The House of Representatives on Tuesday voted in favor of S. 2155, the Economic Growth, Regulatory Relief and Consumer Protection Act. The bill seeks to evolve and streamline regulations put in place by the 2010 Dodd-Frank Act. The final vote in the House was 258-159.
“This is a moment years in the making, and I thank my colleagues in the Senate and the House of Representatives for their partnership and contributions to this effort over the years,” said Sen. Mike Crapo (R-ID), Chairman of the Senate Banking Committee. “This step toward right-sizing regulation will allow local banks and credit unions to focus more on lending, in turn propelling economic growth and creating jobs on Main Street and in our communities. This is an important moment for small financial institutions, small businesses, and families across America.”
Jim Nussle, President and CEO of Credit Union National Association, said in a statement, "From the moment a group of bipartisan Senators unveiled this bill, credit unions told them loud and clear that this is an essential piece of regulatory relief legislation that will improve access to mortgage lending, real estate loans, and other products and services, while putting focus on senior abuse and cyber threats."
"It was fascinating to see Barney Franks’ reaction to the revisions being made to his most prominent piece of legislation. I thought it was very telling that his biggest complaint about today’s vote was that the threshold for oversight was too high ($250B vs. $125B), and that he approved of the relaxation of QM rules on community banks," said Rick Sharga, EVP, Carrington Mortgage Holdings. "Critics of the bill have had the same complaint: that the threshold for regulatory oversight was too high."
"With the passing of this legislation, millions of consumers who were underserved by the current mortgage finance system may soon have a fairer shot at the American dream of sustainable homeownership. Today’s models are more predictive and more inclusive and they should be put to work. We thank the members of Congress for recognizing this problem and seizing on an opportunity to create a better system,” said Barret Burns, President and CEO of VantageScore Solutions. “We look forward to working with all the stakeholders to ensure that a future marketplace is fair, inclusive, and fosters competition.”
Not everyone welcomed the bill's passage, however. Center for Responsible Lending (CRL) Senior Legislative Counsel Yana Miles said in a statement, "This bill puts out a welcome mat for many of the same reckless financial practices that caused the Great Recession. The bill increases the risk of another bank bailout, facilitates lending discrimination against communities of color, and weakens key consumer protections in the mortgage market—which was the epicenter of the 2008 economic collapse."
However, Sharga pointed out that the original objective of the Dodd-Frank legislation was to prevent another “too big to fail” scenario, "which really doesn’t apply to even the largest regional banks in that sub-$250 billion categories, and who weren’t the primary culprits in the mortgage market meltdown in 2008."
S. 2155 was advanced by the Senate in mid-March, by a vote of 67-31, after several weeks of debate, amendments, and negotiation. The bill then passed back to the House, who had previously voted on a different Dodd-Frank reform bill prior to the Senate's modifications.
The bill enacts numerous reforms and changes regulations pertaining to lenders. One of the primary changes was increasing the threshold for enhanced regulatory standards from $50 billion to $250 billion, a change designed to exempt some smaller and mid-sized banks from regulations that would still apply to the larger banking entities. The affected regulations pertain to capital and liquidity rules, risk management standards, and stress testing requirements, among other things.
Former Sen. Barney Frank, one of the authors of the Dodd-Frank Act, told Scotsman Guide in March, "I think [the asset threshold] should be $125 [billion to trigger FSOC oversight]. So, I would vote against it on those grounds. I would hope to try and change it. But, as far as [non-qualified] mortgages are concerned, I think allowing the smaller banks to make those loans as long as they keep them in portfolio is a perfectly good idea."
The bill also exempts banks with less than $10 billion in assets from the Volcker Rule, which limits risky trading by U.S. banks, and dials back restrictions on small and regional banks when it comes to restrictions on mortgage lending.
Sen. Elizabeth Warren (D-Massachusetts), who has been a longtime opponent of weakening Dodd-Frank, said of the Senate bill, “We’ll be paving the way for the next big crash. It’s time for the rest of us to fight back and demand that Washington work for us, not the big bank lobbyists.”
The bill did have plenty of Democratic defenders in the Senate, however, several of whom argued that the reforms could help community banks flourish and help revitalize rural economies. Sen. Heidi Heitkamp (D-North Dakota), a supporter of the legislation, said, “When you don’t respond to these kinds of legitimate concerns from small lenders, there’s a resentment to the overall policy. We tend to throw the baby out with the bathwater with that kind of frustration.”