Senate considers no other amendments to Dodd-Frank relief bill

The Senate on March 14, 2018, adopted a manager's amendment to S. 2155, the "Economic Growth, Regulatory Relief and Consumer Protection Act," a bipartisan package of financial regulatory relief measures. The vote was 67-31. Both the manager's amendment and the underlying bill are sponsored by Banking Committee Chairman Mike Crapo (R-ID).

Attached with this Alert please find a PDF with the text of the manager's amendment.

Although more than 100 amendments have been filed to S. 2155 since the Senate began debating the bill on the floor last week, Republican and Democratic leaders were unable to agree on a group of amendments to consider. Majority Leader Mitch McConnell (R-KY) eventually moved to limit debate on the bill by filing cloture petitions on both the underlying bill and Sen. Crapo's amendment late last week. On Monday (March 12), the Senate voted 66-30 to invoke cloture on the substitute amendment (60 votes necessary for cloture), with a group of 16 moderate Democrats and Independent Angus King (ME) voting with Republicans to end debate on the substitute. The same group then voted with Republicans to adopt the Crapo amendment.

Manager's Amendment

Sen. Crapo said the amendment "reflects the priorities from members on both sides of the aisle," with features related to foreign banks and consumer protections for student borrowers and military service members, among other provisions. Notably, while Crapo's amendment incorporates a number of bills from the House Financial Services Committee that passed the House by wide bipartisan margins, Financial Services Committee Jeb Hensarling (R-TX) last week said he believed that any version of S. 2155 passed by the House should include as many as 29 additional bills reported out by the committee. Major provisions of the substitute amendment are discussed in this Alert.

Foreign banks. The amendment clarifies that nothing in the bill's language in Section 401 (Title IV) freeing banks with less than $250 billion in assets from enhanced supervision as "SIFIs" would affect the Federal Reserve's ability to impose such standards on foreign banking organizations with total consolidated assets of $100 billion or more. Senate Banking Committee Ranking Member Sherrod Brown (D-OH) said the change was inadequate, calling the addition "vague, ambiguous" in floor remarks last week: "The legislation doesn't require the Fed to keep strong rules in place that are currently in place. It doesn't stop the foreign banks from suing the Fed if it doesn't obey their requests." Sen. Crapo told reporters on March 7 that neither the underlying bill nor the substitute changes how the Federal Reserve calculates the assets of foreign banks for the purposes of regulatory thresholds.

Bank fees. The substitute includes language stipulating that banks with at least $100 billion in assets would still have to pay fees charged by the Fed, even if the Fed is no longer their chief regulator under the bill's changes. The Fed would have to modify its assessment to reflect any changes in supervisory duties brought by the fact that banks with assets between $100 billion and $250 billion would no longer be considered "SIFIs" with enhanced supervision.

Custodial banks. Notably, the substitute made no changes to the bill's Section 402, which exempts certain deposits at custodial banks from counting toward the supplemental leverage ratio.

HMDA disclosures. The amendment modifies language in the bill exempting certain banks from the Dodd-Frank Act's requirement that they release loan data (such as age and credit scores) under the Home Mortgage Disclosure Act (HMDA). The change in the substitute amendment would ensure that FDIC-regulated lenders with poor Community Reinvestment Act (CRA) ratings would not be able to use the exemption.

Appraisals. The amendment changes a provision in the underlying bill that exempts some real estate transactions from an appraisal requirement if the transaction is less than $400,000, the property is rural and the originator can't find an appraiser in a reasonable time. The amendment specifies that the exemption applies only if the lender cannot find an appraiser within five business days of "customary and reasonable fee and timeliness standards for comparable appraisal assignments."

Consumer protections. The substitute adds a number of provisions intended to protect military service members and student borrowers. Language in the substitute requiring the three credit reporting agencies (Equifax, Experian and TransUnion) to provide free credit monitoring for active-duty military members, which had been added at the request of Delaware Sens. Chris Coons (D) and Tom Carper (D), was adjusted to limit the extent to which the agencies can be subjected to class action lawsuits, which drew criticism from Sen. Brown. The substitute gives the Federal Trade Commission responsibility for enforcing the credit monitoring requirement, and state attorneys general would still be able to sue the credit reporting firms.

— The credit reporting agencies also won a provision in the substitute that would require Fannie Mae and Freddie Mac — the housing government-sponsored agencies (GSEs) that guarantee billions in U.S. mortgage loans — to consider allowing the use of consumer credit scoring models beyond the widely used scores provided by FICO. Equifax, Experian and TransUnion have jointly backed an alternative scoring system called VantageScore, a competitor of FICO. The provision in the substitute amendment, which sets timelines for the GSEs to consider applications for alternative credit scoring systems, is based on a bill (S. 1685) sponsored by Tim Scott (R-SC) and Mark Warner (D-VA), who have argued an alternative system would be more fair to some borrowers who aren't considered creditworthy by FICO.

— Another provision in this title of the substitute would require lenders to demonstrate a "net tangible benefit" for a refinanced mortgage loan that is guaranteed by the Department of Veterans Affairs, with specific protections related to fees, adjustable-rate loans, discount points and cash-out refinancings. Another would permanently extend, from nine months to one year, the period after service member's military service during which he or she is protected from a property foreclosure or seizure. Currently, that protection is temporary under a 2012 law.

— Another provision would prohibit lenders from declaring that a private student loan is in default only because a cosigner on the loan has died. Lenders would also have to release cosigners from their obligations if the student borrower dies. The substitute also requires the Financial Literacy Education Commission (FLEC) to establish best practices for colleges to teach financial literacy skills and help students make decisions about borrowing.

— The substitute would also target "synthetic identity fraud" — in which fraudsters take out loans in the names of made-up identities — by requiring the Social Security Administration to operate a database allowing banks and credit unions to verify whether a name, Social Security number or birthdate are tied to an actual person.

Capital formation. The substitute amendment incorporated five House-passed bills aimed at easing regulations for raising capital in the securities markets, plus a sixth (HR 1257) that is pending a floor vote but was passed unanimously by the House Financial Services Committee:

— HR 1219, increasing from 100 to 250 the number of people who can invest in a venture capital fund before the fund would have to register with the SEC.

— HR 1343, increasing from $5 million to $10 million the amount of stock that companies can sell to their employees each year without having to provide additional information to investors about compensation packages.

— HR 2864, allowing companies that file annual, periodic and other reports under the SEC Act to qualify for the Regulation A+ exemption, which allows issuers to sell securities to the public with limited registration and disclosure requirements.

— HR 4279, allowing closed-end funds to qualify for the streamlined securities registration process and other benefits available to issuers that file reports under section 13 or section 15(d) of the Securities Exchange Act.

— HR 1312, requiring the SEC to review and respond to recommendations from government and industry stakeholders on small-business capital formation.

— HR 1257, authorizing the SEC to reduce fees collected from stock exchanges if they previously overpaid the fees, within a 10-year time horizon.

Puerto Rico. The substitute includes language drawn from HR 1366, a bill offered by Nydia Velazquez (D-NY) closing a "loophole" that allows financial firms operating in Puerto Rico to both underwrite and sell municipal bonds. Critics have said the exemption allowed UBS Group AG to sell funds to island residents who later suffered heavy losses. The Government Accountability Office (GAO) would also have to conduct a study on housing in Puerto Rico after 2017's Hurricane Maria, including the rate at which federally insured mortgages defaulted because of last year's storms.

Commercial real estate lending. A provision in the substitute would direct regulators to impose higher capital requirements on "high-volatility commercial real-estate" (HVCRE) exposure only under certain conditions. The language is drawn from a bill (HR 2148) that passed the House by voice vote last year.

Elder fraud. The substitute includes the text of a bill (S. 223) offered by Susan Collins (R-ME) that would offer protection from litigation to whistleblowers (either financial institutions or their employees) if they disclose an elderly customer's personal information by informing authorities that the customer could be the victim of a scam.

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ATTACHMENT

Manager's Amendment