Senate Returns Jan. 19, Regulatory Reform Remains Top Agenda Item

January 4, 2010 — The Senate continues to develop its legislation to reform the financial services system, trailing behind the House which approved a comprehensive regulatory reform bill in late 2009.

The House-approved bill, H.R. 4173, the Wall Street Reform and Consumer Protection Act, encompasses reform for "too big to fail" financial institutions, executive ompensation, investor protection and credit rating agencies, among other items. It also creates the Consumer Financial Protection Agency (CFPA). In H.R. 4173, credit unions under $10 billion in assets are exempt from CFPA examinations.

Chairman of the Senate Banking Committee Chris Dodd (D-Conn.) circulated a regulatory reform discussion draft in November 2009 that would have consolidated the functions of the four federal regulators that oversee banks into a new Financial Institutions Regulatory Administration. The discussion draft also included the creation of a CFPA. However, the Senate Banking Committee members urged Dodd to abandon his plan and resume drafting on a bipartisan basis. Since November, pairs of bipartisan Committee members have been working on various aspects of the bill.

NASCUS is meeting with Senate Banking Committee staff in early January to ensure that the state credit union system is not adversely affected by the forthcoming Senate legislation. Further, as regulatory reform is considered by the Senate, NASCUS will continue to pay close attention to preemption issues. Last minute amendments to H.R. 4173 impact the Office of the Comptroller of the Currency's (OCC) ability to preempt state consumer protection laws.

The Conference of State Bank Supervisors stated after passage of the bill that it believes the amended preemption standards in H.R. 4173 undermines state authority, citing OCC's history of aggressive preemption of state consumer protection measures. The bill reads that a state consumer financial law can only be preempted if the law "prevents, significantly interferes with or materially impairs the ability of an institution chartered as a national bank to engage in the business of banking."

This language and other changes made at the last minute are considered weaker for the states than the House Financial Services Committee-approved "floor and not a ceiling" language that allows states to develop and enforce stricter consumer protection laws. The Senate Banking Committee has not stated a position on the preemption language in H.R. 4173.

The Obama Administration's and Democrats' intent was to create a CFPA that would allow states to enforce state and federal laws, as well as develop and write stricter laws, a principle supported by NASCUS. NASCUS will report on developments with regulatory reform as news happens.