Regulators’ Implementation of the Economic Growth, Regulatory Relief and Consumer Protection Act

On October 2, 2018, the U.S. Senate’s Banking Committee held a hearing to review regulators’ implementation of the Economic Growth, Regulatory Relief and Consumer Protection Act (S.2155) since its passage in June.  As framed by Banking Committee Chairman Mike Crapo (R-ID), the law “right-sizes regulations for financial institutions, making it easier for consumers to get mortgages and obtain credit while also increasing important consumer protections for veterans, senior citizens, victims of fraud, and those who fall on hard financial times.”

Senator Crapo directed agencies to “significantly tailor regulations for banks with between $100 billion and $250 billion in total consolidated assets, with a particular emphasis on tailoring the stress testing regime…; tailor the Liquidity Coverage Ratio for regional banks with more than $250 billion in total consolidated assets; reassess the advanced approaches thresholds; provide meaningful relief from the Volcker Rule for all institutions…; and examine whether the regulations that apply to the standalone U.S. operations of foreign banks should also be tailored at the same time and in a similar manner as U.S. banks.”

Four regulators testified during the hearing: Comptroller of the Currency Joseph Otting, Federal Reserve Board (FRB) Vice Chair for Supervision Randal Quarles, Federal Deposit Insurance Corporation (FDIC) Chair Jelena Williams, and National Credit Union Administration (NCUA) Chairman Mark McWatters.

As part of their testimony, the OCC, FRB and FDIC all referenced their dedication to the interagency policy statement issued after the Act’s implementation.  There, the regulators committed to enforce regulations in a manner consistent with the Act.  The regulators also reported on several specific changes made within their agency to further the directives of the legislation, some of which are explained here:

OCC.  The Office of the Comptroller of the Currency (OCC) reported that it issued a notice of proposed rulemaking on September 10, 2018 that would give flexibility to federal savings associations with assets of $20 billion or less to retain their previous charters even when adapting their business models.

FRB.  The FRB highlighted its work to reduce community banks’ regulatory burdens.  For example, on August 28, 2018, the Board issued an interim final rule exempting bank holding companies with less than $3 billion in assets from its capital requirements.  The Board also stated that, in line with the legislation, it will not require bank holding companies with less than $100 billion in assets to comply with certain prudential standards, and that it will not require supervisory stress tests and company-run stress tests for such institutions.

FDIC.  The FDIC referenced Section 103 of the Act, which exempts from agency appraisal requirements federally-related loans under $400,000 that are secured by real property in rural areas.  The FDIC reported that it is currently working to revise its regulations to be in accordance with this provision.

NCUA.  The NCUA testified that it is focusing on amendments relating to appraisals in rural areas, member business lending, budget transparency, and the Home Mortgage Disclosure Act.  As it pertains to the exemption from appraisals in rural areas, the NCUA proposed an amended appraisals rule during its September 2018 board meeting.

Senator Crapo recognized that certain provisions of the Act require agency rulemaking so he reminded agencies to issue notices of proposed rulemakings “promptly.”  Evidently concerned that a future Congress may seek to invalidate an agency rule, Senator Crapo recommended that agencies submit all rules through Congress under the Congressional Review Act even if the rules are less formal and have not undergone a notice and comment period.  This would thwart attempts to later invalidate informal agency guidance on the grounds that it was actually a rule that should have been first submitted to Congress for review (which is a fact pattern that happened last year concerning the Consumer Financial Protection Bureau’s indirect auto lending guidance).

Congress is clearly interested in ensuring that regulators timely revise their regulations and guidelines to comport with the Act, and it remains to be seen whether Congress will require the agencies to testify to future progress.

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