Spotlights on Capital Hill - Updates from NASCUS' Legislative Affairs Department
Legislative Recap: What to Watch in 2014
NASCUS will continue to push for meaningful regulatory relief and advocate for credit union access to the secondary mortgage market in 2014.
Housing Finance Reform
The Senate Committee on Banking, Housing, and Urban Affairs set a public goal of marking-up a bill on housing finance reform by the end of 2013. Unfortunately, despite holding ten hearings over the last six months on different elements of the reform process, it does not appear that the committee will be able to meet its goal. Chairman Tim Johnson [D-SD] has indicated that the committee is dedicated to ensuring that the reforms are done correctly, and will not rush the process in order to conform with an artificial time table. Consequently, the Senate will likely continue to wrestle with this issue well into 2014. Once a bill is marked-up and passed out of committee, the full Senate must approve, reject, or change all committee amendments before conducting a final passage vote. If the Senate passes a bill it will most likely be sent to a Conference Committee, where members of the House and Senate will be tasked with reconciling the differences between the two chambers’ bills. The House bill on Housing Finance Reform, the PATH Act (H.R. 2767), would remove all government guarantees from the secondary market. NASCUS has filed comments with the Senate Banking Committee regarding the importance of maintaining small lender access to the secondary market and will continue to advocate for a system that works for credit unions as the final version of this legislation takes shape.
Providing regulatory relief for small community financial institutions has been a recurring focus of legislators this year, especially in the House Financial Services Committee and Committee on Small Business. Several pieces of legislation have been introduced around this issue, and both committees held hearings to examine regulatory burdens on small financial institutions in December. Legislation has focused primarily on ensuring that community financial institutions continue to be able to provide credit to consumers and small businesses, especially in rural and underserved areas. A few of the bills considered thus far include the CFPB Rural Designation and Petition Act (H.R. 2672), the Capital Access for Small Community Financial Institutions Act of 2013 (H.R. 3584), and the Community Lending Enhancement and Regulatory Relief Act of 2013 (CLEAR Relief Act, H.R. 1750). NASCUS is committed to ensuring that regulatory relief efforts maintain momentum in 2014, and that the committees pursue meaningful and substantial reforms including providing supplemental capital to credit unions, raising the member business lending cap, improving governance at NCUA, and creating appropriate regulatory carve-outs for small credit unions.
Please continue to check www.nascus.org for legislative updates impacting credit unions and the state system.
October 30 The House Financial Services Subcommittee on Financial Institutions and Consumer Credit met yesterday to discuss legislative proposals to bring more accountability, reform and transparency to the Consumer Financial Protection Bureau. There are currently nine pieces of legislation in the House that are focused on effecting change at the CFPB, all of which center around three main proposals:
- Replacing the Director with a five-member commission
- Subjecting the Bureau to the Congressional appropriations process, removing its ability to derive funding from the Federal Reserve, and moving CFPB employees to the General Schedule for compensation; and
- Examining CFPB’s ability to collect personally identifiable consumer financial data.
Lynette Smith, president and CEO of Washington Gas Light Federal Credit Union, stressed in her testimony that credit unions were not involved in the abusive consumer practices that led up to the financial crisis. She told the subcommittee that the Bureau’s new rules were creating an excessive compliance burden for credit unions, and urged the lawmakers to exempt all credit unions from CFPB’s direct regulatory authority. Smith cited the federal usury ceiling and the prohibition on pre-payment penalties in the Federal Credit Union Act as examples of statutory consumer protection restrictions that other financial institutions do not face, and asserted that the duplicative regulation by the CFPB was unnecessary and harmful to the industry.
The Subcommittee also spent a significant amount of time discussing changes to the governance structure of the Bureau, with Representative Bachus and Duffy both focusing their questions on this issue. The debate oscillated between the efficiencies of maintaining a unitary executive, and the benefits of the more robust decision-making process offered by a five-person commission. Ms. Smith voiced her support for moving to a five-person commission, citing the need for increased deliberation and continuity of leadership at the Bureau. NASCUS recognizes the importance of good governance at all federal financial regulatory agencies, and has been a strong advocate for expanding the NCUA board from three to five members and securing a permanent seat for a person with state supervisory experience. NASCUS will continue to work closely with Financial Services Committee members to ensure lawmakers do not overlook the credit union system when pursuing good governance reforms.
Meanwhile, the Senate Banking Committee continues to push ahead with Housing Finance Reform. On October 31 st, the committee will hold a hearing on the “Essential Elements of a Government Guarantee for Mortgage-Backed Securities,” which will feature witnesses from the Federal Reserve Bank of New York, the University of Maryland School of Public Policy, and the Mortgage Bankers Association. On November 5 th, the Committee will hear from credit unions and other small lenders on the importance of protecting access to the secondary mortgage market. Credit unions rely on the secondary mortgage market as a source of liquidity and interest rate risk management. NASCUS has been following this legislation closely and will continue to advocate for reforms that work for all players in the financial system, regardless of their size.
October 10 As the government shutdown continues into its second week, the bickering over short-term spending provisions is giving way to even larger disagreements over increasing the debt ceiling. The legislature must approve a measure to increase the country's borrowing limit by October 17th, or face a first-ever default on the government debt. The respective parties appear to be as far apart as ever, with little progress and much finger-pointing marking the first week of the shutdown.
House Republicans remain focused on piecemeal spending bills that would fund specified government agencies and operations over short periods. Meanwhile, Senate Democrats are committed to passing a "clean" spending bill that would fund the entire government for six weeks, and have steadfastly refused to vote on House efforts at patchwork funding. House Speaker John Boehner also continues to block a vote in the House on the Senate's clean funding bill, asserting that the bill lacks the necessary support to be viable. Democrats claim that the bill has the support of approximately 20 House Republicans and would reopen the government immediately if a vote was allowed.
Senate Democrats have also begun to maneuver a proposal that would extend the debt ceiling until after the 2014 elections without implementing any spending cuts or policy changes. The White House has indicated that it will not negotiate on policy changes as part of a debt ceiling agreement, but Republicans claim that they will not pass a debt ceiling increase without them. House Republicans have not yet introduced a debt ceiling bill of their own, but a draft is expected within the next few days.
For credit unions, the government shutdown and expected fight over the debt ceiling means that anticipated financial regulatory reforms have been placed on the back burner for the foreseeable future. Scheduled hearings in the House Financial Services committee on the National Flood Insurance Program and unbanked and under-banked areas were postponed this week in the face of the government shutdown, and almost all committee activity has been halted until the budget problems can be resolved. Unfortunately, this means that the chance of passing housing finance reform or regulatory relief measures during this session are fading quickly.
As always, NASCUS will actively monitor the progress of all proposed legislation that could affect the credit union system generally, or the state-charter specifically. If you have any questions, please contact Sabrina Cotter, NASCUS' Regulatory & Public Policy Counsel, at Sabrina@nascus.org.
September 3 Congress returns from its summer recess next week, and both houses are expected to resume work on several financial regulatory reform initiatives that could affect credit unions.
In the House of Representatives, the Protecting American Taxpayers and Homeowners Act (PATH Act) cleared the Financial Services Committee and was sent to the full House for consideration on July 24, 2013. The PATH Act’s primary focus is on ending the bailout of Fannie Mae and Freddy Mac and reforming the housing finance market, but it also features provisions that will impact credit unions.
Most notably, the bill incorporates the Financial Institutions Examination Fairness and Reform Act (H.R. 1553), which creates an Office of Examination Ombudsman, and establishes an independent appellate process by which financial institutions can challenge material supervisory determinations contained in final reports of examination before an administrative law judge. The NCUA has expressed its opposition to the Exam Fairness Reform bill, citing increased administrative costs, decreased examiner flexibility, and what they consider to be an already robust appeals system.
The bill also integrates the Common Sense Economic Recovery Act of 2013 (H.R. 927), which is intended to prevent regulators from adversely impacting the measurement of capital in insured depository institutions by erroneously designating healthy loans as non-accrual. The Act must now pass both Houses before it can be signed into law by the President.
The Senate Committee on Banking, Housing and Urban Affairs Subcommittee on Securities, Insurance and Investment was also focused on Housing Finance Reform before the break. On July 23, 2013, the Subcommittee held hearings on the Housing Finance Reform and Taxpayer Protection Act of 2013 (S. 1217), which included testimony from Bill Hampel, Senior Vice President and Chief Economist at CUNA.
Mr. Hampel highlighted the counter-cyclical role that credit unions play as portfolio lenders in the first mortgage lending market, and stressed the importance of a well-regulated secondary market that will protect the long-term fixed-rate mortgage products that most credit union members favor. Mr. Hampel also advocated for “equal and unbiased access to the secondary market for lenders of all sizes,” the elimination of risk retention requirements for credit unions under the Qualified Residential Mortgage standards, and the establishment of the recommended “Mutual Securitization Company (MSC),” which would “develop, securitize, sell and meet the issuing needs of credit unions and community and mid-size banks with respect to covered securities.”
Mr. Hampel suggested that the unique position of credit unions would be best protected by reserving a seat on the proposed Federal Mortgage Insurance Corporation (FMIC) Board of Directors for a representative of the credit union system. FMIC would operate under a federal charter and would be charged with nurturing liquidity in the secondary mortgage market, while protecting taxpayers from losses. The Subcommittee has not yet provided its recommendation on the bill, and is expected to return to their deliberations once they are back in session.
As always, NASCUS will actively monitor the progress of all proposed legislation that could affect the credit union system generally, or the state-charter specifically.