June 07, 2016

Hensarling's reform plan would repeal Durbin price cap

House Financial Services Committee Chairman Jeb Hensarling, R-Texas, outlined an alternative to the Dodd-Frank Act that would include regulatory relief – including the repeal of "federal price controls" in the Durbin amendment – during a speech at the Economic Club of New York Tuesday.

Hensarling said his bill will "provide much-needed relief to community financial institutions that are being crushed by Washington's 'one-size-fits-all' regulatory approach." Titled the "Financial Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs (CHOICE) Act," the draft bill also includes measures that would allow credit unions to appeal exam findings more easily.

NAFCU has staunchly opposed the Durbin amendment because the cap on interchange fees results in profits for retailers but no passed-on savings for consumers. The amendment required the Federal Reserve to set a cap on debit interchange fees charged by financial institutions with $10 billion or more in assets. The Fed's final rule caps debit interchange transaction fees at 21 cents plus 1 basis point for fraud costs.

The draft bill would also address extended exam cycles for credit unions, replace the CFPB director position with a bipartisan, five-member commission and repeal indirect auto lending guidance.

"We are losing, on average, one community financial institution each day – and they are not dying from natural causes but from the sheer weight, volume, complexity and expense of Washington's rules," Hensarling said. "Our plan provides for the timely release of exam reports, creates a mechanism for institutions to appeal exam findings without fear of bureaucratic retaliation, and creates an extended 18-month exam cycle for certain credit unions.

"We permit small institutions to more easily finance acquisitions and allow well-capitalized community institutions to file short-form call reports in the first and third quarters of each year," he continued.

Hensarling also outlined an ability-to-repay safe harbor for loans held in portfolio, a measure that would ensure credit for manufactured-home mortgages, reforms to how points and fees are calculated and relief for small servicers from escrow requirements. Hensarling said his financial reform bill would also revoke regulators' power to designate companies as "systematically important" and remove the Volcker Rule. The Volcker Rule limits the ability of financial institutions to grow their non-deposit liabilities and places restrictions on investment-trading activities.

Draft text and more specifics on the bill are expected to be released later this month.

"We expect a number of other NAFCU-backed regulatory relief measures to be included in the larger package, including requirements for regulators to better tailor rules to different sizes and types of institutions," said NAFCU Vice President of Legislative Affairs Brad Thaler.

NAFCU was the only credit union trade association to oppose subjecting credit unions to CFPB authority under Dodd-Frank, and the association maintains that CFPB has the authority – and should be using that authority – to exempt credit unions from regulations aimed at bad actors. Lawmakers and regulators, including CFPB, have consistently noted that credit unions did not contribute to the financial crisis and are not the focus of the of the post-crisis measures.