Described as “the first bipartisan banking law to be enacted in a decade” by the American Bankers Association, the Economic Growth, Regulatory Relief, and Consumer Protection Act was signed into law on May 24, 2018 following a vote of 258 to 159 in the House of Representatives. The act addresses a number of subjects ranging from mortgage lending and consumer protection to regulatory reform for community and large banks.
Sen. Mike Crapo (R-ID), chairman of the Senate Banking Committee, described the act as “a bipartisan compromise” with commonsense changes, while Acting Director of the Consumer Financial Protection Bureau Mick Mulvaney applauded the bill as “the most significant financial reform legislation in recent history.” Sen. Sherrod Brown (D-OH), ranking member of the Senate Banking Committee, however, has criticized the bill as a win for special interests and “a giveaway that loosens rules” for large banks. The act’s significance has already been recognized among industry groups including the Mortgage Bankers Association.
Three sections of the act are briefly highlighted: (1) Section 106’s response to employment barriers for loan originators; (2) Section 304’s restoration of the Protecting Tenants at Foreclosure Act of 2009; and (3) Section 401’s revisions to the asset thresholds set forth in Section 165 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank).
Section 106: Job Mobility and Barriers for Mortgage Loan Originators
Section 106 of the act amends the S.A.F.E. Mortgage Licensing Act of 2008 by addressing barriers for mortgage loan originators. The act provides certain qualifying loan originators that are moving interstate or from a depository institution to a non-depository institution with “temporary authority” to originate loans in the state in which the originator seeks to be licensed. The temporary authority serves as a “grace period” to allow originators who are shifting positions and who satisfy specific performance and eligibility criteria to become licensed. David W. Perkins, et al., Congressional Research Service, Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155) and Selected Policy Issues at 9 (Apr. 12, 2018). In doing so, Section 106 addresses a concern raised by the real estate finance industry since S.A.F.E.’s enactment – job mobility for loan officers. Section 106’s amendments take effect 18 months after the act’s enactment.
Section 304: Restoration of the PTFA
Section 304 restores the Protecting Tenants at Foreclosure Act of 2009 (PTFA) by repealing its sunset provision. The PTFA had imposed “requirements on successors in interest to foreclosed properties in order to protect tenants,” Mik v. Fed. Home Loan Mortg. Corp., before expiring on December 31, 2014. The PTFA’s expiration left behind a patchwork of state and local laws protecting tenants in foreclosed property. However, effective 30 days after its enactment, the act restores Sections 701 through 703 of the PTFA and “any regulations promulgated pursuant to such sections, as were in effect on December 30, 2014.”
Section 401(a): Enhanced Supervision and Prudential Standards Thresholds
Section 401(a) of the act amends the asset thresholds established in Section 165 of Dodd-Frank, codified at 12 U.S.C. § 5365.
First, Section 401(a) raises Section 5365(a)’s asset threshold for enhanced prudential standards. Section 5365(a) originally provided that the Board of Governors of the Federal Reserve System “shall establish prudential standards for nonbank financial companies supervised by the Board of Governors and bank holding companies with total consolidated assets equal to or greater than $50,000,000,000.” Prudential standards encompass, inter alia, risk-based capital, risk management, and liquidity requirements. These standards were designed to be stringent and to reflect the risks posed by the failure of a large financial institution. Section 401 of the act replaces Section 5365(a)’s $50 billion threshold with a $250 billion threshold. However, according to Section 401(f) of the act, “[a]ny bank holding company, regardless of asset size, that has been identified as a global systemically important BHC” under 12 C.F.R. § 217.402 is “considered a bank holding company with total consolidated assets equal to or greater than” $250 billion for purposes of Section 5365.
Second, for bank holding companies with total consolidated assets between $100 billion and $250 billion, Section 401(a) enables the Board of Governors to apply, upon a determination of appropriateness and consideration of certain risk-related factors, any prudential standard established under Section 5365. Third, for publicly traded bank holding companies, Section 401(a) substitutes the asset threshold that triggers the risk committee requirement in Section 5365(h)(2) from $10 billion to $50 billion. In effect, Section 401(a) “exempt[s] banks with assets between $50 billion and $100 billion from enhanced regulation, except for the risk committee requirements.” David W. Perkins, et al., Congressional Research Service, Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155) and Selected Policy Issues at 31 (Apr. 12, 2018). As an additional resource, the Congressional Research Service has compiled a table of bank holding companies and intermediate holding companies with over $50 billion in assets, as of September 30, 2017, in CRS Report R45073.
Section 401’s amendments take effect 18 months after the act’s enactment. However, for a bank holding company with total consolidated assets of less than $100 billion, Section 401’s amendments were effective on the date of its enactment, May 24, 2018. The import of Section 401(a) goes well beyond the subjects addressed in this blog and includes, inter alia, a requirement that the Board of Governors “differentiate among companies on an individual basis or by category” when prescribing prudential standards and amendments related to Section 5365(i)’s stress test subsection, as well as Section 5365(j)’s leverage limitation subsection.
Altogether, the Economic Growth, Regulatory Relief, and Consumer Protection Act, as well as the remainder of Section 401’s provisions, will warrant further analysis and attention both within the industry and among its observers.