Dodd-Frank Reforms ForthcomingJune 6, 2018
On May 24, President Donald Trump signed into law the Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155). The legislation passed by a vote of 258 to 159 on May 22 in the House, and 67 to 31 on March 14 in the Senate.
S. 2155 would modify provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd Frank) and other laws governing regulation of the financial industry. The bill would change the regulatory framework for small depository institutions with assets under $10 billion (community banks) and for large banks with assets over $50 billion. The bill also would make changes to consumer mortgage and credit-reporting regulations and to the authorities of the agencies that regulate the financial industry.
Notably, Rep. Jeb Hensarling (R-Texas), Chairman of the House Financial Services Committee, did not get everything he wanted, including complete repeal of the Volcker Rule, and has pledged to introduce additional regulatory relief before year-end. Such additional reform is unlikely, as Senator Mark Warner (D-Va.) (who voted for Senate passage) opined that Senate Democrats collectively went as far as they could with this version.
The measure is divided into six titles, which aim to: improve consumer access to mortgage credit (Title I); provide regulatory relief and protect consumer access to credit (Title II); protect the credit information of consumers, including veterans and service-members (Title III); tailor regulations for certain Bank Holding Companies, including raising the threshold levels for exemption from certain prudential standards and stress testing (Title IV); encourage capital formation by reforming certain Securities and Exchange Commission (SEC) regulations (Title V); and protect student borrowers (Title VI).
Title I of S. 2155 aims to relax or provide exemptions to certain mortgage lending rules. For example, it would create a new compliance option for mortgages originated and held by banks and credit unions with less than $10 billion in assets to be considered qualified mortgages for the purposes of the Ability-to-Repay Rule. In addition, insured depositories and credit unions that originated few mortgages would be exempt from certain Home Mortgage Disclosure Act reporting requirements.
A number of Title II provisions are intended to provide regulatory relief to community banks. For example, banks with under $10 billion in assets would be exempt from the Volcker Rule, and certain banks that meet a new Community Bank Leverage Ratio would be exempt from existing risk-based capital ratio and leverage ratio requirements.
Title III would enhance consumer protection in targeted areas. For example, it would subject credit reporting agencies (CRAs) to additional requirements, including requirements to generally provide fraud alerts for consumer files for at least a year and to allow consumers to place security freezes on their credit reports. In addition, CRAs would have to exclude certain medical debt from veterans’ credit reports.
Title IV would alter the criteria used to determine which banks are subject to enhanced prudential regulation. Banks designated as global systemically important banks and banks with more than $250 billion in assets would still be automatically subjected to enhanced regulation. Banks with between $100 billion and $250 billion in assets would be subject only to supervisory stress tests, and the Fed would have discretion to apply other individual enhanced prudential provisions to these banks. Banks with assets between $50 billion and $100 billion would no longer be subject to enhanced regulation, except for the risk committee requirement. In addition, leverage requirements would be relaxed for large custody banks, and certain municipal bonds would be allowed to count toward large banks’ liquidity requirements.
Title V would provide regulatory relief to certain securities regulations to encourage capital formation. For example, more securities exchanges would be exempt from state securities regulation and certain investment pools would be subject to fewer registration and disclosure requirements.
Title VI would provide enhanced consumer protection for borrowers of student loans. For example, CRAs would have to exclude certain defaulted private student loan debt from consumers’ credit reports.
Proponents of S. 2155 assert it would provide necessary and targeted regulatory relief, foster economic growth, and provide increased consumer protections. Opponents of the bill argue it would needlessly pare back important Dodd-Frank protections to the benefit of large and profitable banks.