Senate Passes Bill Modifying the Dodd-Frank Act and Providing Other Regulatory Relief; House Action Next

On March 14, the US Senate passed S. 2155, the Economic Growth, Regulatory Relief, and Consumer Protection Act (Economic Growth Act), on a 67-31 vote.¹ The measure makes modest reforms to the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) generally aimed at relieving some of the regulatory burdens imposed on community and midsized banks.² While a number of senators criticized the bill as going too far in rolling back Dodd-Frank provisions, the legislation was crafted on a bipartisan basis by Senate Banking Committee Chairman Mike Crapo (R-ID) and several of the committee's Democratic members. Ultimately, 16 Democratic senators plus independent Sen. Angus King (I-ME)—over a third of the Democratic caucus—joined all Senate Republicans in passing the measure.

The Senate bill has many elements in common with the US Treasury Department's 2017 recommendations on banking regulation reforms. It remains unclear, however, how the bill will be resolved with the House's actions on regulatory reform, which include passage of a much broader Dodd-Frank rollback, the Financial CHOICE Act, last year (see our prior alert here), as well as separate action on various pieces of the broader bill. Nevertheless, with the Senate now having passed a regulatory reform bill with a strong bipartisan majority, the prospects for enactment of legislation on the topic this year have greatly improved.

Senate Bill Summary

The Economic Growth Act, if enacted, will modify the Dodd-Frank Act, as well as other financial regulatory laws, to address various issues that have been raised in the nearly eight years since the Dodd-Frank Act's passage. Most of the provisions in the Economic Growth Act are focused on providing regulatory relief to banking organizations with less than $10 billion in total consolidated assets. The Economic Growth Act also includes an amendment to raise the asset threshold for bank holding companies to $250 billion from the current $50 billion for automatic treatment as a systemically important financial institution (SIFI) under section 165 of the Dodd-Frank Act, as well as the applicability of the enhanced prudential standards to those institutions ($100 billion for agency action tailored to the institution). Other sections of the Economic Growth Act address mortgage reform, insurance regulation, consumer protections for veterans and other consumers, borrower relief for student loans, and changes to securities rules to ease burdens associated with capital formation. The Economic Growth Act would also require a number of studies and reports by various federal agencies, including reports by the US Department of the Treasury regarding risks of cyber threats to financial institutions and the US capital markets, by the Securities Exchange Commission (SEC) regarding the risks and benefits of algorithmic trading in the US capital markets, and by the US Government Accountability Office (GAO) regarding the legal and regulatory structure for consumer reporting agencies. Below is a detailed discussion of the bill and the outlook for the bill becoming law.

I. Tailoring of Banking Laws and Regulations for Certain Bank Holding Companies (Title IV)

A. Changes to SIFI Designation Standards and Application of Enhanced Prudential Standards

Under current law, bank holding companies with $50 billion or more in assets are automatically deemed to be systemically important. Other financial entities (including savings and loan holding companies, insurance companies, and others) are only regulated as SIFIs if so designated by the Financial Stability Oversight Council (FSOC). The FSOC process for designating SIFIs takes size into consideration as one of the several assessment factors. To date, only four organizations have been designated as SIFIs under the FSOC process, and three of those designations have since been rescinded.

Section 401 of the Economic Growth Act would amend section 165 of the Dodd-Frank Act by raising the threshold for automatic SIFI designation of domestic bank holding companies and foreign banks operating in the US through branches or agencies, along with the accompanying application of enhanced prudential standards to such entities, from $50 billion to $250 billion.³ Bank holding companies with consolidated assets between $50 billion and $100 billion would be exempt from enhanced prudential standards immediately. Bank holding companies with total consolidated assets above $100 billion but below $250 billion would be eligible for exemption from certain enhanced prudential standards 18 months after enactment of the legislation. This change would affect approximately a dozen US bank holding companies with more than $50 billion but less than $250 billion in consolidated assets.

Under section 401, the Board of Governors of the Federal Reserve System (Federal Reserve Board) would retain the authority to apply certain enhanced prudential standards to bank holding companies with consolidated assets between $100 billion and $250 billion on a case-by-case basis and would be required to continue to conduct periodic supervisory stress tests of such institutions. Technical and conforming amendments would also be made to the Financial Stability Act of 2010 and the Federal Reserve Act. Although not referenced in section 401, this change might lead to the FSOC choosing to raise the minimum threshold from $50 billion to $100 billion for when it will consider a nonbank financial company for potential review for designation as a SIFI and subject to supervision by the Federal Reserve Board.

This amendment to the SIFI designation triggers would result in a more tailored framework for the Federal Reserve Board's supervisory review of large bank holding companies and would significantly reduce the compliance costs and burdens imposed on many mid-sized and smaller institutions. Currently, the Federal Reserve Board applies essentially the same regulatory requirements to all bank holding companies above $50 billion, with the exception of certain additional obligations for the largest institutions (i.e., those above $250 billion). The Economic Growth Act would help address industry criticism that the Federal Reserve Board's enhanced prudential standards rules were designed around the activities and risk profiles of the largest institutions without allowances for midsized and less complex organizations that, while not posing the same systemic risks as their much larger interconnected counterparts (i.e., global systemically important banks), nevertheless face the same compliance burdens.

B. Supplementary Leverage Ratio and Treatment of Certain Custodial Deposits and Muni Bonds

Section 402 of the Economic Growth Act would require Federal banking agencies to amend their supplementary leverage ratio (SLR) rules for custodial banks to exclude funds of a custodial bank that are placed with the Federal Reserve Banks, the European Central Bank, and certain other central banks that are member countries of the Organization for Economic Cooperation and Development.⁴ This amendment would address criticisms that the Federal Reserve Board's enhanced SLR rule, which requires banks to maintain a specified amount of loss-absorbing capital to cover total leverage exposure, including off-balance sheet liabilities, imposes unnecessary burdens on the holding companies of custodial banks.⁵ The amendment would allow the SLR rules of the banking agencies, as applied to custodial banks, to better fit the business models of custodial banks, which routinely place cash balances with central banks and hold short-term government securities for the purpose of safeguarding such assets. While the Federal Reserve Board has indicated that the agency would consider excluding deposits of a custodial bank held with central banks from the SLR calculations of the custodial bank, this amendment would mandate the exclusion.

In addition, section 403 of the Economic Growth Act would require the Federal banking agencies to classify qualifying investment grade, liquid, and readily marketable municipal securities as level 2B liquid assets or "High Quality Liquid Assets" (HQLA) under the agencies' Liquidity Coverage Ratio (LCR) rule. Under the LCR rule, banks are required to hold a minimum amount of HQLA that can be readily converted into cash in periods of financial stress. The initial LCR did not include US municipal securities as HQLA, however the Federal Reserve Board issued regulations in April 2016 classifying certain US municipal securities as such. This would codify these regulations in the statute, and therefore make investments in such municipal bonds more attractive to covered banks.

II. Community Bank Regulatory Relief (Title II)

Title II of the Economic Growth Act includes provisions that would provide regulatory and compliance relief to banking organizations with $10 billion or less in total consolidated assets.

A. Exemption from the Volcker Rule for Banking Entities with $10 Billion or Less in Consolidated Assets, and Names of Investment Funds

Section 203 of the Economic Growth Act would amend section 619 of the Dodd-Frank Act, commonly referred to as the Volcker Rule, by exempting banking organizations with $10 billion or less in total consolidated assets and total trading assets and trading liabilities of no more than five percent of their total consolidated assets from restrictions on proprietary trading and ownership of, and affiliation with, hedge funds and private equity funds.⁶ This amendment would significantly reduce compliance costs and burdens, as well as regulatory risk, for community banking organizations that are currently subject to the complex Volcker Rule framework.

The Volcker Rule currently prohibits banks and their affiliates from having names similar to private funds they sponsor or advise. Section 204 of the Economic Growth Act would remove the restriction under the Volcker Rule that generally prohibits hedge funds and private equity funds from having the same name or a variation of the same name as a "banking entity" that is an investment adviser to the fund, subject to certain conditions: the banking entity/investment adviser cannot be a bank holding company, an insured depository institution, or company that controls a depository institution; nor can it share the same name as any such institutions, and the name cannot contain "bank." Investment advisers of banks would be allowed to have a similar brand name to their advised private funds (as well as SEC-registered mutual funds). To use the new authority, however, investment advisers would need to have a different name from their affiliates. The removal of this restriction is not limited by the asset size of the banking organization.

B. Changes to Capital Requirements and Regulatory Reporting Forms for Community Banks

Section 201 of the Economic Growth Act would amend section 171 of the Dodd-Frank Act, commonly referred to as the Collins Amendment, by requiring Federal banking agencies to establish a community bank leverage ratio (tangible equity to average consolidated assets) at a percentage not less than 8 percent and not greater than 10 percent to replace the general applicable risk-based capital requirements for all banking organizations under the Basel III capital rules.⁷ For purposes of this section, "community bank" is defined as a depository institution or depository institution holding company with less than $10 billion in total consolidated assets and a certain risk profile to be determined by the Federal banking regulators. Any community bank that maintains equity in excess of the community bank leverage ratio would be deemed in compliance with general leverage and risk-based capital requirements and be deemed well capitalized for purposes of section 38 of the Federal Deposit Insurance Act (FDIA).⁸ Federal banking regulators are also mandated under the proposed provision to establish procedures for treatment of a "qualified community bank" that has a community bank leverage ratio that falls below the minimum percentage, and to consult with the applicable state banking agencies in carrying out their responsibilities under the new provision. As the Basel III capital rules were designed in large part to address conditions believed to have caused the 2008 financial crisis, many industry observers have argued that the Basel III rules, as a result, impose unnecessary burdens on community banks that were not engaged in the risky activities against which the Basel III rules protect. For example, community banks have argued that the higher capital ratios under Basel III capital rules unnecessarily impair their ability to raise capital and to lend to individuals and companies in their communities. The proposed community bank leverage ratio would also help reduce the costs, time, and resources that the community banks currently have to expend in complying with the complex Basel III capital rules.

In addition to revising capital rules applicable to community banks, section 205 of the Economic Growth Act would amend section 7(a) of the FDIA to require the Federal banking regulators to allow reduced reporting requirements during the first and third reporting periods annually for certain depository institutions with less than $5 billion in total consolidated assets and that otherwise satisfy requirements of the Federal banking agencies.⁹ On January 9, 2017, the Federal banking regulators issued a new short-form call report for banks with $1 billion or less in total assets. This amendment would raise the asset threshold from $1 billion to $5 billion, thereby allowing more banking organizations to benefit from a reduction of regulatory burden associated with preparing their quarterly call reports.

C. Raise in Threshold from $1 Billion to $3 Billion for Applicability of the Small Bank Holding Company Policy Statement and the 18-month Examination Cycle

Section 207 of the Economic Growth Act would raise the asset threshold for the applicability of the Federal Reserve Board's Small Bank Holding Company Policy Statement for certain bank holding companies and savings and loan holding companies from $1 billion to $3 billion.¹⁰ The asset threshold was most recently raised in February 2015 from $500 million to $1 billion, as mandated by Pub. L. 113-250 (Dec. 18, 2014). Holding companies that qualify for treatment under the Federal Reserve Board's Small Bank Holding Company Policy Statement (i) are able to use greater debt for acquisitions, (ii) qualify for expedited and waived application and notice filings, and (iii) are exempt from the leverage and risk-based capital requirements for holding companies of depository institutions mandated under section 171 of the Dodd-Frank Act, commonly known as the Collins Amendment.¹¹

Under section 20 of the FDIA, well managed and well capitalized depository institutions with total consolidated assets of $1 billion or less are eligible for an extended 18-month examination cycle, and section 210 of the Economic Growth Act would raise that asset threshold from $1 billion to $3 billion. The asset threshold was most recently raised from $500 million to $1 billion in February 2016, as mandated under Pub. L. 114-94, 129 Stat. 1312 (2015). The current examination cycle for institutions that exceed the $1 billion asset limit is 12-months; therefore, this amendment would allow more banking organizations to benefit from reduced regulatory compliance costs associated with annual examinations by the various federal banking agencies.

Section 214 of the Economic Growth Act prohibits Federal banking agencies from requiring a depository institution to assign a heightened risk weight to a high volatility commercial real estate (HVCRE) exposure under any risk-based capital requirement unless the exposure is an "HVCRE ADC" loan, as defined in the statute. Under the BASEL III capital rules, all HVCRE loans are required to be reported separately from commercial real estate loans and assigned a risk weighting of 150 percent for risk-based capital purposes. Prior to the implementation of the BASEL III capital rules, such loans were assigned a risk weight of 100 percent. The proposed change would alleviate banking organizations' obligations to hold additional capital for HVCRE loans that are performing and that do not otherwise pose a threat to the financial stability or safety and soundness of the banking organization.

D. International Insurance Capital Standards Accountability

The US Department of Treasury (Treasury Department), prompted by the President's February 3, 2017 Executive Order regarding the financial system, issued a report on October 26, 2017 on regulatory efforts in the insurance industry.¹² The report included a number of recommendations for improving the regulation and supervision of insurance companies, including the recommendation that the state insurance commissions and the Federal Reserve Board collaborate on developing and implementing capital standards that minimize unnecessary regulatory burdens. Additionally, the report included a recommendation that there should be greater transparency around negotiations had by the Federal Insurance Office (FIO) and the Federal Reserve Board at international forums and with international insurance regulatory bodies regarding insurance standards that will impact US insurance companies.

In line with the recommendations in the Treasury Report, section 211 of the Economic Growth Act would require the Secretary of the Treasury, the Federal Reserve Board, and Director of the FIO to consult and obtain consensus with state insurance regulators through the National Association of Insurance Commissioners prior to taking a position on an insurance proposal by a global insurance regulatory or supervisory forum as part of the International Association of Insurance Supervisors, the Financial Stability Board, or any other international forum of financial regulators on insurance issues. Additionally, section 211 would establish an Insurance Policy Advisory Committee on International Capital Standards and Other Insurance Issues at the Federal Reserve Board, which will be comprised of up to 21 members who are experts in various sectors of the insurance industry, academics, and consumer advocates. This section would also require a number of reports and testimony to be submitted to Congress by the Chairman of the Federal Reserve Board, the Secretary of the Treasury, and the Director of FIO regarding efforts in insurance regulatory reform and meetings with international insurance regulatory bodies.

E. Exception from Brokered-Deposit Restrictions for Certain Reciprocal Deposits

Section 202 of the Economic Growth Act would amend section 29 of the FDIA to clarify that, subject to various conditions, reciprocal deposits of another insured depository institution obtained using a deposit broker through a deposit placement network for purposes of obtaining maximum deposit insurance would not be considered brokered deposits subject to the FDIC's brokered-deposit regulations, provided that the reciprocal deposits do not exceed the lesser of $5 billion or 20 percent of the depository institution's total liabilities.¹³

F. Extending National Bank Powers to Federal Savings Associations

Section 206 of the Economic Growth Act would amend the Home Owners' Loan Act by providing federal savings associations with less than $15 billion in consolidated assets with the option to elect to operate under the same powers as a national bank.¹⁴ Federal savings associations that make the election would continue to be subject to Federal savings association rules and regulations with respect to governance, corporate changes, and as otherwise determined by the OCC. A savings association with less than $20 billion in total consolidated assets that qualifies for the election would be able to continue to operate under the election without having to convert its charter even after exceeding $20 billion in consolidated assets.

G. Application of the Expedited Funds Availability Act

Section 208 of the Economic Growth Act would subject depository institutions in the American territories, American Samoa and the Commonwealth of the Northern Mariana Islands, to the Expedited Funds Availability Act (EFA).¹⁵ The EFA Act requires banks to make funds deposited in transaction accounts available to customers and pay interest on interest-bearing transaction accounts within specified time frames, as well as provide certain disclosures regarding funds availability.

H. Requirements for Small Public Housing Agencies

Section 209 of the Economic Growth Act would amend the United States Housing Act of 1937 to add a section for "small public housing agencies" defined as public housing dwellings with 550 or fewer in number of section 8 vouchers administered by the agency and that are predominately operated in a rural area. The new section would include provisions that streamline certain requirements for public housing agencies (for example, procedures for program inspections and evaluations and procedures for environmental reviews), would give the US Housing and Urban Development (HUD) discretion in identifying "troubled" public housing agencies, and would require the HUD Secretary to develop software programs that would facilitate the ability of public housing agencies and owners of multi-family properties receiving HUD assistance to operate in consortia and have shared waiting lists.

I. Other Provisions

To improve public transparency of the National Credit Union Association's financial operations, costs, and expenses, section 212 of the Economic Growth Act would amend the Federal Credit Union Act to require the Board of the National Credit Union Association to make publicly available its annual budget and to hold a public hearing, with public notice and a public comment period on the annual budget. Currently, the NCUA's budget is reviewed by the GAO. Section 217 of the Economic Growth Act would reduce the aggregate amount of surplus funds of the Federal Reserve Banks from $7.5 billion to $6.825 billion, which would increase the amount of surplus funds transferred from the Federal Reserve Banks to the Secretary of the Treasury for deposit into the Treasury's general fund.

Section 213 of the Economic Growth Act relates to the provision of online banking services. When an individual requests through an online service to open an account or obtain a financial product or service from a financial institution, the financial institution would be allowed to record personal information from the individual's driver license or personal identification card and store such information in any electronic format to verify the authenticity of the identification card, to verify the identity of the individual, and to comply with legal requirements, such as bank secrecy laws. This change would simplify the opening of a banking account online. If enacted, this provision would preempt and supersede any state law to the extent that there is a conflict, except for laws related to disclosure and security of nonpublic personal information.

In the interest of reducing identity fraud, section 215 of the Economic Growth Act would require the Commissioner of the Social Security Administration to maintain a database to facilitate the validation by financial institutions, as well as their affiliates, subsidiaries, agents, subcontractors, and assignees, of fraud protection data. Section 216 of the Economic Growth Act would require the Secretary of the Treasury to submit a report to Congress on the risks of cyber threats to financial institutions and capital markets in the United States, including an assessment of the material risks of cyber threats; an analysis of how the appropriate Federal banking agencies and the SEC are addressing such material risks; areas for improvements; and recommendations on any additional legal authorities or resources that the Federal banking agencies and SEC may need to address material cyber risks.

III. Changes to Mortgage-Related Rules and Regulations

Title I of the Economic Growth Act would make certain changes to mortgage banking laws and regulations.

A. Qualified Mortgage Status Extended to Loans held in Portfolio

Section 129C(a) of the Truth in Lending Act (TILA), as amended by sections 1411 and 1412 of the Dodd-Frank Act, requires creditors to make a reasonable and good faith determination of a borrower's "ability to repay" before making a mortgage loan.¹⁶ Currently, to demonstrate compliance with the "ability to repay rule," institutions must either meet the somewhat onerous requirements under section 129C(a) or show that the mortgage qualifies for section 129C(b)'s safe harbor as a "qualified mortgage" or "QM," as defined in the statute. Section 101 of the Economic Growth Act would amend TILA to add a safe harbor for banking organizations and credit unions with less than $10 billion in total consolidated assets for demonstrating that their loans meet the criteria for "QM" status and thereby qualify for the presumption demonstrating compliance with the "ability to pay" rule. This amendment would allow community banks to exercise greater professional discretion in lending decisions. For example, currently covered banks are hesitant to extend loans that are not QM loans due to the onerous requirements under TILA for non QM loans, which include stringent underwriting requirements. Under the new provision, covered banks could exercise greater discretion and professional judgement in a borrower's ability to repay and extend loans that will qualify for QM status, provided that the bank retains the loan in its portfolio.

B. Exemption from Dodd-Frank Act Enhanced HMDA Reporting Requirements and Escrow Requirements

Section 104 of the Economic Growth Act would amend the Home Mortgage Disclosure Act to exempt certain insured depository institutions and credit unions from the additional reporting requirements mandated by section 1094 of the Dodd-Frank Act, which includes data related to credit scores, underwriting processes and loan pricing information, and applicants' and borrowers' credit scores, ethnicity, race, and gender.¹⁷ Currently, institutions that originate at least 25 closed-end mortgage loans or 100 open-end lines of credit secured by residential real estate are required to comply with the heightened reporting requirements. Under this amendment, banking organizations that have originated less than 500 closed-end mortgage loans and fewer than 500 open-end lines of credit in each of the two preceding years will be exempt from the heightened reporting requirements; provided that the institution has received at least a "Satisfactory" rating on its evaluation under the Community Reinvestment Act. Additionally, section 108 of the Economic Growth Act would amend section 129D of TILA by exempting certain insured depository institutions and credit unions with less than $10 billion in assets and that originate 1,000 or fewer loans secured by a first lien on a principal dwelling/home mortgages from escrow requirements under section 129D(a) of TILA.

C. Elimination of Three-Day Waiting Period for Certain Second Offers of Mortgage Credit

Section 109 of the Economic Growth Act would eliminate the three-day waiting period required under TILA and the Real Estate Settlement Procedures Act in instances where a creditor has extended a second offer of mortgage credit with a lower annual percentage rate to a borrower.¹⁸ Under the bill, the Consumer Financial Protection Bureau (CFPB) would also be required to provide more guidance on the applicability of the Truth in Lending Disclosure (TRID) Rules, specifically with respect to mortgage assumption transactions, construction-to-permanent home loans, as well as the extent to which lenders may rely on model disclosures prior to the incorporation of changes in TRID regulations to model forms.

D. Member Business Loans Under the NCUA

Under section 107A(c)(1)(B) of the Federal Credit Union Act, a credit union is limited in the amount of member business loans that it may have outstanding at any given time, and the limits are based on the net worth of the credit union and its capital category. Under the statute, the term "member business loan" does not include extensions of credit secured by a lien on a 1-4 family dwelling that is also the primary residence of a member. Section 105 of the Economic Growth Act would eliminate the primary-residence limitation and exclude from the definition of "member business loan" all extensions of credit secured by a lien on a 1-4 family dwelling.

E. Additional Provisions

Section 102 of the Economic Growth Act would amend TILA to allow for donations of free appraisal services to certain nonprofits, such as Habitat for Humanity, to ensure that such nonprofit organizations can continue operating under their missions to provide affordable housing. Section 103 would eliminate the requirement for property appraisals for real property located in rural areas for federal-backed mortgages of less than $400,000 if (i) the mortgage agent or originator is unsuccessful in locating an appraiser after making a reasonable effort, including contacting at least three state certified or licensed appraisers and (ii) the mortgage originator is subject to oversight by a Federal financial institutions regulatory agency. Section 107 would amend TILA to exclude from the definition of "mortgage originator" (i) employees that perform purely administrative or clerical tasks on behalf of a mortgage originator and (ii) an employee of a retailer of manufactured or modular homes that does not receive compensation or gain for receiving mortgage loan applications, discloses to the consumer any affiliation with the creditor, and does not directly negotiate with the consumer or lender on loan terms.

Section 106 of the Economic Growth Act would amend the SAFE Mortgage Licensing Act of 2008 to provide registered loan originators licensed in one state with temporary authority to work as a loan originator in another state while an application is pending for state certification in such other state.¹⁹

IV. Consumer Protections and Additional Provisions (Title III)

Section 301 of the Economic Growth Act would require consumer reporting agencies to establish websites that allow consumers to request security freezes, request an initial or extended fraud alert, and opt-out of use of information from consumer reports for solicitation purposes. Additionally, consumer reporting agencies would be required to provide consumers with free unlimited security freezes and unfreezes and fraud alerts for at least one-year, and provide additional credit protections for minors and incapacitated persons. Section 302 would also require consumer reporting agencies to provide free electronic credit monitoring services to active duty military personnel. Section 308 of the Act would require a GAO report on (i) the legal and regulatory structure for consumer reporting agencies, including a review of reporting errors and data security; (ii) the supervisory and enforcement authority of the states and Federal agencies under the Fair Credit Reporting Act (FCRA) and any other relevant statutes; and (iii) provide recommendations on how the consumer reporting system could be improved.

Section 302 would amend FCRA to provide special protections to veterans with respect to the reporting of medical debt on their consumer credit reports, and would require the US Department of Veteran Affairs to establish a database that would allow consumer reporting agencies to verify whether a debt furnished to a consumer reporting agency is a veteran's medical debt. Section 309 would provide additional protection for veterans from targeted predatory home lending practices by requiring lenders to demonstrate a material benefit to veterans when refinancing their mortgages. Section 313 would extend foreclosure relief for service members under the Honoring America's Veterans and Caring for Camp Lejeune Families Act of 2012 by eliminating the sunset provision.

Section 303 would provide lawsuit immunity for banks and certain bank employees for disclosing, in good faith and with reasonable care, suspected financial exploitation of senior citizens to state or federal financial regulators or state or local agencies responsible for adult protective services.

Section 304 would restore the "Protecting Tenants at Foreclosure Act of 2009," which expired on December 31, 2014, and section 311 would require a GAO report on foreclosure statistics in Puerto Rico prior to and after Hurricane Maria.²⁰ Section 305 would amend the Emergency Economic Stabilization Act of 2008 to authorize the Department of Treasury to use loan guaranties and credit enhancements as part of the Hardest Hit Fund to remediate lead and asbestos hazards in residential properties.²¹ Section 312 would require the Secretary of HUD to report to Congress on the existing lead-based paint hazard prevention and abatement polices and enforcement efforts, and to make recommendations and best practices for improving lead-based paint hazard prevention standards and abatement policies to protect the health and safety of children, including those receiving public assistance, as well as recommendations on any needed legislation.

Section 306 would amend the US Housing Act of 1937 by streamlining administration of HUD's Family Self-Sufficiency (FSS) Program. The section would also allow participating public housing authorities to combine public housing accounts, broaden the types of services that are available to participants of the FSS program, and extend the program to tenants of privately owned properties that receive rental assistance.

Section 307 would require the CFPB to develop regulations that apply certain consumer protections to financing arrangements for home improvements for clean energy purposes and that result in a tax assessment on the real property of a consumer (commonly known as PACE loans). In developing the regulations, the CFPB would be required to ensure that the regulations carry out the purposes of the "ability to repay" rule, taking into consideration the unique nature of PACE loans, and apply the civil liability provisions under section 130 of TILA for violations of the "ability to repay" rule.

Section 310 would authorize the government-sponsored entities, Fannie Mae and Freddie Mac (GSEs) to condition the purchase of a residential mortgage by the corporations from the industry on a satisfactory credit score of the underlying borrowers and directs the Federal Housing Finance Agency to create a process for development of new credit scoring models validated and approved for use by the GSEs when purchasing mortgages.

V. Securities and Capital Formation (Title V)

The provisions in Title V of the Economic Growth Act would revise certain rules under the Securities Exchange Act of 1934 (Exchange Act) to remove or ease burdens associated with raising capital. Section 501 would amend section 18 of the Securities Act of 1933 to equitably apply the exemption from State regulation of security offerings to all national securities exchanges. Section 502 would require the SEC to provide Congress with a report on the risks and benefits of algorithmic trading in US capital markets. Section 503 would require the SEC to issue public statements on findings and recommendations obtained during its annual forum on Small Business Capital Formation. Section 504 would amend the Investment Company Act of 1940 to exempt from the definition of "investment company" certain venture capital funds that are beneficially owned by 250 or fewer persons. Section 505 would allow national securities exchanges and associations to recoup overpayments of fees paid to the SEC by offsetting future fees, the savings of which should pass through to companies that are listed on such exchanges and are members of such associations. Section 506 would eliminate the exemption for companies organized in Puerto Rico, the Virgin Islands, and other territories of the US from the Investment Company Act.

Under existing SEC regulations, issuers of stock are required to provide investors with certain disclosures, including a copy of the company's employee compensatory benefit plan if the amount of company stock sold exceeds $5 million. Section 507 would encourage employee ownership of company stock by raising the threshold from $5 million to $10 million. Section 508 would improve access to capital by requiring the SEC to amend its regulations to reducing reporting requirements in connection with public offerings, and section 509 would require parity for close-end registered investment companies to be able to use the securities offering and proxy rules that are available to other issues, including "well-known seasoned issuers."

VI. Protections for Student Borrowers (Title VI)

Title VI's provisions would revise certain statutes to benefit student borrowers with respect to loan repayments, improving credit histories, and improving borrower education. Specifically, section 601 would provide relief to borrowers by prohibiting a financial institution from accelerating a private student loan debt solely on the basis of a bankruptcy or death of a cosigner. Section 602 would amend certain provisions of the FCRA to allow for student borrowers to request their financial institution to remove up to one default of a private education loan from the borrower's credit report. To do so, the borrower's financial institution would have to establish a student loan rehabilitation program that allows the borrower to demonstrate to the financial institution "a renewed ability and willingness to repay the loan," the standard for which would be established by the particular financial institution. Finally, section 603 would impose a requirement for the Treasury Department's Financial Literacy and Education Commission to establish best practices for institutions of higher education. Such best practices would be required to address, among others issues, methods to ensure students have a clear sense of total borrowing obligations and ways to clearly communicate the importance of graduating on a student's ability to repay student loans.

VII. Outlook

With the bill now having passed the Senate, bicameral negotiations with the House will be necessary, to at least some extent, to determine how the two chambers will reconcile their regulatory reform efforts. House Financial Services Committee Chairman Jeb Hensarling (R-TX) made a number of statements in the days leading up to Senate passage of S. 2155 making clear he rejected the notion that the House would simply pass the Senate bill as is, and expressed his desire to have a conference committee produce a final product. Some senators have warned, on the other hand, that the Senate's bill represents a delicate compromise, and that deviating too far from that agreement could imperil the bill's chances of passing the Senate a second time. On March 15^th, Mr. Hensarling announced that he has received assurances from House Speaker Paul Ryan that the Senate bill will not be considered in the House "unless and until the Senate negotiates with the House."

While it remains unclear what form bicameral negotiations will take, Mr. Hensarling understands the Senate dynamics enough to know that the House-passed Financial CHOICE Act is not a realistic starting point for him in the talks. In anticipation of Senate passage, Mr. Hensarling instead released a list of nearly 30 House proposals (each with some level of bipartisan support) that he would like to see on the negotiating table. A few of these bills have similarities with provisions in the Senate bill, but many do not. The bills listed by Mr. Hensarling are as follows:

• H.R. 79, the Helping Angels Lead Our Startups (HALOS) Act. The bill would direct the SEC to exempt "angel investor groups" from prohibitions on general solicitation or general advertising in connection with certain offerings. The bill passed the House in January 2017 on a 344-73 vote.
• H.R. 477, Small Business Mergers, Acquisitions, Sales and Brokerage Simplification Act. The bill would exempt from the Exchange Act's registration requirements certain M&A brokers who facilitate transfer of ownership of privately held companies with annual earnings below $25 million. The bill passed the House in December 2017 on a 426-0 vote.
• H.R. 1116, the Taking Account of Institutions with Low Operation Risk (TAILOR) Act. The bill would require financial regulatory agencies to tailor regulatory actions to limit the burdens on affected institutions in consideration of their risk profiles. The bill passed the House in March 2018 on a 247-169 vote.
• H.R. 1153, Mortgage Choice Act. The bill would clarify that neither escrow charges for insurance or affiliated title charges will be considered "points and fees" when determining whether a mortgage is a "high cost mortgage." The bill passed the House in February 2018 on a 280-131 vote.
• H.R. 1585, Fair Investment Opportunities for Professional Experts Act. The bill would modify the definition of "accredited investor" for purposes of participating in private offerings. The bill passed the House in November 2017 on a voice vote.
• H.R. 1645, Fostering Innovation Act. The bill would provide a temporary exemption from certain auditor attestation requirements for low-revenue issuers. The bill passed the House as part of a larger package on a 271-145 vote.
• H.R. 2396, Privacy Notification Technical Clarification Act. The bill would exempt certain vehicle financial companies from annual privacy notice requirements. The bill passed the House in December 2017 on a 275-146 vote.
• H.R. 2706, Financial Institution Consumer Protection Act. The bill would prohibit banking regulators from suggesting or ordering depository institutions to terminate customer accounts for reasons based solely on reputational risk. The bill passed the House in December 2017 on a 395-2 vote.
• H.R. 3072, Bureau of Consumer Financial Protection Examination and Reporting Threshold Act. The bill would raise the asset size threshold to $50 billion from $10 billion for subjecting financial institutions to CFPB reporting requirements and direct examinations. The bill was passed out of the Financial Services Committee on a 39-21 vote.
• H.R. 3299, Protecting Consumers' Access to Credit Act. The bill would codify the "valid when made" doctrine with respect to interest rates regardless of whether a bank has subsequently sold or assigned a loan to a third party. The bill passed the House in February 2018 on a 245-171 vote.
• H.R. 3312, Systemic Risk Designation Improvement Act. The bill would amend the Dodd-Frank Act to require enhanced supervision of bank holding companies only if they have been identified as globally systemically important, or the risk of the company's financial distress or nature of its activities could pose a risk to financial stability. The bill would therefore eliminate the $50 billion threshold for bank holding companies currently in the Dodd-Frank Act. The bill passed the House in December 2017 on a 288-130 vote.
• H.R. 3903, Encouraging Public Offerings Act. The bill would allow issuers to submit to the SEC for confidential review before publicly filing draft registration statements for IPOs and for certain follow-on offerings. Additionally, the bill would allow all companies to "test the waters" before initiating a public offering, permitting the companies to meet with qualified institutional buyers and other institutional accredited investors. The bill passed the House in November 2017 on a 419-0 vote.
• H.R. 3911, Risk-Based Credit Examination Act. The bill would provide the SEC's Office of Credit Ratings with discretion concerning reviewable matters during its annual examination of nationally recognized statistical rating organizations. The bill passed the House in November 2017 on a 389-32 vote.
• H.R. 3948, Protection of Source Code Act. The bill would provide that the SEC may not compel a person to produce a source code or similar intellectual property that forms the basis for design of or provides insight to the source code without first issuing a subpoena. The bill was referred out of the Financial Services Committee (FSC) on a 46-14 vote.
• H.R. 3972, Family Office Technical Correction Act. The bill would deem family offices and family clients to be "accredited investors" for purposes of the SEC's Regulation D. The bill passed the House in October 2017 on a voice vote.
• H.R. 3973, Market Data Protection Act. The bill would require the SEC and others national entities that have access to market data, to develop comprehensive internal risk control mechanisms to safeguard and manage the storage of all market data held by the entities, all market data sharing agreements of such entities, and all academic research conducted by such entities. The bill passed the House in November 2017.
• H.R. 4015, Corporate Governance Reform and Transparency Act. The bill would require proxy advisory firms to register with the SEC, and would provide registration and operation requirements for such firms, including but not to, (i) a requirement that the firms provide accurate, current and reliable information along with their proxy voting recommendations; (ii) have a compliance offer; and (iii) provide financial statements, annual reports and disclosure of voting policies. The bill would also require the SEC to develop regulations that prohibit unfair, coercive, or abusive practices by proxy advisory firms, and provide annual reports on the SEC's website regarding the SEC's supervision of such entities. The bill passed the House in December 2017 on a 238-182 vote.
• H.R. 4267, Small Business Credit Availability Act. The bill would amend the Investment Company Act to modify certain requirements related to the capital structure of business development companies, and would require the SEC to revise offering and proxy rules applicable to business development companies to allow such companies to use the securities offering and proxy rules available to other investment companies. The bill was referred out of the FSC by a vote of 58-2.
• H.R. 4281, Expanding Access to Capital for Rural Job Creators Act. The bill would amend the Exchange Act to require the SEC to report on issues that impact small businesses in rural areas. The bill was referred out of the FSC by a voice vote and ordered to be reported to the House for consideration.
• H.R. 4292, Financial Institution Living Will Improvement Act. The bill would amend section 165(d) of the Dodd-Frank Act, commonly known as Resolution Planning or Living Wills, to make the review period every two years, rather than periodically, and would require the federal banking regulators to provide feedback to firms within six months after submission. The bill would also require the federal banking regulators to publicly disclose their assessment framework. The bill passed the House by a vote of 414-0 in January 2018.
• H.R. 4293, Stress Test Improvement Act. The bill would amend section 165(i) of the Dodd-Frank Act, Stress Testing rules, to eliminate the "adverse" scenario. The bill would also limit the Federal Reserve Board's ability to object to the capital plan of a banking organization under the Comprehensive Capital Analysis Review (CCAR) process for qualitative, rather than quantitative deficiencies, in the company's capital planning process, and would also eliminate the "adverse" scenario for CCAR stress testing. Referred out of the FSC by a vote of 38-21 in March 2018.
• H.R. 4294, Prevention of Private Information Dissemination Act. The bill would amend the Financial Stability Act of 2010, section 165 of Dodd-Frank, to add criminal penalties for unauthorized disclosure of identifiable information by federal employees. The bill was referred out of the FSC by a vote of 60-0 in November 2017.
• H.R. 4296, To place requirements on operational risk capital requirements for banking organizations established by an appropriate Federal banking agency. The bill would prohibit federal banking agencies from establishing operational-risk capital requirements for banking organizations, unless such requirements are based on and sensitive to current risks posed by the banking organization's current activities and businesses; is based on forward-looking assessments, rather than prospective assessments of potential losses; and allows for certain adjustments based on qualifying operational risk mitigants. The bill passed the House in February 2018 by a vote of 245-169.
• H.R. 4537, International Insurance Standards Act. The bill would prohibit federal agencies from agreeing to any international agreements on insurance standards that conflict with existing US federal and state laws, regulations, and polices on insurance regulation, and would require that the federal agencies consult with state regulators and Congress prior to entering into any international agreements. The bill would also subject such agreements to Congressional Review similar to that under the Congressional Review Act, as well as to Presidential veto. The bill was referred out of the FSC by a vote of 56-4 and introduced in the House in December 2017. This bill is similar to section 211 of the Economic Growth Act, as well as the Secretary of the US Treasury's recommendations regarding insurance regulation.
• H.R. 4545, Financial Institutions Examination Fairness and Reform Act. The bill would reform examinations of financial institutions by setting timelines for review and feedback on examinations, and establishing an independent examination review office to be ran by an independent examination review officer to review appeals by financial institutions. The bill passed the House in March 2018 on a 283-133 vote.
• H.R. 4607, Comprehensive Regulatory Review Act. The bill amends the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA) to change the review period to every 7 years, rather than every 10 years, and requires the CFPB and NCUA to also participate in the review. Currently only the federal banking agencies are required to jointly complete the reviews, and the NCUA voluntarily participates in the reviews. The bill passed the House by a vote of 264-143 in March 2018.
• H.R. 4792, Small Business Access to Capital After a Natural Disaster Act. The bill would revise the Exchange Act to require the SEC to report on issues encountered by small businesses affected by hurricanes or other national disasters. The bill passed the House by voice vote in January 2018.
• H.R. 5078, TRID Improvement Act. The bill would amend RESPA to modify disclosure requirements related to charges for title insurance premiums charged for title insurance policies in mortgage loan transactions. The bill would also allow HUD to provide consumer reporting agencies with information related to a consumers performance of making rent or utility payments, and would require the GAO to conduct a study and provide a report on the usefulness of HUD providing such information. This provision would allow certain persons to build or improve upon their credit profiles by paying their rent and utility payments on schedule. The bill passed the House by voice vote in February 2018.
• H.R. 4566, Alleviating Stress Tests Burdens to Help Investors Act. This bill would amend the Dodd-Frank Act stress test rules to remove nonbanking financial companies, or nonbank SIFIs, from stress testing. The bill was referred out of the FSC by a vote of 46-7 in January 2018.

It remains to be seen how realistic it will be for these measures to be included in any final package. The Senate has approved its bill, but if the House makes changes to the Senate bill for purposes of passing legislation through the House, final legislation cannot be approved by the Senate without Democratic support. Final enactment will be contingent upon the bicameral negotiations and the ability of the Senate leadership to continue to attract bipartisan support for the legislation through its negotiations with the House.

© Arnold & Porter Kaye Scholer LLP 2018 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.