House of Representatives Passes 'Financial CHOICE Act'

On June 8, 2017, the House of Representatives passed H.R. 10, the "Financial CHOICE Act of 2017" (FCA), by a near-party-line vote of 233-186. The version of the FCA approved in May by the House Financial Services Committee is described in detail in our May 5, 2017 advisory titled " House Financial Services Committee Approves Revised Financial CHOICE Act." Notable amendments to the Committee-approved version of the FCA that were made in the final version of the House bill are summarized below.

Passage of the FCA by the House of Representatives is a landmark in the multi-year effort by House Republicans to reform the US financial regulatory system following the 2010 enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). Accordingly, the FCA would repeal or substantially modify several core components of the Dodd-Frank Act, as well as other non-Dodd-Frank-Act-related regulatory measures, such as the Department of Labor's (DOL) fiduciary investment advice rule.¹

The FCA will now be referred to the Senate, where the legislation faces an uncertain future. Rather than debating the FCA—or a legislative proposal of comparable scale—the Senate Banking Committee is likely to take a more deliberate and targeted approach to reform, perhaps by focusing on modifying select provisions of the Dodd-Frank Act on a bipartisan basis. For example, the Committee recently held a hearing examining the role of financial institutions in local communities, reflecting what many believe to be bipartisan interest in providing regulatory relief to community banks and smaller financial institutions. While the timeline for Senate Banking Committee consideration of financial regulatory reform legislation is uncertain, Committee Chairman Mike Crapo (R-ID) has indicated that substantial progress towards reform is not likely to occur in 2017.

Moreover, on June 12, 2017, the Treasury Department released a report providing comprehensive findings and recommendations on improving the efficiency of bank regulation and promoting access to consumer and commercial credit. The report, titled "A Financial System That Creates Opportunities: Banks and Credit Unions," was mandated by President Trump's February 3, 2017 Executive Order, which established the Administration's "Core Principles for Regulating the US Financial System." The Treasury Department's report, which we will address separately in a future client advisory, is likely to be a meaningful factor in shaping the ongoing reform debate.

Notable Amendments to House-Adopted Version of the FCA

The final version of the FCA, as adopted by the House of Representatives, was amended from the Committee-approved version to, among other things:

• Preserve the so-called "Durbin Amendment," ² which Section 735 of the Committee-approved version of the FCA would have eliminated. The Durbin Amendment, which has been controversial since its enactment as part of the Dodd-Frank Act, generally restricts the charges for payment card transactions permitted to be assessed upon merchants, capping debit card interchange fees at 21 cents per transaction, plus 0.05 percent of the value of the transaction and a 1-cent fraud-prevention adjustment per transaction.³ Pitched as a means of reducing prices for consumers, critics have long claimed that the Durbin Amendment accomplished nothing more than shifting revenue from large issuing banks to large merchants, with no net benefits to consumers. With banks and retailers having distinctly opposing views on the Durbin Amendment, the repeal effort of House Financial Services Committee Chairman Jeb Hensarling (R-TX) placed the FCA's Republican backers in the awkward position of choosing between two of the party's traditional sources of support. While politically expedient, removal of this controversial repeal provision in the House-adopted version of the FCA leaves unresolved the ongoing dispute over the merits of the Durbin Amendment but, for now, represents a win for retailers over banks.
• Clarify that any rulemaking or rule revision that was issued pursuant to a directed rulemaking under a provision of law repealed by the FCA will no longer have force or effect (FCA § 2).
• Require the Chairperson of the Financial Stability Oversight Council (FSOC) to provide confidential briefings, at least annually, to the House Financial Services and Senate Banking Committees (FCA § 151).
• Clarify that each multi-member regulatory agency, in addition to each agency head, shall be a member of the FSOC, and each such multi-member agency will be granted one vote on the FSOC (FCA § 151).
• Redefine the scope of confidential information to be protected by regulatory agencies when collecting and analyzing public data for purposes of a proposed rulemaking or a five-year regulatory impact analysis—or—with respect to the Consumer Financial Protection Bureau (CFPB) (which would be renamed the "Consumer Law Enforcement Agency" (CLEA) under the FCA), when collecting data and information in connection with the provision of regulatory guidance on indirect auto financing (FCA §§ 314, 315 & 734). ⁴
• Affirm that the rules for congressional review of regulatory agency rulemakings do not apply to rules regarding monetary policy decisions of the Federal Open Market Committee, as implemented by the Board of Governors of the Federal Reserve System (FRB) (FCA § 338).
• Clarify that, in the course of judicial review of regulatory agency actions, if a court determines that a statutory or regulatory provision relevant to its review contains a gap or ambiguity, the court shall not interpret such gap or ambiguity as an implicit delegation of legislative rulemaking authority to the regulatory agency, nor should the court use such gap or ambiguity as a basis for interpreting the agency's authority expansively or deferring to the agency's interpretation of a legal question (FCA §341).
• Clarify that the independent regulatory agencies subjected to the annual congressional appropriations process by the FCA, including the Federal Deposit Insurance Corporation (FDIC), the Federal Housing Finance Agency (FHFA), the National Credit Union Administration (NCUA), the Office of the Comptroller of the Currency (OCC), and the FRB (with respect to its non-monetary policy functions), may not collect operational assessments and other fees from the institutions within their jurisdiction for the purpose of offsetting a congressional appropriation that has not yet been enacted (FCA §§ 361–365).
• Apply the Unfunded Mandates Reform Act (UMRA) to the FRB, the CFPB/CLEA, the FDIC, the FHFA, the OCC, the NCUA, the Securities and Exchange Commission (SEC), and the Commodity Futures Trading Commission (CFTC) (FCA §§ 381–382). Such agencies, as independent regulatory agencies, are currently exempt from UMRA requirements. The UMRA would require the agencies to prepare a written statement providing cost efficiency analysis, among other items, in connection with any "significant regulatory action," or an action that may result in an annual private sector cost of $100 million or more.⁵
• Preserve state enforcement authority with respect to the imposition of fines and other penalties under state securities laws and in general instances of duplicative enforcement efforts by federal and state regulatory agencies (FCA §§ 391 & 478).
• Delay the effective date of the CFPB's 2015 final rule regarding Home Mortgage Disclosure Act (HMDA) data collection and reporting requirements⁶ from January 1, 2018 to January 1, 2019, to allow for the completion of a study by the Government Accountability Office of the privacy of data and information collected pursuant to HMDA (FCA §571).
• Clarify that the CFPB/CLEA is granted primary enforcement authority over insured depository institutions and insured credit unions with total assets of greater than $10 billion (FCA § 727). As noted in our prior advisory, Section 727 of the Committee-approved version of the FCA appeared to remove the CFPB's enforcement authority over all insured depository institutions, regardless of their size.
• Increase the annual appropriation to the SEC by $50 million for each fiscal year during the period of 2017 through 2022 (FCA § 801).
• Remove a requirement in the Committee-approved version of the FCA that would have required the DOL and the SEC to adopt substantially identical standards of care for brokers, dealers and investment advisers (FCA § 841). Section 841(c) of the FCA now establishes that the SEC shall conform to certain reporting and cost-benefit analysis requirements in connection with any broker, dealer and investment adviser standard of care rulemaking issued under the authority granted by Section 913(g) of the Dodd-Frank Act. ⁷

While the chances of the FCA becoming law in its current form appear to be slim, the House has nonetheless laid down a significant marker in Republicans' ongoing effort to roll back key aspects of the Dodd-Frank Act.