[House Report 114-402]
[From the U.S. Government Publishing Office]
114th Congress } { Report
HOUSE OF REPRESENTATIVES
2d Session } { 114-402
======================================================================
FINANCIAL INSTITUTION CUSTOMER PROTECTION ACT OF 2015
_______
January 28, 2016.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Hensarling, from the Committee on Financial Services, submitted the
following
R E P O R T
together with
MINORITY VIEWS
[To accompany H.R. 766]
[Including cost estimate of the Congressional Budget Office]
The Committee on Financial Services, to whom was referred
the bill (H.R. 766) to provide requirements for the appropriate
Federal banking agencies when requesting or ordering a
depository institution to terminate a specific customer
account, to provide for additional requirements related to
subpoenas issued under the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989, and for other purposes,
having considered the same, report favorably thereon without
amendment and recommend that the bill do pass.
Purpose and Summary
H.R. 766, the Financial Institution Customer Protection Act
of 2015, prohibits a federal banking agency from formally or
informally suggesting, requesting, or ordering a depository
institution to terminate either a specific customer account, or
group of customer accounts, or otherwise restrict or discourage
it from entering into or maintaining a banking relationship
with a specific customer or group of customers, unless: (1) the
agency has a material reason to do so, and (2) the reason is
not based solely on reputation risk. The bill also curbs abuses
of the Financial Institutions Reform, Recovery and Enforcement
Act of 1989.
Background and Need for Legislation
Operation Choke Point is a law enforcement initiative
launched by the Department of Justice's Consumer Protection
Branch to combat consumer fraud by ``choking off'' businesses
alleged to have committed fraud from access to the financial
system. Rather than investigating and prosecuting the merchants
alleged to have committed fraud, the Justice Department
subpoenas the institutions that provide financial services to
these merchants, which effectively coerces these financial
institutions to cease offering the services. The Justice
Department has partnered with the Federal Deposit Insurance
Corporation (FDIC) to identify merchants that pose a ``high
risk'' for consumer fraud, notwithstanding the fact that these
merchants may be operating their businesses legally. In doing
so, the FDIC equated legitimate and regulated activities such
as coin dealers and firearms and ammunition sales with
inherently pernicious or patently illegal activities such as
Ponzi schemes, debt consolidation scams, and drug
paraphernalia. The legal merchants identified as ``high risk''
have seen their accounts terminated by banks seeking to avoid
civil and criminal liability as well as greater regulatory
scrutiny.
H.R. 766 would prevent federal banking agencies from
abusing executive power when shutting off law-abiding
businesses access to depository institutions.
In a letter of support for H.R. 766 dated June 30, 2015,
the Independent Community Bankers of America said the bill
``would limit the opportunity for regulators to abuse their
discretion and terminate longstanding banking relationships
based on biased, unsubstantiated, or subjective notions of
``reputational risk.''
The Electronic Transactions Association stated their
support for H.R. 766 in a letter to the Committee dated July
27, 2015. They said Operation Chokepoint is ``harming consumers
by forcing financial institutions to stop serving targeted
merchant industries that are supplying legal products and
services.''
Hearings
The Committee on Financial Services' Subcommittee on
Financial Institutions and Consumer Credit held a hearing
examining matters relating to H.R. 766 on June 11, 2015.
Committee Consideration
The Committee on Financial Services met in open session on
July 28 and 29, 2015, and ordered H.R. 766 to be reported
favorably to the House without amendment by a recorded vote of
35 yeas to 19 nays (recorded vote no. FC-43), a quorum being
present. An amendment offered by Representative Perlmutter was
not agreed to by a voice vote.
Committee Votes
Clause 3(b) of rule XIII of the Rules of the House of
Representatives requires the Committee to list the record votes
on the motion to report legislation and amendments thereto. The
sole recorded vote was on a motion by Chairman Hensarling to
report the bill favorably to the House without amendment. The
motion was agreed to by a recorded vote of 35 yeas to 19 nays
(Record vote no. FC-43), a quorum being present.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Committee Oversight Findings
Pursuant to clause 3(c)(1) of rule XIII of the Rules of the
House of Representatives, the findings and recommendations of
the Committee based on oversight activities under clause
2(b)(1) of rule X of the Rules of the House of Representatives,
are incorporated in the descriptive portions of this report.
Performance Goals and Objectives
Pursuant to clause 3(c)(4) of rule XIII of the Rules of the
House of Representatives, the Committee states that H.R. 766
will restore the rule of law by requiring federal banking
agencies to justify requests to terminate customer bank
accounts maintained by depository institutions and requiring
civil subpoenas issued by the Department of Justice in
investigations affecting a federally insured financial
institution to be supported by facts.
New Budget Authority, Entitlement Authority, and Tax Expenditures
In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee adopts as its
own the estimate of new budget authority, entitlement
authority, or tax expenditures or revenues contained in the
cost estimate prepared by the Director of the Congressional
Budget Office pursuant to section 402 of the Congressional
Budget Act of 1974.
Committee Cost Estimate
The Committee adopts as its own the cost estimate prepared
by the Director of the Congressional Budget Office pursuant to
section 402 of the Congressional Budget Act of 1974.
Congressional Budget Office Estimates
Pursuant to clause 3(c)(3) of rule XIII of the Rules of the
House of Representatives, the following is the cost estimate
provided by the Congressional Budget Office pursuant to section
402 of the Congressional Budget Act of 1974:
U.S. Congress,
Congressional Budget Office,
Washington, DC, September 4, 2015.
Hon. Jeb Hensarling,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 766, the Financial
Institution Customer Protection Act of 2015.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Sarah Puro.
Sincerely,
Keith Hall.
Enclosure.
H.R. 766--Financial Institution Customer Protection Act of 2015
H.R. 766 would prohibit federal banking regulators from
requesting or requiring that a depository institution terminate
certain customer accounts except in specific circumstances
affecting national security. Based on information from the
federal banking regulators, enacting H.R. 766 would not alter
the actions those regulators take under current law. As a
result, CBO estimates that there would not be any change in
staffing levels or administrative costs to those agencies and
that there would be no effect on the federal budget.
Enacting H.R. 766 would not affect direct spending or
revenues; therefore, pay-as-you-go procedures do not apply.
H.R. 766 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act and
would impose no costs on state, local, or tribal governments.
The CBO staff contact for this estimate is Sarah Puro. The
estimate was approved by H. Samuel Papenfuss, Deputy Assistant
Director for Budget Analysis.
Federal Mandates Statement
The Committee adopts as its own the estimate of Federal
mandates prepared by the Director of the Congressional Budget
Office pursuant to section 423 of the Unfunded Mandates reform
Act.
Advisory Committee Statement
No advisory committees within the meaning of section 5(b)
of the Federal Advisory Committee Act were created by this
legislation.
Applicability to Legislative Branch
The Committee finds that the legislation does not relate to
the terms and conditions of employment or access to public
services or accommodations within the meaning of the section
102(b)(3) of the Congressional Accountability Act.
Earmark Identification
H.R. 766 does not contain any congressional earmarks,
limited tax benefits, or limited tariff benefits as defined in
clause 9 of rule XXI.
Duplication of Federal Programs
Pursuant to section 3(g) of H. Res. 5, 114th Cong. (2015),
the Committee states that no provision of H.R. 766 establishes
or reauthorizes a program of the Federal Government known to be
duplicative of another Federal program, a program that was
included in any report from the Government Accountability
Office to Congress pursuant to section 21 of Public Law 111-
139, or a program related to a program identified in the most
recent Catalog of Federal Domestic Assistance.
Disclosure of Directed Rulemaking
Pursuant to section 3(i) of H. Res. 5, 114th Cong. (2015),
the Committee states that H.R. 766 contains no directed
rulemaking.
Section-by-Section Analysis of the Legislation
Section 1. Short title
This Section cites H.R. 766 as the ``Financial Institution
Customer Protection Act of 2015.''
Section 2. Requirements for deposit account termination requests and
orders
This Section prohibits a federal banking agency from
formally or informally suggesting, requesting, or ordering a
depository institution to terminate either a specific customer
account, or group of customer accounts, or otherwise restrict
or discourage it from entering into or maintaining a banking
relationship with a specific customer or group of customers,
unless: (1) the agency has a material reason to do so, and (2)
the reason is not based solely on reputation risk. The
materiality requirement is satisfied if a federal banking
agency believes that a specific customer or group of customers
poses a threat to national security, including any belief that
they are involved in terrorist financing.
This section also requires a federal banking agency that
requests or orders a depository institution to terminate an
account or group of accounts to provide the request or order to
the institution in writing and accompany the request or order
with a written justification for why such termination is
needed, including any specific laws or regulations the agency
believes are being violated. Such justification may not be
based solely on the reputation risk of the depository
institution. Neither the agency nor the institution is required
to inform a customer of the justification accompanying the
agency's request for the customer's account termination. Notice
is to a customer is prohibited if the federal banking agency
requests or orders a depository institution to terminate a
customer account (or a group of customer accounts) based upon a
belief that customer or those customers pose a threat to
national security. Each appropriate federal banking agency must
issue an annual report to Congress stating the aggregate number
of specific customer accounts that the agency requested or
ordered a depository institution to terminate during the
previous year and the legal authority on which the agency
relied in making such requests or orders.
Section 3. Amendments to the Financial Institutions Reform, Recovery,
and Enforcement Act of 1989
This section amends section 951 of the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989 (12
U.S.C. 1833a) to replace the phrase ``affecting a federally
insured financial institution'' with ``against a federally
insured financial institution or by a federally insured
financial institution against an unaffiliated third person.''
This section also revises requirements for summoning witnesses
and requiring production of books or other records the Attorney
General deems relevant or material to a civil investigation in
contemplation of a civil proceeding which may result in civil
penalties for specified violations.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, and existing law in which no
change is proposed is shown in roman):
FINANCIAL INSTITUTIONS REFORM, RECOVERY, AND ENFORCEMENT ACT OF 1989
* * * * * * *
TITLE IX--REGULATORY ENFORCEMENT AUTHORITY AND CRIMINAL ENHANCEMENTS
* * * * * * *
Subtitle E--Civil Penalties For Violations Involving Financial
Institutions
SEC. 951. CIVIL PENALTIES.
(a) In General.--Whoever violates any provision of law to
which this section is made applicable by subsection (c) shall
be subject to a civil penalty in an amount assessed by the
court in a civil action under this section.
(b) Maximum Amount of Penalty.--
(1) Generally.--The amount of the civil penalty shall
not exceed $1,000,000.
(2) Special rule for continuing violations.--In the
case of a continuing violation, the amount of the civil
penalty may exceed the amount described in paragraph
(1) but may not exceed the lesser of $1,000,000 per day
or $5,000,000.
(3) Special rule for violations creating gain or
loss.--(A) If any person derives pecuniary gain from
the violation, or if the violation results in pecuniary
loss to a person other than the violator, the amount of
the civil penalty may exceed the amounts described in
paragraphs (1) and (2) but may not exceed the amount of
such gain or loss.
(B) As used in this paragraph, the term ``person''
includes the Bank Insurance Fund, the Savings
Association Insurance Fund, and after the merger of
such funds, the Deposit Insurance Fund, and the
National Credit Union Share Insurance Fund.
(c) Violations To Which Penalty Is Applicable.--This section
applies to a violation of, or a conspiracy to violate--
(1) section 215, 656, 657, 1005, 1006, 1007, 1014, or
1344 of title 18, United States Code;
(2) section 287, 1001, 1032, 1341 or 1343 of title
18, United States Code, [affecting a federally insured
financial institution] against a federally insured
financial institution or by a federally insured
financial institution against an unaffiliated third
person; or
(3) section 16(a) of the Small Business Act (15
U.S.C. 645(a)).
(d) Effective Date.--This section shall apply to violations
occurring on or after August 10, 1984.
(e) Attorney General To Bring Action.--A civil action to
recover a civil penalty under this section shall be commenced
by the Attorney General.
(f) Burden of Proof.--In a civil action to recover a civil
penalty under this section, the Attorney General must establish
the right to recovery by a preponderance of the evidence.
(g) Administrative [Subpoenas] Investigations.--
(1) In general.--For the purpose of conducting a
civil investigation in contemplation of a civil
proceeding under this section, the Attorney General
may--
(A) administer oaths and affirmations;
(B) take evidence; and
[(C) by subpoena, summon witnesses and
require the production of any books, papers,
correspondence, memoranda, or other records
which the Attorney General deems relevant or
material to the inquiry. Such subpoena may
require the attendance of witnesses and the
production of any such records from any place
in the United States at any place in the United
States designated by the Attorney General.]
(C) summon witnesses and require the
production of any books, papers,
correspondence, memoranda, or other records
which the Attorney General deems relevant or
material to the inquiry, if the Attorney
General--
(i) requests a court order from a
court of competent jurisdiction for
such actions and offers specific and
articulable facts showing that there
are reasonable grounds to believe that
the information or testimony sought is
relevant and material for conducting an
investigation under this section; or
(ii) either personally or through
delegation no lower than the Deputy
Attorney General, issues and signs a
subpoena for such actions and such
subpoena is supported by specific and
articulable facts showing that there
are reasonable grounds to believe that
the information or testimony sought is
relevant for conducting an
investigation under this section.
(2) Procedures applicable.--The same procedures and
limitations as are provided with respect to civil
investigative demands in subsections (g), (h), and (j)
of section 1968 of title 18, United States Code, apply
with respect to a subpoena issued under this
subsection. Process required by such subsections to be
served upon the custodian shall be served on the
Attorney General. Failure to comply with an order of
the court to enforce such subpoena shall be punishable
as contempt.
(3) Limitation.--In the case of a subpoena for which
the return date is less than 5 days after the date of
service, no person shall be found in contempt for
failure to comply by the return date if such person
files a petition under paragraph (2) not later than 5
days after the date of service.
(h) Statute of Limitations.--A civil action under this
section may not be commenced later than 10 years after the
cause of action accrues.
* * * * * * *
MINORITY VIEWS ON H.R. 766
H.R. 766 requires notice from banking regulators when they
request that a financial institution close an account and
substantially undermines the Department of Justice's
(``Department'') ability to issue administrative subpoenas and
bring civil actions against financial institutions for
financial wrongdoing committed by financial institutions under
the Financial Institutions Reform, Recovery and Enforcement Act
(``FIRREA'').
Section 2 of H.R. 766 attempts to respond to growing
concerns about financial institutions closing customer
accounts. While account closures raise a number of legitimate
concerns, Section 2 of H.R. 766 would not address the root
causes of account closures. Closures are often based upon a
bank's internal determination of the relative costs, compliance
risks, and the benefits of a particular account instead of
requests from regulators. Furthermore, the Federal Deposit
Insurance Corporation (``FDIC'') responded to industry concerns
regarding account closures with guidance on July 28, 2014, that
specifically states that it does not prohibit or discourage
banks from maintaining accounts for any customer or industry
that is operating in compliance with applicable law. In light
of the steps already taken by the FDIC and the actual
circumstances that lead to account closures, Section 2 of H.R.
766 is unnecessary.
Section 3 of H.R. 766 is highly problematic as it: 1) would
substantially narrow the scope of activity that would allow for
the Department to issue administrative subpoenas and initiate
civil actions against financial institutions under FIRREA; and,
2) undermines the Department's ability to conduct
investigations by requiring that administrative subpoenas
either be issued pursuant to a court order or personally
through the Attorney General or Deputy Attorney General.
In amending Section 1833(a) of FIRREA by replacing the
``affecting a federally insured financial institution''
language with ``against a federally insured financial
institution'', H.R. 766 attempts to narrow the scope of
offenses that trigger FIRREA. The combination of FIRREA's ten-
year statute of limitations, substantial fines and lower burden
of proof have become one of the Department's most valuable
tools for investigating the kind of financial wrongdoing that
led to the financial crisis. FIRREA is currently triggered if a
violation of federal law is either committed against a
federally insured financial institution or if it affects such
an institution. The proposed language in Section 3 would only
trigger FIRREA in cases where someone violated federal law
against a federal insured financial institution, but it would
not trigger liability in cases where the financial institution
itself violates federal law.
Striking Section 1833(a)'s ``affecting'' language would
also effectively overrule a series of cases affirming the
Department's broad authority under FIRREA to investigate
violations of federal law committed by financial institutions.
In the wake of the financial crisis, Section 1833(a)'s broad
administrative subpoena authority has proven to be an important
tool in civil enforcement actions against financial
institutions for crisis-related mortgage fraud, and absent such
authority, the Department of Justice's ability to investigate
wrongdoing committed by financial institutions would have been
substantially undermined. To date, FIRREA subpoenas have played
a central role in helping the Department secure a number of
high-profile settlements including a $13 billion settlement
against JP Morgan Chase, the Department's $16.65 billion
settlement against Bank of America, and its recent $1.4 billion
settlement against Standard and Poor's.
The second provision of Section 3 seeks to further restrict
the Department's subpoena authority by either first requiring a
court order before issuing a subpoena or by only allowing the
Attorney General or Deputy General to issue FIRREA subpoenas
effectively eliminating the ability of any other federal
prosecutors from issuing subpoenas.
Administrative subpoenas allow regulators to investigate
potential wrongdoing that can form the basis for future
regulatory action. Regulators generally have broad authority to
conduct investigations and to issue administrative subpoenas
for requesting documents and other information from a regulated
entity without having to first obtain a court order.
Financial institutions have recourse when they receive a
FIRREA subpoena, as they can challenge a subpoena should they
take issue with them. Federal courts have also imposed
meaningful limitations on the issuance of administrative
subpoenas requiring that they be relevant to the Department's
investigation and that they not be unreasonably broad or
burdensome. Other than restraining the Department's
investigative authority, supporters of H.R. 766 have yet to
provide a compelling policy rationale for injecting courts into
the process by which the Department issues administrative
subpoenas for their own investigations.
In the alternative, instead of court approval for
administrative subpoenas, H.R. 766 allows the Department to
issue the subpoenas without a court order, but only if they are
issued by two people: the Attorney General or the Deputy
Attorney General of the United States. Currently, any of the
Department's 93 United States Attorneys or Deputy United States
Attorneys can issue an administrative subpoena pursuant to
FIRREA. H.R. 766 would eliminate the authority of thousands of
federal prosecutors to issue administrative subpoenas for the
purpose of investigating financial institutions for potential
wrongdoing under FIRREA drastically reducing the Department's
ability to investigate financial institutions for violating
federal law.
For the foregoing reasons, the Minority opposes H.R. 766.
Maxine Waters.
Ruben Hinojosa.
Gwen Moore.
Keith Ellison.
Carolyn B. Maloney.
Stephen F. Lynch.
Wm. Lacy Clay.
[all]