WASHINGTON — The House Financial Services Committee is expected to pass an amendment this week that would exempt community banks from enforcement by a proposed new consumer protection agency — a move that would eliminate their opposition and provide a significant boost to legislation creating the new supervisor.
The amendment by Reps. Brad Miller, D-N.C., and Dennis Moore, D-Kan., would leave enforcement of consumer protection rules for banks with $10 billion of assets and less with the existing regulatory agencies.
Though the proposed Consumer Financial Protection Agency would write new consumer rules that would govern all institutions, only nonbank financial institutions and larger banks would be subject to regular exams by the new agency.
The Independent Community Bankers of America supports the amendment and the change is likely to reduce community bank opposition to the broader bill.
"The Miller amendment mitigates many of the concerns of the community banking industry," said Camden Fine, the group's president. "ICBA appreciates Chairman Barney Frank's listening to our concerns and responding to them."
Pacifying community bankers would splinter the banking industry's united opposition to the CFPA, and significantly improve its odds of quick passage. Community banks have pressed their representatives for months in opposition to the new agency, worrying it would focus more on small banks and create an added burden for them. Their lobbying against the bill helped to scuttle a planned committee vote in July. In recent weeks, however, the ICBA has engaged with Frank's office and other key lawmakers about the proposed amendment.
Most analysts said they expect the amendment to pass, though it was unclear when a vote would be held. The committee spent most of Wednesday debating a separate bill to regulate derivatives. (See story on page 1.) It is expected to take a final vote on that bill Thursday, and continue debate on the CFPA legislation through Friday.
If the amendment passes, it would leave larger banks fighting the CFPA legislation on two fronts. Big banks have been fiercely lobbying to preserve federal preemption of state consumer protection laws. Under the Frank bill, the states would have the power to write tougher rules and enforce them against national banks.
In an interview, Miller said the amendment, which also exempts credit unions with assets of less than $1.5 billion from direct oversight by the CFPA, was a fair compromise. "We've been talking to bankers since June to make sure the CFPA has the powers it needs … to address existing abuses and new abuses and to do it in a way that does not necessarily burden smaller banks and credit unions that have not been the worst actors," Miller said.
Though Frank declined to comment on the amendment Wednesday, saying he was focusing first on the derivatives bill, Miller and others said the amendment was supported by the Massachusetts Democrat. Such support virtually guarantees it will be approved by the committee.
"It is obviously a pretty broad spectrum of Democrats that will be in favor," Miller said. "The chairman's been involved at every step as you can imagine. … He supports the amendment."
Brian Gardner, an analyst with KBW Inc., said bringing the ICBA and small credit unions on board would bolster support for the overall bill. "Their support would certainly change things and make it easier to pass a tougher bill than what could pass without their support," he said.
Less clear was the fate of preemption in the committee's deliberations. Though Rep. Mel Watt, D-N.C., and other lawmakers continued to work on that issue during debate on the legislation Wednesday, the panel is expected to keep it largely intact.
Even with the Miller amendment, the consumer agency would potentially have some oversight of smaller banks. Under the measure, the consumer agency would have the power to send an examiner to participate in any consumer compliance exam and could review exams by the prudential regulators.
The consumer agency would also have the authority to yank the prudential regulator's right to conduct consumer compliance exams on a bank-by-bank basis if it determines that the regulator has failed to adequately conduct consumer compliance exams. Before the consumer agency could remove the prudential regulator, it would have to place the institution on a "heightened" exam period for at least one exam cycle during which time the consumer agency would also participate in exams.
The Treasury secretary would have power to overrule the consumer agency's decision to remove a prudential regulator from consumer compliance exams.
The amendment would let the prudential regulator retain primary enforcement authority for violations arising out of the examination process. The consumer agency would have the power to evaluate the prudential regulator's nonpublic actions and decide to take public enforcement actions, but it would need to first petition the prudential regulator for additional enforcement action. The consumer agency could also take enforcement actions arising from the consumer complaints.
The measure also would give the consumer agency discretion to let larger institutions retain consumer compliance enforcement with their primary regulators.