Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155) and Selected Policy Issues

Summary

Some observers assert the financial crisis of 2007-2009 revealed that excessive risk had built up in the financial system, and that weaknesses in regulation contributed to that buildup and the resultant instability. In response, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (P.L. 111-203; the Dodd-Frank Act), and regulators strengthened rules under existing authority. Following this broad overhaul of financial regulation, some observers argue certain changes are an overcorrection, resulting in unduly burdensome regulation.

The Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155) was reported by the Senate Committee on Banking, Housing, and Urban Affairs on December 18, 2017. S. 2155 would modify Dodd-Frank provisions, such as the Volcker Rule (a ban on proprietary trading and certain relationships with investment funds), the qualified mortgage criteria under the Ability-to-Repay Rule, and enhanced regulation for large banks; provide smaller banks with an “off ramp” from Basel III capital requirements—standards agreed to by national bank regulators as part of an international bank regulatory framework; and make other changes to the regulatory system. Most changes proposed by S. 2155 as reported can be grouped into one of four issue areas: (1) mortgage lending, (2) regulatory relief for “community” banks, (3) credit reporting, and (4) regulatory relief for large banks.

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, depositories that originated few mortgages would be exempt from certain reporting requirements. Certain mortgages under $400,000 would be exempt from certain appraisal 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 from existing risk-based capital ratio and leverage ratio requirements, provided they meet a Community Bank Leverage Ratio. Banks under $5 billion would face reduced reporting requirements. The asset-size threshold at which banks become subject to less frequent examination and at which bank holding companies become exempt from the same capital requirements as depository subsidiaries (known as the “Collins Amendment”) would be raised from $1 billion to $3 billion.

Title III provisions 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 defaulted private student loan debt from consumers’ credit reports and certain medical debt from veterans’ credit reports.

Title IV would alter the criteria used to determine which banks are subject to enhanced prudential regulation, releasing certain banks from the regime. Banks designated as globally 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.

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.