[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]