H.R. 1315: Consumer Financial Protection Safety and Soundness Improvement Act of 2011

H.R. 1315

Consumer Financial Protection Safety and Soundness Improvement Act of 2011

Sponsor
Rep. Sean Duffy

Date
July 21, 2011 (112th Congress, 1st Session)

Staff Contact
Communications

Floor Situation

On Thursday, July 21, 2011, the House is scheduled to consider H.R. 1315 under a rule.  The rule provides for one hour of debate equally divided and controlled by the chair and ranking minority member of the Committee on Financial Services.  Additionally, the rule provides for 10 minutes of debate for each of the 11 amendments made in order, as well as one motion to recommit.  The amendments are summarized below.  H.R. 1315 was introduced by Rep. Sean Duffy (R-WI) on April 1, 2011, and referred to the Committee on Financial Services.  A mark-up session of the Committee was held on May 12, 2011, and the bill was reported (amended) by a vote of 35-22.

Bill Summary

H.R. 1315 would amend Section 1023 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (P.L. 111–203) which addresses the Financial Stability Oversight Council’s (FSOC) review and oversight of Consumer Financial Protection Bureau (CFPB) rules and regulations that may undermine the safety and soundness of U.S. financial institutions.

The bill would make four changes to the FSOC’s review procedures: (1) it would lower the threshold required to set aside CFPB’s proposed regulations from a two-thirds vote of the FSOC’s voting membership to a simple majority, excluding the Director of the CFPB; (2) it would clarify that the FSOC must set aside any CFPB regulation that is inconsistent with the safe and sound operations of U.S. financial institutions; (3) it would eliminate the 45-day time limit for the FSOC to review and vote on CFPB regulations; and (4) it would require that all FSOC meetings be open to the public whenever it decides to stay or set aside a CFPB regulation.

Additionally, the bill would establish a bi-partisan, five-member Commission (consisting of a Chairman and four additional members) to carry out all of the duties that would otherwise fall to the Director of the CFPB.  Commission members would be appointed by the President, confirmed by the Senate, and would serve five-year terms.

The bill would also amend Section 1062 of the Dodd-Frank Act to delay any further transfer of powers to the CFPB until the later of the following: (1) July 21, 2011; or (2) the date on which the Chair of the Commission of the Bureau is confirmed by the Senate.

Background

According to the Committee on Financial Services: The Dodd-Frank Act created the CFPB as an independent agency within the Federal Reserve.  Therefore, there is virtually no oversight of this powerful agency.  Its status within the Fed effectively precludes presidential oversight.  The Fed is statutorily prohibited from “intervening” in CFPB affairs.  And the CFPB budget is not subject to congressional oversight.  Unlike virtually all other independent agencies, the CFPB is led by a single Director—an unelected, unaccountable bureaucrat—who has sweeping powers to ban certain financial services or products that are “unfair, deceptive or abusive.”  While “unfair” and “deceptive” have been defined in other regulatory contexts, the term “abusive” is largely undefined, granting the CFPB Director inordinate discretion over the financial products and services that consumers and small businesses may obtain from their bank or other credit provider.

The Secretary of the Treasury currently has interim authority to carry out certain CFPB authorities under Section 1066 of the Dodd-Frank Act.  The Treasury Secretary's authority under Section 1066(a) terminates when a CFPB Director is confirmed by the Senate, rather than on the designated transfer date of July 21, 2011.  According to a joint report from the Inspectors General of the Treasury and the Federal Reserve Board, released January 10, 2011 (the IG report), if the CFPB does not have a Senate-confirmed Director by July 21, 2011, it may continue to operate under the Treasury Secretary's 1066(a) authority.

Under the Dodd-Frank Act, certain regulatory functions and authorities are to be transferred from the federal financial regulators that currently have those authorities (i.e. Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), the Office of the Comptroller of the Currency (OCC), the Office of Thrift Supervision (OTS), and the Department of Housing and Urban Development (HUD)) to the CFPB on July 21, 2011.  After July 21, 2011—and until a Director is confirmed—the Treasury Secretary will be permitted to carry out the functions transferred from the current federal financial regulators to the CFPB.  By contrast, the Treasury Secretary's authority under 1066(b) to provide administrative services necessary to support the Bureau terminates on July 21, 2011.

In addition to the transferred functions, the Dodd-Frank Act confers upon the CFPB newly-established federal consumer financial regulatory authorities, such as the authority to prohibit unfair, deceptive, or abusive practices in connection with consumer financial products or services.  According to the IG Report, the Treasury Secretary's authority under Section 1066(a) does not extend to these newly-established authorities.  Hence, if there is no Senate-confirmed Director by the designated transfer date, the Treasury Secretary would not be permitted to exercise the CFPB's newly established authorities, including those established under Sections 1024 and 1022 of the Dodd-Frank Act.

Further, Title I of the Dodd-Frank Act establishes the FSOC, and Section 112(a) charges the FSOC with identifying ‘‘risks to the financial stability of the United States that could arise from the material financial distress or failure, or ongoing activities, of large, interconnected bank holding companies or nonbank financial companies, or that could arise outside the financial services marketplace.’’  Ten voting members and five non-voting members comprise the FSOC. The ten voting members are the heads of nine federal financial regulatory agencies, including the CFPB, and an independent member with insurance expertise.  In addition to the CFPB, the other agencies represented are the Department of the Treasury, the Federal Reserve, the Office of the Comptroller of the Currency (OCC), the Securities and Exchange Commission (SEC), the Federal Deposit Insurance Corporation (FDIC), the Commodity Futures Trading Commission (CFTC), the Federal Housing Finance Agency (FHFA), and the National Credit Union Administration (NCUA).

Section 1023 of the Dodd-Frank Act allows the FSOC to review, stay, and block CFPB regulations if two-thirds of the FSOC membership ‘‘decides . . . that the regulation or provision would put the safety and soundness of the United States banking system or the stability of the financial system of the United States at risk.’’  Accordingly, a rule that severely threatens the viability of smaller financial institutions but does not put the entire financial system at risk would not meet the standard.  The change proposed in H.R. 1315 ensures that a CFPB rule does not impair the safety and soundness of a U.S. financial institution, regardless of its size.

Additionally, under current law, the FSOC Chair may stay the effectiveness of a regulation at the request of a single FSOC member for 90 days.   If the FSOC Chair does not stay the rule, the FSOC must vote within 45 days of the date the petition is filed.  If the FSOC stays the rule, the vote must be taken before the stay elapses.  If a vote is not taken within these time frames, the petition is deemed to have been dismissed. 

Cost

According to the Congressional Budget Office (CBO), enacting H.R. 1315 would increase direct spending by $71 million over the 2012-2021 period (about 2 percent of CBO’s estimate of the 11-year costs for the bureau).  Those additional costs represent expenses for salaries, benefits, and overhead for new positions that would be created by the provisions of the bill that create the five-member panel.  Because the bill would affect direct spending, pay-as-you-go procedures apply.  CBO estimates that the bill would not affect revenues or spending subject to appropriation.

Amendments

1.     Amendment No. 7—Rep. Ellison (D-MN): The amendment would strike Section 1023 of the Dodd-Frank Act, which gives the Financial Stability Oversight Council the ability to override Consumer Financial Protection Bureau rules.

2.     Amendment No. 4—Rep. Jackson-Lee (D-TX): The amendment would remove the section of the bill lowering the FSOC’s required voting threshold to a simple majority (from two-thirds) for setting aside CFPB-proposed regulations.

3.     Amendment No. 8—Rep. DeFazio (D-OR): The amendment would prohibit any member of the FSOC from participating in a vote to issue a stay of, or set aside, a regulation issued by the Bureau of Consumer Financial Protection if said regulation would affect an institution for which that individual was employed in the preceding 2 years.

4.     Amendment No. 1—Rep. Paulsen (R-MN): The amendment would eliminate the restriction on subject matter of petitions to the FSOC, allowing nonvoting members of the council to petition against any rule made by the CFPB, even if they represent an industry the CFPB is not permitted to regulate.

5.     Amendment No. 11—Rep. Miller (D-NC): The amendment would require information related to filing agency petitions to the FSOC to overturn a CFPB rulemaking.  Specifically, the amendment would require: an analysis of the practice that is the subject matter of such regulation or provision; and a list of any specific financial institutions whose safe and sound operation the agency believes would be placed in jeopardy due to such regulation or provision.

6.     Amendment No. 3—Rep. Jackson-Lee (D-TX): The amendment would remove the section of the bill eliminating time limits on the FSOC’s ability to review and vote on CFPB regulations.

7.     Amendment No. 5—Rep. Quigley (D-IL): The amendment would require the Financial Stability Oversight Council to provide live online streaming or broadcasting of Council meetings pertaining to review of CFPB regulations.

8.     Amendment No. 9—Rep. Chu (D-CA): The amendment would give additional responsibility to the Commissioner responsible for oversight of the Bureau’s activities pertaining to the protection of older consumers, minorities, youth, and veterans.  The Commissioner would be required to research and report on how language barriers can lead to unfair and abusive lending practices.

9.     Amendment No. 2—Rep. Maloney (D-NY): The amendment would transfer all authority that the CFPB would receive to the Secretary of the Treasury if no Chair of the Commission is in place by July 21, 2011, until such time as a Chair has been confirmed by the Senate.

10.  Amendment No. 10—Rep. Lankford (R-OK): The amendment would require the Inspector General of the Board of Governors of the Federal Reserve System and CFPB to submit an annual report to Congress no later than February 1, 2012, and every year thereafter, which identifies: 1) all new guidance/regulation/ rules prescribed by the Bureau; 2) any Bureau authority which overlaps with other federal agencies/departments; 3) Bureau administrative expenses; and 4) Bureau unobligated balances.  The amendment would also require that the Report be posted online and published using existing funds.

11.  Amendment No. 14—Rep. Rigell (R-VA): The amendment would require the CFPB to submit to the FSOC for the purposes of public review analyses on: 1) the impact of any proposed rule or regulation on the financial industry, and 2) consumers’ and small businesses’ access to credit as a result of the regulation.