WASHINGTON — The House Financial Services Committee began a marathon two-day voting session Tuesday on more than a dozen bills aimed at changing a wide swath of financial policies.
In the final legislative business the panel will undertake before the August recess, the panel considered bills that tackled issues ranging from Operation Choke Point to mortgage disclosure rules.
The debate is expected to last two days with all final votes being held late Wednesday. Still, discussion of several important bills has already taken place, giving a clear idea of what lawmakers will pass. Here is a guide to some of the critical bills up for a vote:
Operation Choke Point
The first bill the panel debated was a measure offered by Rep. Blaine Luetkemeyer, R-Mo., that would forbid the National Credit Union Administration, Office of the Comptroller of the Currency, Federal Reserve and Federal Deposit Insurance Corp. from "suggesting, requesting or ordering" a credit union or bank to terminate a specific business relationship without specific complaints about that individual business.
Luetkemeyer said that the bill is aimed at keeping the Justice Department's "Operation Choke Point," which is attempting to clamp down on illegal activity operating through the payments system, from targeting legitimate businesses.
"The government should not be able to intimidate businesses based on purely personal and political motivations," Luetkemeyer said.
Rep. Ed Perlmutter, D-Colo., offered an amendment to the bill that would have expanded the legislation's protections to marijuana-related businesses in states or communities where it has been legalized.
Perlmutter said that roughly 40% of marijuana-related businesses in his state remain unbanked because very few institutions are willing to extend their services to an industry that remains illegal under federal law.
The Senate Appropriations Committee last week voted to include a similar measure in the upper chamber's fiscal 2016 financial services spending bill. Perlmutter said that, while DOJ guidance suggesting that state-licensed marijuana businesses would not be subject to federal investigation is helpful, Congress must act.
"Ultimately we need to change the law," Perlmutter said. "That is the only way we can solve the banking crisis."
But House Financial Services Committee Chairman Jeb Hensarling said the Operation Choke Point bill was not the venue for such an amendment because it was limited to ensuring that banks could provide services freely to legitimate businesses. The amendment was defeated on a voice vote, and a recorded vote is expected on Wednesday night.
"The sale of marijuana is unlawful under federal law, and that's a very different thing than what we're trying to get at," Hensarling said. "We're trying to get federal banking regulators to obey the law, not disobey the law."
The unpopularity of the "Choke Point" program among Congressional Republicans makes the overall measure certain to pass the committee and highly likely to pass the House. The measure may also gain traction in the Senate, though the issue is not as popular there.
NAFCU characterized this bill as "important" in that it would "ensure that federal banking regulators are not participating in 'Operation Choke Point' and would "ensure that they do not formally or informally request or order a depository institution to terminate customer accounts or restrict or discourage depository institutions from entering into relationships with particular customers without a material reason that is not based solely on reputation risk."
The legislation is critical, NAFCU added, to "ensure the federal banking regulators to do not create an environment that produces a chilling effect on access to financial services to customers engaging in lawful behavior."
CUNA said it supports the federal government's role in fighting fraud and ensuring the integrity of financial markets, but added it is "concerned that Operation Choke Point's broad enforcement tactics could undermine effectiveness and create risks to consumers and the economy. Operation Choke Point activities have resulted in some financial institutions suspending access to financial services for certain legal businesses."
CUNA also said that this bill "limits the ability of federal banking regulators to pressure a depository financial institution to terminate a specific customer account or to otherwise restrict or discourage a depository institution, such as a bank or credit union, from entering into or maintaining a financial services relationship with a specific customer unless certain criteria is met."
Still, the measure is highly unlikely to be signed by the President, even if it included in otherwise must-pass legislation.
Qualified Mortgages
The panel also debated a bill to establish a "safe harbor" that would exempt credit unions and banks from the CFPB's "qualified mortgage" requirements if the institution holds the loan in its portfolio, thus assuming 100% of the risk of the loan's default.
The bill's author, Rep. Andy Barr, R-Ky., said he wants to expand the availability of mortgage lending, which he claims has been stymied in recent years because it is easier to sue lenders if they originate loans that fall outside of the QM definition.
"By bearing the risk, a financial institution will have every incentive to make sure a borrower can repay a loan," Barr said.
Rep. Maxine Waters, D-Calif., the top Democrat on the committee, offered an amendment to the bill that would have excluded high-cost mortgages and other exotic products from qualification for the safe harbor. The amendment also would have limited the safe harbor to institutions whose assets are below $10 billion, are not "specialty banks" and have a limited geographic footprint. The CFPB could also set additional restrictions under Waters' amendment.
"Under our proposal, consumers couldn't be hit with high upfront fees or exotic products," Waters said. "For those who say this [amendment] is unnecessary ... I would remind them that both Countrywide and Washington Mutual added many exotic loans to their portfolios, with disastrous results."
Barr, who opposed the amendment, nonetheless said that he had been working with Rep. John Carney, D-Del., and other Democrats to set up appropriate "guardrails" in the bill that could address some of the concerns raised by Waters and other Democrats. He pledged to continue that work on "potential legislative language as [this bill] advances to consideration on the House floor."
What exactly the nature of such an agreement might be is unclear. Issac Boltansky, an analyst with Compass Point Research and Trading, said in a memorandum ahead of the vote that the bill will be more likely to advance in the Senate if there are some limitations made, and that his expectation was that "there is room for a compromise if the bank asset cap is set at $10 billion."
NAFCU supports this bill, calling it "timely" and a way to "prevent the enforcement of new integrated disclosure requirements for mortgage transactions under the RESPA and the TILA before Feb. 1, 2016, so long as a good faith effort to comply is made."
This legislation, NAFCU added, is "critical to allow mortgage lenders the appropriate time to comply with the new requirements."
CUNA said this bill will provide a "reasonable hold-harmless period for enforcement of the CFPB's TILA-RESPA Integrated Disclosures (TRID) rule for those that make good-faith efforts to comply. A hold-harmless period helps ensure consumers' real estate closings will not be disrupted after this complicated rule's October 3 effective date."
Mortgage Disclosures
The panel also took up a bill that would delay the CFPB's ability to enforce violations of its new mortgage disclosure form if lenders have made a "good-faith effort" to comply.
The CFPB issued a rule in 2013 integrating requirements from the Truth in Lending and Real Estate Settlement Procedures acts into a single set of disclosures to mortgage borrowers, known as TRID. The rule was meant to go into effect Aug. 1, but the agency extended the deadline to Oct. 3 after a clerical error. Critics still argue lenders need more time to get their systems fully compliant with the rule.
The bill, sponsored by Rep. French Hill, R-Ark., would not delay the effective date of the TRID rule but would forbid private lawsuits or CFPB enforcement actions related to violations of the rule until Feb. 1, 2016.
Rep. Brad Sherman, D-Calif., who cosponsored the bill, said that it does not hurt CFPB, but instead just helps lenders.
"This bill does not delay for one minute the new form," Sherman said. "It simply says that, for a period of a few months, if you do everything possible to implement the new policy, and you screw up this way or that way, you are not going to be faced with the lawsuits or the enforcement actions."
NAFCU supports this bill as it "would ensure residential mortgage loans held in portfolio by originators would automatically receive the qualified mortgage (QM) safe harbor under the CFPB's rules. Maintaining a loan on portfolio ensures that mortgage lenders will use due diligence in underwriting, as a default or foreclosure will only impact the lender."
CUNA also supports this bill, citing that it would "treat mortgages held in portfolio at credit unions and other mortgage lenders as qualified mortgages for purposes of the CFPB mortgage lending rules."
Treating loans that financial institutions hold on their balance sheets in this manner is appropriate, CUNA added, because the lender retains all of the risk involved with these mortgages and is subject to significant safety and soundness supervision from its prudential regulator.
— Palash Ghosh contributed to this article.
