cannot afford to lose them. As chairman
of the Financial Services Committee, in my sixth year, my colleagues on
both sides of the aisle are all too familiar with this problem. I hear
from credit unions and community banks every day.
I heard from West Community Credit Union in Missouri, who wrote:
``This one-size-fits-all approach is simpleminded and has real
consequences. We are beginning to make changes that will negatively
impact our ability to continue to serve members in meeting their home
equity lending needs.''
In fact, Madam Speaker, we know that a number of banks and credit
unions have had to leave mortgage lending because of the regulatory
burden.
Then there is County-City Credit Union in Wisconsin, who said:
``Small credit unions are dropping every day. Unless we get immediate
relief, there won't be any left. That would be tragic for our members
and the very fabric of our country. Please help us, and help us right
now.''
I have good news. Help is on the way if we can get a good, solid vote
this afternoon.
The CEO of Commonwealth National Bank in Tennessee wrote: ``The fact
remains that there are fewer community banks today than there were
several years ago, a trend that will continue until rational
changes''--for example, like the ones we are speaking of today, Madam
Speaker--``are made that will provide some relief to America's hometown
banks.''
Again, we are hearing this plea every single day. So there is good
reason why H.R. 4545 was reported by this committee with a strong
bipartisan vote, 50-10, including a majority support of the Democrats
on the committee.
Again, the bill is strongly bipartisan, it is practical, and it is
necessary. H.R. 4545 will allow financial institutions, again, to have
supervisory determinations reviewed by a newly established independent
examination review board. This will allow for uniformity among
regulatory agencies, again, while making the overall exam process more
fair and more efficient.
The bill does not prevent a regulatory agency from conducting
examinations or imposing restrictions on financial exams, but, again,
it will restore fairness, due process, and accountability for the sake
of our community banks and credit unions; and, more importantly, for
the sake of those who still have the American Dream of either buying
their own home, starting their own business, or sending that first kid
to college, it is imperative that we enact H.R. 4545.
Madam Speaker, I reserve the balance of my time.
Mr. CLEAVER. Madam Speaker, I yield myself such time as I may
consume.
Madam Speaker, I rise in opposition to H.R. 4545.
Today we are considering yet another measure that would weaken our
system of financial regulation and bog down regulators in their
important work. It would ultimately take us right back to some of the
problems that led to the largest financial crisis since the Great
Depression. The bill puts financial institutions' profits before the
protection of consumers and the best interests of the American public.
I rise, Madam Speaker, to say to Members of both sides of the aisle
that we must remember the past as we create policies. I was here during
that entire period, and it created a very, very heavy darkness over
this entire country.
In the years preceding the financial crisis, the Federal Reserve
failed to write rules stopping predatory, risky mortgage loans. The OCC
and OTS preempted State regulators from reining in mortgage abuses. The
Federal Reserve Bank of New York and other regulators failed to stem
excesses at large companies and did not downgrade troubled companies
until it was too late. Legislation such as H.R. 4545 sets the stage to
return us to an ineffective regulatory system.
Republicans have made it a habit to falsely claim that their
legislation is designed to benefit small community banks and credit
unions. There are some things that could be changed to improve Dodd-
Frank and to provide responsible relief for small community
institutions, which I believe we all recognize did not cause the
financial crisis.
I have said in our committee and I will say openly in any other
place, including on the floor here, that there are some things we can
repair in Dodd-Frank. But what this bill would do is give all regulated
financial institutions an additional way to appeal and, thereby,
postpone material supervisory determinations of their prudential
regulator and of the Consumer Financial Protection Bureau.
[[Page H1627]]
In other words, messy megabanks and other big financial firms could
appeal and delay adverse determinations such as a downgrade of a bank's
credit rating for capital asset quality management, earnings,
liquidity, and sensitivity to the market risk. It would also enable
them to appeal significant deficiencies of their anti-money laundering
programs, findings related to the violations of various rules, or a
downgrade of their Community Reinvestment Act ratings.
Let's think about this for just a minute. Some banks would be
allowed, under this bill, to appeal the OCC's historic and well-
deserved double downgrade of its CR rating. Under this bill, Wells
Fargo, for example, would be allowed to unleash its army of lawyers to
not only fight against the rating, but to tie the OCC up in
proceedings. We all know that when the banks who spend millions on
legal teams each year deploy those resources, they deploy them to win;
and if they win, then American consumers lose.
But let's focus on CRA. CRA was intended to ensure that institutions
were making loans and providing services in the lower-income and
moderate-income neighborhoods in which they were located to address the
problems of redlining.
As highlighted in the recent report by the Center for Investigative
Reporting, redlining is not just some relic of the past. Sadly,
painfully, and embarrassingly, redlining appears to be still very much
an ongoing, troubling problem that continues to harm many minority
mortgage loan borrowers in cities all across the United States of
America.
This bill will make redlining worse, and that will happen because,
instead of improving their ratings and trying to end discriminatory
lending practices, bank executives will simply challenge these rates
and bully their own regulators into submission.
Now, this may be unintentional, as I would presume to believe, but
this bill ignores the fact that prudential regulators and the Consumer
Bureau each already have an agency ombudsman and an intra-agency formal
review and appeals process. What's more, messy megabanks already have
existing avenues to bring a court challenge to any form of regulatory
enforcement act.
Thus, what this bill would actually do is create unprecedented
barriers to the effective, prudential, and consumer protection
supervision of the messy megabanks. It will give messy megabanks and
predatory lenders, including payday lenders, an additional way to
resist corrective actions to avoid violations of law or safety and
soundness risk. As a result, the bill would allow these financial
institutions to bog down agencies with frivolous appeals.
In a letter opposing H.R. 4545, the National Consumer Law Center
wrote that the effective bill ``would be most pronounced at the largest
banks who could appeal dozens or hundreds of material findings from
every examination creating enormous roadblocks to supervision. The bank
supervision process has been the first line of regulatory defense
against threats to bank safety and soundness for a century or more.
H.R. 4545 creates unprecedented roadblocks to the effectiveness of bank
supervisory determinations and could be devastating to effective
regulatory oversight in areas ranging from basic prudential oversight
to key consumer protections that make our financial markets fairer.''
In addition, the nonpartisan Congressional Budget Office found that
H.R. 4545 would increase the deficit by hundreds of millions of
dollars--by hundreds of millions of dollars. It would increase by
hundreds of millions of dollars. Hundreds of millions of dollars it
would increase. Millions of dollars would be increased because banks
would be more likely to fail and need government assistance.
In sum, H.R. 4545 would weaken our Nation's system of financial
regulation, and, in so doing, it would recklessly set the stage for a
return to the captive, hamstrung regulatory system that existed in the
years before the 2008 financial crisis that enabled the risky profit-
fueled activities of large, complex, messy megabanks and other titans
on Wall Street to go unchecked. I therefore urge my colleagues to
oppose H.R. 4545.
Madam Speaker, I reserve the balance of my time.
Mr. HENSARLING. Madam Speaker, I yield myself 30 seconds just to say
to my friend from Missouri, as he recounts his parade of horribles,
that this bill was supported by a majority of Democrats on the
committee, including Mr. Crist of Florida, Democrat; Mr. Delaney of
Maryland, Democrat; Mr. Foster of Illinois, Democrat; Mr. Gonzalez of
Texas, Democrat; Mr. Gottheimer of New Jersey, Democrat; Mr. Heck of
Washington, Democrat; and Mr. Himes of Connecticut, Democrat.
I think my 30 seconds is winding down, but perhaps I can share the
rest of the Democratic Members who supported this excellent piece of
legislation.
Mr. Speaker, I yield 5 minutes to the gentleman from Colorado (Mr.
Tipton), who is back with us again today. He is the vice chairman of
the Financial Services Subcommittee on Oversight and Investigations and
is the author of H.R. 4545.
Mr. TIPTON. Mr. Speaker, I appreciate the opportunity today to be
able to advance an important piece of bipartisan legislation. The
Financial Institutions Examination Fairness and Reform Act seeks to
bring fairness to the Federal financial regulators' examination appeals
process by instituting a uniform framework free from examination
retaliation.
Our community banks and credit unions currently have no independent
recourse in the appeals process of examination decisions. These
institutions often lack the experience, capacity, and resources needed
to effectively resolve challenges to Federal financial regulators'
examination determinations as each regulator has its own different
rules and standards for the appeals process.
Under the current examination appeals framework, appeals of material
supervisory determinations, which are decisions of significant
consequence that can have serious impact on the financial institution's
future, run through the agency that handed down the decision in the
first place.
{time} 1330
Mr. Speaker, that is like asking an arresting police officer to also
be the judge and the jury when a case goes to trial.
Put simply, this legislation will move away from that framework and
establish an independent office of review to address appeals of serious
consequence, and harmonize and consolidate the appeals process across
the various Federal regulators so that the review process is fair and
predictable.
One banker in Colorado put it to me this way: ``The Dodd-Frank Act
has added complexity and uncertainty to the entire exam process and to
the bank's ability to serve its customers confidently and in full
compliance of regulations.''
He continues: ``For instance, overlap between the OCC and CFPB is an
ongoing issue. The OCC lost regulatory oversight with the Dodd-Frank
Act and the foundation of the CFPB, especially in the fair lending
world. When the CFPB made it clear they were not going to examine the
banks over $10 billion on fair lending the way that the OCC had
historically done it, the OCC started expanding the way that they
assessed a bank's Compliance Management Program to add questions about
fair lending, including transaction sampling and testing. It creates a
very burdensome environment as well as duplication and the risk of
double jeopardy.''
Mr. Speaker, an examination environment that runs the risk of
duplication and double jeopardy between agencies isn't tenable and puts
our community institutions at risk of being examined into extinction.
This environment is further complicated by the reality that,
currently, institutions that want to appeal double jeopardy examination
results would have to appeal through two regulators who likely aren't
communicating with one another about the other's exam determinations.
The Examination Fairness bill before the House today would solve this
problem by establishing an Office of Independent Examination Review,
which would function as a consolidated, sober judge of the examination
appeals process. This newly created office under the Federal Financial
Institutions Examination Council would provide a community bank or
credit union an avenue
[[Page H1628]]
for independent recourse to appeal a material supervisory determination
where fairness, transparency, and timeliness are paramount. Because
this new review process only applies to material supervisory
determinations, the new process is limited in scope and reserved only
for the most serious appeals.
This legislation is also careful not to constrain the power of the
regulators to pursue enforcement actions or to prevent them from
issuing a further material supervisory determination. In fact,
enforcement actions resulting from a determination would continue to be
enforced under this new appeals process until the independent office
either agrees with the finding of the regulator or overturns a
determination of the regulator.
Mr. Speaker, by creating consistency; instituting timeline
expectations of examinations and appeals; increasing transparency; and
adding independent, sober review of appeals to the rights of the
financial institutions, H.R. 4545 will go a long way to usher in a new
environment of fairness in the examination appeals process for small
banks and credit unions. Giving these institutions independent recourse
in the appeals process will create greater certainty that they won't
have to reduce their financial service product offerings because of an
unfair or untimely review.
Mr. Speaker, that translates to greater assurances for communities
across the country that their small banks and credit unions will be
able to provide a mortgage for their home, a loan for their car, and
capital for their small businesses to be able to grow.
This measure passed out of the Financial Services Committee with
strong bipartisan support, with a majority of our Democrat colleagues
joining with us to be able to support exam fairness. I would like to
thank the gentlewoman from New York (Mrs. Carolyn B. Maloney), for her
support of this measure's consideration here today.
Mr. CLEAVER. Mr. Speaker, I yield myself such time as I may consume.
Mr. Speaker, the inimitable chair of our committee is absolutely
right: there are Democrats. This is a bipartisan piece of legislation.
But it proves what I was trying to say earlier, and that is that I and
many other people believe that we need to make some changes to Dodd-
Frank. This is just not one of them.
Mr. Speaker, I reserve the balance of my time.
Mr. HENSARLING. Mr. Speaker, I yield 3 minutes to the gentleman from
Missouri (Mr. Luetkemeyer), the chairman of the Financial Institutions
and Consumer Credit Subcommittee.
Mr. LUETKEMEYER. Mr. Speaker, I thank Chairman Hensarling for his
tireless work in bringing this and so many other commonsense bills to
the floor. I also want to thank the gentleman from Colorado (Mr.
Tipton) for his commitment to this issue.
The lack of consistency and quality in the bank examination process
has created serious problems for financial institutions and their
customers. Mr. Tipton's legislation aims to remedy many of the issues
we have heard about from the banks and credit unions in our
congressional districts.
H.R. 4545 will allow financial institutions to have supervisory
determinations reviewed by a newly established independent examination
review board. This will create uniformity among regulatory agencies,
while making the overall exam process fair and efficient.
The legislation includes several other key reforms, such as
imposition of a reasonable time limit on examiners to provide exam
results to institutions. It may seem like a simple request in the bill,
a simple provision, but, today, institutions may wait as much as a year
or more--in some cases, several years--to get the results of a single
exam.
How can you be expected to comply with regulations if the regulators
don't get back to you in a timely fashion with their feedback?
I myself spent several years as a bank examiner. The relationship
between banker and examiner was a collegial one. Examiners would work
with bankers to make sure they understood their rules and address the
issues that manifested themselves during the course of the examination.
If an institution failed to fix those issues, it then faced appropriate
repercussions.
Today's exam environment is completely different. Financial
regulators seem to play a constant game of ``gotcha.'' The only
recourse for a financial institution is to turn to an appeals process
that, quite frankly, has a predetermined outcome.
Mr. Speaker, something has to change.
To be clear, this bill does not prevent regulatory agencies from
conducting exams or imposing restrictions on financial institutions.
What it does is restore order to the exam process, which, for far too
long, has been politicized and abused.
This is an incredibly important measure and one that I hope will
receive support from all my colleagues.
Mr. Speaker, I thank the gentleman from Colorado for his work.
Mr. CLEAVER. Mr. Speaker, I reserve the balance of my time.
Mr. HENSARLING. Mr. Speaker, I yield 3 minutes to the gentleman from
North Carolina (Mr. Pittenger), who is the vice chairman of the
Financial Services Subcommittee on Terrorism and Illicit Finance.
Mr. PITTENGER. Mr. Speaker, I would like to convey my deep
appreciation to my colleague on the Financial Services Committee, Mr.
Tipton, for his efforts to improve and reform the examination process
for our Nation's financial institutions.
H.R. 4545 is designed to address enduring concerns about the lack of
consistency and quality in the bank examination process. The current
exam process can be both opaque and secretive. Coupling this with
overburdensome regulations and increased compliance costs have forced
many community banks and credit unions to close up shop or reduce their
ability to provide for consumers.
Look no further than my State, North Carolina, which has lost about
50 percent of its banks since the financial crisis. In my own city of
Charlotte, a decade ago, we had six community banks. Today, we only
have one because of the burdensome and costly compliance requirements.
Mr. Tipton's legislation creates a fair and impartial process for
financial institutions to appeal their examinations, which gives the
necessary clarity for banks and credit unions to provide services to
their customers, leading to a job creation and economic prosperity
environment.
That is why I want to thank the gentleman from Colorado for working
on this bipartisan piece of legislation. It is long past time that we
provide commonsense reforms in a transparent approach regarding
regulators' decisionmaking during the examination process.
Mr. CLEAVER. Mr. Speaker, I reserve the balance of my time.
Mr. HENSARLING. Mr. Speaker, I yield 3 minutes to the gentleman from
Pennsylvania (Mr. Rothfus), the vice chairman of the Financial Service
Subcommittee on Financial Institutions and Consumer Credit.
Mr. ROTHFUS. Mr. Speaker, I thank the chairman for yielding.
Mr. Speaker, I rise in support of the Financial Institutions
Examination Fairness and Reform Act.
As the vice chairman of the Financial Institutions and Consumer
Credit Subcommittee, and as a longtime advocate for examination and
review reforms, I commend my colleague, Representative Tipton, for his
hard work on this issue.
As we all know, our financial regulatory agencies are not without
their flaws. From time to time, examiners offer decisions that are
misguided, and these decisions deserve to be challenged. Managers of
financial institutions that believe that the decisions passed down by
their examiners are wrong deserve a chance to challenge those decisions
at an independent forum and, if necessary, in the courts. We are all
better served by a financial supervisory structure that subjects
decisions to the scrutiny of further review.
I know community bankers in western Pennsylvania who have struggled
with their examiners for years to get flawed determinations changed. In
many cases, these individuals were doing the right thing for their
companies and their communities. Without the benefit of a clear
timeline, this process has been allowed to drag on.
Without a truly independent review process and protection against
retaliation, these men and women working in
[[Page H1629]]
our community financial institutions understand that they are facing an
uphill battle. The current system is not independent and it is not
sufficiently transparent. This is unfair. It is bad for our community
financial institutions and it is detrimental to the integrity of our
regulatory system.
I again urge my colleagues to support Representative Tipton's work.
Mr. CLEAVER. Mr. Speaker, I yield the balance of my time to the
gentlewoman from California (Ms. Maxine Waters), and I ask unanimous
consent that control she may control that time.
The SPEAKER pro tempore (Mr. McClintock). Is there objection to the
request of the gentleman from Missouri?
There was no objection.
Ms. MAXINE WATERS of California. Mr. Speaker, I reserve the balance
of my time.
Mr. HENSARLING. Mr. Speaker, I yield 2 minutes to the gentleman from
Tennessee (Mr. Kustoff), a hardworking member of the Financial Services
Committee.
Mr. KUSTOFF of Tennessee. Mr. Speaker, I rise today in support of the
Financial Institutions Examination Fairness and Reform Act. I also want
to thank Representative Tipton for bringing this fine legislation.
In the Financial Services Committee, we often focus on relieving the
regulatory burdens our smaller financial institutions face. While
larger banks have the bandwidth, if you will, to comply with various
regulations, our smaller financial institutions have their hands tied
with onerous regulations and high compliance costs. Too often, this
strains the ability for our smaller banks and credit unions to loan
money to people who rely on them for capital.
The legislation that we are discussing today creates more
transparency and certainty for community banks and credit unions
undergoing each regulators' examination process. Currently, each of the
four regulators has its own appeals process. As we know, each regulator
has their own rules about what decisions can or cannot be repealed.
In many instances, this exam process can take months and is conducted
secretively, often leaving the institution in the dark about the
possible violations. If an unfavorable determination results from the
exam, the financial institution is then forced to limit its ability to
open new branches or from offering certain financial products.
Folks in every community across the country rely on these financial
institutions to access credit, grow a business, purchase a new car, or
pay for an unexpected expense. This important legislation restores some
of the transparency to the examination process and prevents regulators
from being the cop, the judge, and the jury.
In addition, this legislation will restore accountability on the part
of the regulators to review their own decisions, and to do so in a
timely fashion to limit the impact to our community financial
institutions.
As we all can agree, our community banks and credit unions are best
equipped to work with communities in which they serve.
The SPEAKER pro tempore. The time of the gentleman has expired.
Mr. HENSARLING. Mr. Speaker, I yield an additional 30 seconds to the
gentleman.
Mr. KUSTOFF of Tennessee. This legislation provides a system of
checks and balances by establishing clear standards to ensure the
consistency and transparency of all examinations.
I want to thank Chairman Hensarling and the Financial Services
Committee for their hard work. I urge all of my colleagues to support
this legislation.
{time} 1345
Ms. MAXINE WATERS of California. Mr. Speaker, I yield myself such
time as I may consume.
This is a very important bill that I am asking the Members of
Congress to vote ``no'' on because we don't want to empower the
megabanks and huge conglomerates to be able to skirt adverse
supervisory decisions about regulators.
The bill would give all financial institutions, regardless of their
size, an additional method to appeal, thereby significantly delaying
adverse determinations by creating a new independent review office to
conduct de novo reviews without concern for the institution's safety
and soundness or the protection of consumers.
This bill goes far beyond relief for community banks and credit
unions by enabling megabanks and nonbanks, like payday lenders and
Equifax, to pursue limitless challenges to the agency's actions in
court.
If you take a look at the examples that we have prepared for you,
take a look at Wells Fargo. Wells Fargo has been at the center of
attention in this country for the fraudulent accounts that it
established using their customers' accounts and information to create
more accounts without informing their customers; and then they had the
illegal student loan servicing practices that we have all been so
concerned about; and even after the fraudulent accounts were exposed
and a fine was made because of the harm that they had caused to their
customers, we then found that they had inappropriate force-placed
insurance, which means that people who were already paying for their
insurance were forced to pay again because the bank basically forced
them to have additional insurance.
And then there is J.P. Morgan with illegal credit card practices and
discriminatory lending, sale of bad credit card debt, and illegal robo-
signing.
And Citi with deficient mortgage servicing and foreclosure processing
practices; inappropriate fees, marketing, billing, administration of
add-on products; and foreclosure abuses.
Bank of America, also mortgage abuses, deficient mortgage servicing
and foreclosure processing practices, credit monitoring abuses,
deceptive marketing for add-on products, violations of the
Servicemembers Civil Relief Act.
Now, we find that these banks have determined--they act in ways that
we know that fighting is just the cost of doing business. It is a slap
on the wrist. And they are going to continue to be able to get away
with this. And if they are saying that the bank examiners who come in
and find these adverse conditions somehow will be ignored and they can
literally get around them, then we are going to add to the problems of
our consumers in this country.
Mr. Speaker, I am certainly asking for a ``no'' vote on this bill,
and I reserve the balance of my time.
Mr. HENSARLING. Mr. Speaker, I yield myself 2 minutes to say that I
just find some of the comments of the ranking member curious.
I know if she continues this attack on the so-called Wall Street
megabanks, I just continue to be so curious why she supports bailing
them out? She voted against the Financial CHOICE Act that would have
ended bailouts to these megabanks. And so she supports a bailout fund
in Dodd-Frank to continue to bail out these banks.
Second of all, if she continues to attack them, I guess I am curious
also why she supports the Federal Reserve's program to pay interest on
excess reserves. She supports taking taxpayer money to pay the so-
called Wall Street megabanks not to loan money to Main Street,
something that I have opposed as have many other Republicans on this
side of the aisle.
And then to make matters worse, Mr. Speaker, on this interest on
excess reserves, these banks are getting almost 10 to 15 times what our
constituents are getting on their savings accounts.
In many cases, it is the difference between 0.07 percent, versus 1.5
percent. And so I understand, again, she attacks them, but then I am
just curious, why does she find so many ways to support them?
So personally, I think in this economy, there is a need for community
banks and credit unions. There is a need for regional banks, and there
is a need for global banks as well. What we want is accountability. We
want less Federal control, and what we want is more private capital. We
want to ensure that there are never more taxpayer bailouts.
And again, as I said earlier, as this so-called parade of horribles
was brought to the attention of the House, why is it that a majority of
Democrats on her committee support this legislation? Sixteen of them
support the legislation.
Mr. Speaker, I reserve the balance of my time.
[[Page H1630]]
Ms. MAXINE WATERS of California. I yield myself such time as I may
consume.
Mr. Speaker, I always have these lively debates with my chairman, and
he never fails to point out that I voted for the bailout. And, of
course, oftentimes when he comes with one of these deregulation bills,
he talks about bipartisan and how he had Democrats. Well, I want you to
know the bailout was a bipartisan thing. It was appointed by both
Democrats and Republicans at a time when we were in great difficulty in
this country.
It was the Bush bailout, and it was Mr. Paulson, appointed by Mr.
Bush, who was the Secretary who led it and gave us the advice and had
us participate in saving our economy based on the information that he
had uncovered about the risk that was now proposed for our country.
So I am not for bailing out big banks at all. We had an emergency
situation in this country where, again, it was the Bush bailout that we
had to deal with the fact that we were in great danger. But let me just
also say this: we have something now that we put into Dodd-Frank reform
called the Orderly Liquidation Authority scenario that we are able to
look at banks, and, because of the stress testing that they have gone
through, if there is a need for an orderly resolution because there are
problems with the bank, we cannot only recommend breaking off parts of
the bank, but reordering parts of the bank and doing what is necessary
to ensure that the bank does not get into a situation where it fails
and triggers the failures of others in our economy.
So it is the Orderly Liquidation Authority that I am referring to,
and I do not support bailing out big banks. This is one thing that I
join with my chairman on. We both agree that we should not be bailing
out these big banks. And, of course, that is what Dodd-Frank is helping
us to avoid.
Mr. Speaker, I reserve the balance of my time.
Mr. HENSARLING. Mr. Speaker, I am very pleased now to yield 3 minutes
to the gentleman from Wisconsin (Mr. Duffy), the chairman of the
Financial Services Committee Subcommittee on Housing and Insurance.
Mr. DUFFY. Mr. Speaker, I thank the chairman for yielding.
Mr. Speaker, I would just note that the Orderly Liquidation Authority
is an authority to bail out big banks, consistent with the bailout that
the ranking member voted for in, I believe, 2008, that the chairman, I
believe, voted against.
When we talk about those who use rhetoric to say they don't support
big banks, but then actually vote for them, I think that is a hard note
to take.
But I rise today to support H.R. 4545, the Financial Institutions
Examination Fairness and Reform Act, a bipartisan measure introduced by
Mr. Tipton.
This bill would amend the Federal Financial Institutions Examination
Council Act of 1978, a long time ago, by updating the definition of
financial institutions, establishing new requirements for the final
examination report process, and creating an office of independent
examination review, giving some independence here, some common sense.
These updates are critical because, in 1994, Congress directed
Federal regulators to establish an independent intra-agency appellate
process for institutions to seek the review of examination ratings,
adequacy of loan loss reserve, and clarifications on loans.
I agree that these entities should be reviewed to ensure that they
are financially sound. We want to make sure that we prevent failure so
we don't have folks across the aisle voting for bailouts. However, we
are hearing from our community financial institutions, the ones that
serve most of my district in Wisconsin, that the avenues needed to
appeal these determinations are limited. The process is secretive, and
the regulators are overempowered.
The intra-agency review process has also been criticized as not being
independent because the regulatory determinations are reviewed, not by
a third party, but by the employees of the same regulator handing down
the verdict. So this is the judge, the jury, and the executioner.
I was a prosecutor, and when I presented a case to a jury and they
found someone guilty, I didn't make the defendant appeal the verdict to
the same jury that found him guilty. They have got to go to a third-
party appellate process, independent reviewers. That is the way the
American system works and should work in this scenario as well.
Our community bankers explained that they feel victimized. They feel
retribution for challenging the outcomes of these exams, and that is a
bad thing. Add to the fear the fact that these examinations lack
transparency, and now we have real problems to contend with which is
why the solution is so bipartisan. The chairman mentioned 16 Democrats
on the committee voted for this commonsense piece of legislation.
That is why the bill is so important. It will embolden our community
banks by creating an independent auditor to ensure fairness and
transparency.
The SPEAKER pro tempore. The time of the gentleman has expired.
Mr. HENSARLING. Mr. Speaker, I yield an additional 30 seconds to the
gentleman from Wisconsin.
Mr. DUFFY. Mr. Speaker, this bill ensures that there is an open forum
for these institutions to discuss the examination procedures,
practices, and policies without fear of reprisals. It gives them a
little bit of freedom.
Importantly, the office would also review regulators' procedures to
make sure that their written examination policies are being followed
and adhered to.
Lastly, the bill would provide a right to a hearing upon appeal. The
decision as to whether the appeal is heard on the record will be left
to the petitioner. Again, you are getting due process. We want due
process. That is something we all fight for. No one disagrees on that.
Why can't we offer that to our small community banks and credit unions
that oftentimes feel victimized? This is a bipartisan bill.
This is common sense, and I would encourage my good friend, the
ranking member--who I like so much--to join us and let's get something
done for small community banks.
Ms. MAXINE WATERS of California. Mr. Speaker, I yield myself such
time as I may consume.
Mr. Speaker, I appreciate the offer from my good friend to join him,
but I don't think I will be doing that today.
Mr. Speaker, I include in the Record organizations that have sent us
information in opposition to this bill. It includes the National
Consumer Law Center, AFSCME, the Center for American Progress, and
Americans for Financial Reform.
National Consumer Law Center,
Washington, DC, March 8, 2017.
Re Oppose S. Amdt. 2140 (Moran), HR 4545, The Financial
Institutions Examination Fairness Act; creates roadblocks
to bank supervision for safety and soundness, consumer
protection.
Senator,
U.S. Senate, Washington, DC.
On behalf of our low income clients, I urge you to oppose
Senate Amendment 2140 to S. 2155, which incorporates HR 4545
(Tipton), The Financial Institutions Examination Fairness
Act. The bill would create unprecedented barriers to
effective prudential and consumer protection supervision of
banks, allowing banks to resist corrective actions to address
law violations or safety and soundness risks, bogging down
agencies with frivolous appeals.
HR 4545 would grant regulated banks the right to appeal any
supervisory determination made by any prudential banking
agency or by the Consumer Financial Protection Bureau (CFPB)
to a new ``Office of Independent Examination Review''
established in the Federal Financial Institutions
Examinations Council (FFIEC). Upon appeal by a supervised
bank, this new office would be required to undertake a
repetitive de novo review of the agency's supervisory
decision. No deference to the initial examination findings or
the agency's judgment would be required in this review.
This new process is duplicative to appeals processes and
ombudsmen already present. The CFPB, FDIC, OCC, Federal
Reserve, and National Credit Union Administration each
already have an agency ombudsman and an intra-agency formal
review and appeals process. In addition, banks may bring a
court challenge to any formal regulatory enforcement action.
HR 4545 would enormously increase the ability of banks to
resist supervisory decisions. This effect would be most
pronounced at the largest banks, who could appeal dozens or
hundreds of material findings from every examination,
creating enormous roadblocks to supervision. The bank
supervision process has been the first line of regulatory
defense against threats to bank safety and soundness for a
century or more. HR 4545 creates unprecedented roadblocks to
the effectiveness of bank supervisory determinations and
could be devastating to effective regulatory oversight in
areas ranging from basic
[[Page H1631]]
prudential oversight to key consumer protections that make
our financial markets fairer.
I urge you to oppose HR 4545 and any amendment that
incorporates the bill.
Yours very truly,
Lauren K. Saunders,
Associate Director.
____
AFSCME,
Washington, DC, March 13, 2018.
House of Representatives,
Washington, DC.
Dear Representative: On behalf of the 1.6 million members
of the American Federation of State, County and Municipal
Employees (AFSCME), I urge you to oppose the Financial
Institutions Examination Fairness and Reform Act (H.R. 4545),
which would undermine the federal government's enforcement of
bank regulations and related systemic risk protections by
granting every bank--of any size--a new right to appeal and
postpone existing banking regulators' adverse supervisory
determinations. Now is not the time to undermine these
protections.
AFSCME strongly opposes H.R. 4545 because it would
undermine bank regulators' existing authority and related
systemic safeguards that protect our economy from risky
practices of banks. This would impose added costs and risks
on working families and consumers. Specifically, H.R. 4545
would grant regulated banks the right to appeal a prudential
banking agency's material supervisory determination. H.R.
4545 installs the new appeals process in a not yet created
Office of Independent Examination Review (OIER) located
within the Federal Financial Institutions Examinations
Council (FFIEC) and would require OIER to initiate a de novo
review of the appealed supervisory decision with zero
deference to the regulators' prior pre-appeal review,
findings, or determinations. By creating a de novo appeals
process, H.R. 4545 further incentivizes banks to challenge
every supervisory decision and allows banks to more easily
circumvent and delay penalties. Furthermore, H.R. 4545 also
would grant these appeal rights to any nonbank under
supervisory authority of the Consumer Financial Protection
Bureau (CFPB) and require OIER de novo review.
Unlike the current process with existing prudential
regulators, OIER would not be responsible for our banking
system's safety and soundness, and thus OIER's decision-
making would be narrower in purpose and thereby increase risk
to America's economy. We do not need H.R. 4545's appeals
process because a formal review and appeals process along
with ombudsmen already exist at affected banking agencies,
such as CFPB, FDIC, the Federal Reserve, National Credit
Union Administration, and OCC. Furthermore, banks already can
bring a court challenge to any formal regulatory enforcement
action.
H.R. 4545's scope is huge and not merely limited to small,
community depository banks. At committee mark-up, an
amendment to narrow H.R. 4545's scope to community financial
institutions below $10 billion in assets was rejected
clarifying the intent that H.R. 4545 would benefit enormous
banks, including Wells Fargo. The tax bill enacted just
months ago in December 2017 grants many of these same large
banks tens of billions of dollars in new tax breaks.
Moreover, many are already earning record profits.
We are nearing the 10th anniversary of the 2008 financial
crisis, which triggered U.S. and global recessions, America's
multiyear underwater mortgage crises, and bankruptcies for
many companies that nearly sank the U.S. economy. The
subsequent Dodd-Frank financial reform protections added
essential safeguards that stabilized our economy. We should
not weaken these protections. Rather than rolling back Dodd-
Frank protections, we should improve protections for working
families from the abuses of large banks like Wells Fargo, and
take steps to penalize large data companies like Equifax for
breaches of its consumer data.
AFSCME opposes this harmful risky bill because it increases
the likelihood that banks, both large and small, will
continue harming working families and consumers and trigger
new systemic economic problems. AFSCME urges you to vote
against H.R. 4545.
Sincerely,
Scott Frey,
Director of Federal Government Affairs.
____
Center for American Progress,
Washington, DC, March 12, 2018.
Hon. Paul Ryan,
Speaker, House of Representatives,
Washington, DC.
Hon. Nancy Pelosi,
Democratic Leader, House of Representatives,
Washington, DC.
Dear Speaker Ryan and Leader Pelosi: The Center for
American Progress (``CAP'') is writing today to express
opposition to the following bills impacting the regulation of
financial institutions: H.R. 4293, the Stress Test
Improvement Act of 2017; H.R. 4545, the Financial
Institutions Examination Fairness and Reform Act; H.R. 4566,
the Alleviating Stress Test Burdens to Help Investors Act;
H.R. 1116, the TAILOR Act of 2017; and H.R. 4061, the
Financial Stability Oversight Council Improvement Act of
2017. These bills may be considered on the floor of the House
of Representatives in the near-term, so we welcome the chance
to share our concerns regarding this series of bills with you
and your Members.
H.R. 4293, the Stress Test Improvement Act of 2017, would
require the Federal Reserve Board to open up its Dodd-Frank
Act Stress Testing (DFAST) and Comprehensive Capital Analysis
and Review (CCAR) scenarios, methodologies, loss models, and
other information to public notice and comment prior to
conducting the stress tests. This is a similar policy
proposal to what was included in Treasury Secretary Steve
Mnuchin's banking report released in June 2017. H.R. 4293
would also limit the frequency of the CCAR process to no more
than once every two years and would prohibit the Fed from
objecting to a firm's capital plan when a firm fails the
qualitative portion of CCAR.
These proposed changes to the Fed's stress testing
framework would severely undermine the effectiveness of the
stress tests. Stress testing is arguably the most important
new prudential tool implemented by the Fed following the
2007-2008 financial crisis. The annual stress tests help
ensure that banks fund themselves with enough capital to
withstand losses from a severe negative shock and economic
downturn, while continuing to provide the credit and
financial services the real economy needs to grow
sustainably. H.R. 4293's requirement that the Fed open DFAST
and CCAR to public notice and comment would essentially give
the tests to the banks in advance.
If a bank knows what the stress testing scenarios are and
has the Fed's loss models, it can tailor its balance sheet to
limit its projected losses--and in turn limit its required
capital buffer. Opening up the stress tests to this type of
gaming and window dressing would be a dangerous deviation
from post-crisis best practices. It runs counter to the
purpose of stress testing, which is to mimic a financial
shock--inherently a surprise that the bank doesn't get a
chance to comment on or influence in advance. Moreover, this
change could lead to an increase in the correlation of bank
balance sheets across the banking sector, making the
financial system in general more vulnerable to certain
shocks.
H.R. 4293's requirements that CCAR be conducted no more
often than once every two years and that the Fed cannot
object to a bank's capital plan if the bank fails the
qualitative portion of CCAR are also deeply misguided. A lot
can change in two years. Risks can build up and capital
positions can deteriorate quickly. CCAR must remain a
rigorous, forward looking, and annual exercise. The
qualitative element of CCAR, which applies to banks with over
$250 billion in assets or $10 billion in foreign exposure, is
also crucial for improving and maintaining robust capital
planning processes and procedures at the largest banks in the
country. Taking the teeth out of the qualitative portion of
CCAR would take a tool away from the Fed and have a negative
impact on the risk management capacity at these massive,
complex institutions.
H.R. 4545, the Financial Institutions Examination Fairness
and Reform Act, would give financial institutions the
authority to appeal any material examination decision
rendered by the federal banking regulators or Consumer
Financial Protection Bureau (CFPB) to the Office of
Independent Examination Review--a new office created by the
bill. Financial regulators already have internal appeals
processes in place through their respective Ombudsman offices
and financial institutions can pursue legal remedy for flawed
examination decisions through the judicial system. This new
office and review process is simply an additional hurdle for
regulators to contend with when supervising financial
institutions and an additional point at which institutions
can slow down or avoid punishments. H.R. 4545 would undermine
the examinations process at a time when supervisory authority
and penalties for financial sector malfeasance should be
strengthened.
H.R. 4566, the Alleviating Stress Test Burdens to Help
Investors Act, would repeal the Federal Reserve Board's
discretionary authority to subject nonbank financial
companies, that have not been designated by the Financial
Stability Oversight Council as systemically important, to
annual stress testing. The bill would also repeal the Dodd-
Frank Act requirement that a federal primary regulator
subject nonbank financial companies with more than $10
billion in assets to company-run stress testing. The 2007-
2008 financial crisis made it clear that substantial risk can
build up outside of the traditional banking sector. The
failure or near-failure at nonbank financial companies like
AIG, Bear Stearns, Merrill Lynch, and Lehman Brothers helped
bring the global economy to the brink of collapse. Workers,
homeowners, and savers all felt the immense economic pain
from that unchecked risk in the financial sector.
Eliminating the Federal Reserve Board's authority to
require stress testing at certain nonbank financial companies
would needlessly prevent the Fed from acting when necessary.
The ability to test a nonbank financial firm's balance sheet
to ensure it has enough capital to withstand a financial
shock and economic downturn, while continuing to provide the
financial services the real economy depends on, is a
necessary authority. The same can be said about the company-
run stress testing that a primary federal regulator will no
longer be required to implement if H.R. 4566 is enacted.
H.R. 1116, the TAILOR Act of 2017, places new requirements
on federal financial regulators to further ``tailor'' their
respective rules to the riskiness and business models of
financial institutions. While a laudable goal,
[[Page H1632]]
this bill ignores the existing tailoring of regulation by
institution type and size. The intent of this bill is to
force regulators to minimize regulatory costs without due
concern for the significant societal benefits of strong
financial regulations. The bill would also give big banks,
and small banks alike, ample footing to constantly object to
regulations in court--delaying the implementation of
important rules on the back-end, or putting pressure on
regulators to not even undertake rulemakings on the front-
end. Moreover, by mandating a seven-year lookback period
under which regulators would be required to reconsider
existing rules, the bill completely undermines the
regulations enacted under the Dodd-Frank Act, the Credit CARD
Act, and other laws.
Separately, CAP sent a detailed letter on H.R. 4061 to you
and your Members outlining our strong opposition to the
bill--which would render the Financial Stability Oversight
Council's authority to designate nonbank financial companies
as systemically important, nearly useless.
For these reasons, CAP recommends that Members vote ``NO''
when these bills are considered on the floor.
Sincerely,
Gregg Gelzinis,
Research Associate, Economic Policy,
Center for American Progress.
____
Americans for Financial Reform,
Washington, DC, March 12, 2018.
Dear Representative: On behalf of Americans for Financial
Reform, we are writing to urge you to vote in opposition to
H.R. 4545, the ``Financial Institutions Examination Fairness
and Reform Act,'' which is being considered on the House
floor this week. ``Examination fairness'' may sound
innocuous, but make no mistake--this legislation would put
unprecedented new limits on the powers of bank examiners. The
impact of this legislation in weakening bank supervision
would be especially great at the nation's largest banks. Its
effect would be to substantially increase the risk of
systemic problems, and of unfair and predatory treatment of
consumers.
H.R. 4545 would grant banks the right to appeal any
supervisory determination made by any bank regulatory agency,
including the Consumer Financial Protection Bureau (CFPB), to
a new ``Office of Independent Examination Review'' that is
outside of any regulatory agency. Upon appeal by a supervised
bank, this new office would be required to undertake a de
novo review of the agency's supervisory decision. No
deference to the initial examination findings or the
supervisory agency's judgment would be required in this
review.
This new appeals process is an addition to formal appeals
processes and ombudsmen already present at the banking
agencies. The agencies affected by this legislation--
including the CFPB, FDIC, OCC, Federal Reserve, and National
Credit Union Administration--each already have an agency
ombudsman and an intra-agency formal review and appeals
process. In addition, banks are already free to bring a court
challenge to any formal regulatory enforcement action.
By layering an entirely new appeals process on top of
existing processes, this bill would greatly increase the
ability of banks to resist supervisory oversight and ignore
or delay changes called for by supervisors. The impact would
be most pronounced at the largest banks, which can receive
dozens or hundreds of material findings from every
examination. The ability to appeal every one of those
material supervisory findings, or just to threaten to appeal
them, would create an enormous new barrier to effective
supervision of big banks.
The bank examination process has been the first line of
regulatory defense against threats to bank safety and
soundness since at least the 1930s. The ``Examination
Fairness Act'' would create unprecedented new barriers to the
effectiveness of bank examiners by empowering banks to delay,
resist, or overturn their decisions. In a practical sense,
this would make bank regulation even weaker than it was
before the 2008 crisis. It would be harmful to effective
regulatory oversight in areas ranging from basic safety and
soundness supervision to enforcement of key consumer
protections that make our financial markets fairer.
The ``Examination Fairness Act'' thus goes beyond
overturning post-financial crisis regulations to make bank
oversight even weaker than it was prior to 2008. As we reach
the 10th anniversary of the greatest economic and financial
crisis since 1929, it should be obvious that this is
completely the wrong direction for Congress to take. Since
the crisis, fresh scandals like those at Wells Fargo have
continued to remind us that we need effective supervision to
prevent pervasive and harmful abuse of consumers.
We urge you to vote against H.R. 4545.
Thank you for your attention to this matter.
Sincerely,
Americans for Financial Reform.
Ms. MAXINE WATERS of California. Mr. Speaker, let me just read one of
the paragraphs from the Center for American Progress that I think is so
profound.
``The Financial Institutions Examination Fairness and Reform Act,
would give financial institutions the authority to appeal any material
examination decision rendered by the Federal banking regulators or
Consumer Financial Protection Bureau, CFPB, to the Office of
Independent Examination Review--a new office created by the bill.
Financial regulators already have internal appeals processes in place
through their respective ombudsman offices and financial institutions
can pursue legal remedy for flawed examination decisions through the
judicial system.
``This new office and review process is simply an additional hurdle
for regulators to contend with when supervising financial institutions
and an additional point at which institutions can slow down or avoid
punishments. H.R. 4545 would undermine the examinations process at a
time when supervisory authority and penalties for financial sector
malfeasance should be strengthened.''
In addition to that, there is another paragraph in the letter from
Americans for Financial Reform that I think is extremely important in
explaining why this bill should be opposed.
It says: ``By layering an entirely new appeals process on top of
existing processes, this bill would greatly increase the ability of
banks to resist supervisory oversight and ignore or delay changes
called for by supervisors. The impact would be most pronounced at the
largest banks, which can receive dozens or hundreds of material
findings from every examination. The ability to appeal every one of
those material supervisory findings, or just to threaten to appeal
them, would create an enormous new barrier to effective supervision of
big banks.''
In essence, Mr. Speaker, what we are saying is, we have our bank
examiners who are going in and looking for ways to strengthen the banks
and hoping that they will not find these adverse conditions, but, if
they do, they have a responsibility to the consumers to try and get
them corrected or to try and get changes made.
{time} 1400
This bill says, despite adverse conditions that are discovered, we
don't want to have to comply; we don't want to have to change; we don't
want to have to correct. We want to fight you. We want to use our vast
resources to say your examiners didn't know what they were doing.
They are not so much concerned about the consumers; rather, they are
more concerned about just being a part of the bureaucracy.
It doesn't make good sense what they are saying about the examiners
and why they are not important.
Mr. Speaker, I reserve the balance of my time.
Mr. HENSARLING. Mr. Speaker, I yield 3 minutes to the gentleman from
Oklahoma (Mr. Lucas), a senior member of the Financial Services
Committee and the former chairman of the House Agriculture Committee.
Mr. LUCAS. Mr. Speaker, I am pleased to be here for the second time
in as many days to discuss a bill from Mr. Tipton, my friend and our
colleague from Colorado. I commend his dedication to find ways to bring
more credit options to more Americans. This bill is no exception to
that, and I thank him for sponsoring it.
This Nation is founded on the idea that those who enforce the law are
not those who ultimately judge those laws.
This idea of due process is something all Americans respect and we
enjoy, but in the case of financial institutions, there has been a
noted lack of such process during appeals. If a bank or credit union
today is assessed a postinspection penalty that they feel is based on
inaccurate or incomplete information, the only recourse is back to the
regulator that performed the inspection in the first place. Such an
argument turns the concept of proper process upside down.
At the very least, I think we would all agree with a number of my
colleagues who have noted that the judge, the jury, and the executioner
should be separate. There has to be a better way.
This bill provides that better way by giving these institutions a new
recourse so they can be assured of fair treatment. We all know this
could be an expensive and time-consuming process for a bank or credit
union, which is all the more reason to provide fair treatment. Smaller
banks and credit unions that go through this appeal process are
possibly running the risk of losing an appeal that will severely limit
their ability to offer credit.
[[Page H1633]]
For that reason, a newer, fairer process will help all Americans by
increasing access to credit. I am not pulling that idea out of thin
air. The National Bankers Association, which represents minority
bankers, supports the legislation. That should tell us how this bill
will benefit every American who relies on the financial services and on
credit.
Finally, Mr. Tipton's bill does not change the fact that some banks
and credit unions will lose their appeals. No one is saying that bad
actors should go unpunished. The point of the bill, however, is to make
that process as fair as possible. By consolidating the appeals process
into one office that is separate from the four main banking regulators,
that fairness can be achieved.
Again, Mr. Speaker, this bill not only supports the concept of due
process, but it will also expand credit opportunities for all
Americans.
I again commend the bill and the author, and I urge my colleagues to
vote in favor.
Ms. MAXINE WATERS of California. Mr. Speaker, may I inquire as to how
much time I have left.
The SPEAKER pro tempore. The gentlewoman has 13 minutes remaining.
Ms. MAXINE WATERS of California. Mr. Speaker, I yield myself the
balance of my time.
Mr. Speaker, H.R. 4545 is yet another harmful bill that would help
out Wall Street and predatory lenders. It has become a theme for the
majority to claim that their legislation is meant to provide relief for
small community banks, when, in fact, the legislation plainly benefits
the Nation's largest banks, including abusive megabanks like Wells
Fargo and even payday lenders. This bill is yet another example.
The bill would allow any bank as well as any nonbank supervised by
the Consumer Financial Protection Bureau to appeal negative supervisory
determinations made by regulators in the examination process.
H.R. 4545 makes it more likely that bad actors, including predatory
megabanks like Wells Fargo, would avoid or delay accountability when
they break Federal law. It takes our system of financial regulation in
exactly the wrong direction.
Megabanks like Wells Fargo already treat the fines they are required
to pay for violations of the law as simply the cost of doing business.
They don't need more escape routes to avoid accountability for their
wrongdoing.
I have made it clear many times that abusive megabanks with egregious
patterns of harming consumers should face steep penalties from
regulators. Last year I introduced H.R. 3937, the Megabank
Accountability and Consequences Act, which would require the Federal
prudential banking regulators to fully utilize existing authorities,
such as the ability to shut down a megabank and ban culpable executives
and directors from working in the banking industry.
To get tough on megabanks that repeatedly engage in practices that
harm consumers, Congress should be focused on measures that strengthen
consumer protections, provide tailored, responsible relief for
community banks, and ensure that abusive megabanks are held
accountable. This bill, which would help megabanks and predatory
lenders get off the hook when they break the law, should be rejected.
Mr. Speaker, I yield back the balance of my time.
Mr. HENSARLING. Mr. Speaker, I yield myself the balance of my time.
Mr. Speaker, again, this is a very commonsense bill, which is one of
the reasons it is strongly bipartisan. I am sorry that the ranking
member has not chosen to be part of that bipartisanship, but over half
of the committee Democrats on our committee support it. Why? Because
they understand that it is part of our American DNA to have due
process.
When we continue to lose a credit union or a community bank every day
in America, on average, with their loss, we are losing home ownership
opportunities, opportunities to grow businesses.
Because of that regulatory burden, these exams can mean the
difference between a credit union being open and not being open. They
can mean the difference between a community bank being open or not
open. Thus, it means the difference in our constituents getting homes
and small business loans and auto loans.
This is common sense. It simply says you ought to be able to appeal
an exam, have a third party take a look at it.
Everybody deserves due process in America, including our community
banks and credit unions, so that is why it is so important that we
enact H.R. 4545. It came out of our committee with a huge bipartisan
vote. Let's make sure credit continues to flow throughout America.
Mr. Speaker, I urge all of my colleagues to support H.R. 4545, and I
yield back the balance of my time.
The SPEAKER pro tempore. All time for debate on the bill has expired.
Amendment No. 1 Offered by Ms. Maxine Waters of California
The SPEAKER pro tempore. It is now in order to consider amendment No.
1 printed in part B of House Report 115-595.
Ms. MAXINE WATERS of California. Mr. Speaker, I have an amendment at
the desk made in order under the rule.
The SPEAKER pro tempore. The Clerk will designate the amendment.
The text of the amendment is as follows:
Amend section 2 to read as follows:
SEC. 2. AMENDMENT TO DEFINITIONS.
Section 1003 of the Federal Financial Institutions
Examination Council Act of 1978 (12 U.S.C. 3302) is amended--
(1) by redesignating paragraphs (2) and (3) as paragraphs
(3) and (4), respectively; and
(2) by inserting after paragraph (2) the following
``(2) the term `community financial institution' means a
financial institution with total consolidated assets of
$10,000,000,000 or less;''.
Strike ``financial institution'' each place such term
appears and insert ``community financial institution''.
Page 6, line 5, strike ``financial institutions'' and
insert ``community financial institutions''.
Page 6, line 12, strike ``financial institutions'' and
insert ``community financial institutions''.
Page 8, line 3, strike ``financial institutions'' and
insert ``community financial institutions''.
Page 9, line 14, strike ``financial institution's'' and
insert ``community financial institution's''.
Page 12, beginning on line 4, strike ``financial
institutions'' and insert ``community financial
institutions''.
Page 12, line 6, strike ``financial institutions'' and
insert ``community financial institutions''.
Page 15, beginning on line 21, strike ``-- (A)''.
Page 16, line 2, insert a period and a quotation mark
before the semicolon.
Page 16, strike lines 3 through 5.
The SPEAKER pro tempore. Pursuant to House Resolution 773, the
gentlewoman from California (Ms. Maxine Waters) and a Member opposed
each will control 5 minutes.
The Chair recognizes the gentlewoman from California.
Ms. MAXINE WATERS of California. Mr. Speaker, my amendment is fairly
straightforward. It would limit the applicability of the exam reforms
under H.R. 4545 to only depository institutions with assets less than
$10 billion.
I have only heard about community banks and credit unions with
respect to concerns regarding their exam process and the ability to
enhance the opportunity to appeal exam findings. As Ms. Maloney made
clear, when the committee marked up this bill, the sole purpose of the
bill was to help community banks and credit unions, so my amendment
seeks to narrow the scope of the bill's relief to these small firms.
Congress used a similar $10 billion asset threshold in Dodd-Frank to
exempt small banks and credit unions from the Consumer Bureau's
supervision, so applying a similar threshold for the purpose of
appealing bank supervisory findings makes sense.
Today, 98 percent of all banks and 99.8 percent of all credit unions
have less than $10 billion in assets. While I am in favor of sensible
relief for smaller financial institutions, I believe that the 2007-2009
financial crisis showed the dangers of weak oversight of these big
banks, including a $30 billion bank like IndyMac. The bank's costly
failure was the fourth largest in the history of the United States and
contributed to the most damaging financial crisis in generations.
As the largest firms pose the greatest risk to the country's economy
and the safety and soundness of our financial system, it is only
prudent to apply a stringent supervisory approach for the largest
institutions. In fact, the GAO issued a report last year criticizing
the
[[Page H1634]]
Federal Reserve's large bank supervision program, underscoring there is
more work that must be done.
I have been pushing bank regulators to deploy the full suite of their
enforcement tools against megabanks like Wells Fargo that repeatedly
and carelessly break the law and harm millions of consumers. That is
why I introduced, again, H.R. 3937, the Megabank Accountability and
Consequences Act.
So, no, I do not think it is appropriate to let megabanks like Wells
Fargo hijack what should be regulatory relief for community banks so
that they can challenge their exams. Nonbanks regulated by the Consumer
Bureau, like Equifax or payday lenders, do not need this kind of
regulatory relief either.
My amendment narrows the scope of the bill on what should garner
broad bipartisan support: sensible relief for the community banks and
credit unions that need it.
Mr. Speaker, I would urge my colleagues who truly want to help
community banks and credit unions rather than Wall Street megabanks to
support my amendment.
Mr. Speaker, I yield back the balance of my time.
Mr. HENSARLING. Mr. Speaker, I rise in opposition to the amendment.
The SPEAKER pro tempore. The gentleman from Texas is recognized for 5
minutes.
Mr. HENSARLING. Mr. Speaker, again, what we are talking about here is
fundamental due process: due process for every American, due process
for every institution regardless of its size, regardless of its
geography. This is about due process.
As Justice Oliver Wendell Holmes wrote: ``Whatever disagreement there
may be as to the scope of the phrase `due process of law,' there can be
no doubt that it embraces the fundamental conception of a fair trial,
with opportunity to be heard.'' He is one of the most famous jurists in
all of American history.
We are trying to ensure, again, that a bank examiner or a credit
union examiner is not tantamount to judge, jury, prosecutor, cop on the
beat, and executioner all rolled into one. There is no due process if
your only practical appeal is to the person who rendered the judgment
in the first place.
So, number one, it is important that all Americans, all institutions
receive due process, which is perhaps why even over half of the
Democrats on the Financial Services Committee chose to support H.R.
4545.
The ranking member's amendment would set a threshold here, but her
threshold, as she talks about these so-called megabanks, at $10
billion, that is one-half of 1 percent of the size of J.P. Morgan.
So, Mr. Speaker, I don't believe in too-big-to-fail banks. I know my
friends on the other side of the aisle do. That is why they voted for
the bailout fund to support these too-big-to-fail financial
institutions with taxpayer funds.
I don't believe in too-big-to-fail institutions, but if I did, Mr.
Speaker, if I did, it would be limited to maybe eight or nine banks in
America. It certainly wouldn't be applicable to any community bank,
credit union, or regional bank.
We have to remember, regardless of the size of the bank, it is their
capital that is helping to capitalize our businesses.
{time} 1415
I am from Dallas, Texas. One of our major employers is American
Airlines. I wish they could do business with First State Bank of
Athens, but I suspect they do not. And so sometimes, yes, global banks
are necessary to our economy, regional banks are necessary to our
economy, community banks and credit unions are necessary to our
economy. They are suffering under the sheer weight, load, volume,
complexity, and expense of the regulatory burden, which the examination
process is part of it.
Let's give them due process. Let's give them fairness and ensure that
credit can flow to every small business, every household that is worthy
in America. Let's reject the ranking member's amendment, and let's
support the underlying bill, H.R. 4545.
Mr. Speaker, I yield back the balance of my time.
The SPEAKER pro tempore (Mr. Rodney Davis of Illinois). Pursuant to
the rule, the previous question is ordered on the bill, as amended, and
on the amendment offered by the gentlewoman from California (Ms. Maxine
Waters).
The question is on the amendment offered by the gentlewoman from
California (Ms. Maxine Waters).
The question was taken; and the Speaker pro tempore announced that
the noes appeared to have it.
Ms. MAXINE WATERS of California. Mr. Speaker, on that I demand the
yeas and nays.
The yeas and nays were ordered.
The SPEAKER pro tempore. Pursuant to clause 8 of rule XX, further
proceedings on this question will be postponed.
____________________