Democrats’ control of House opens door to scrutiny of key regulatory relief proposals (and at least one regulator)

Success in taking over the House of Representatives as a result of Tuesday’s elections will likely mean the beginning of new scrutiny by the Democrats for regulators’ proposals already issued, and for those ahead.

The Democrats’ control of the House – and with it the leadership of various oversight committees, including the House Financial Services Committee (likely to be chaired by Rep. Maxine Waters, D-Calif.) – likely also means heightened scrutiny of appointees to the federal financial institution regulators by President Donald Trump. The Democrats take control of the chamber, and the committee gavels, after the first of the year.

Among the regulatory proposals (active and to come – and most supported by the industries they affect) and at least one regulator likely to face higher scrutiny are:

Community Reinvestment Act (CRA) revisions: In August, the Office of the Comptroller of the Currency (OCC) issued an advance notice of proposed rulemaking (ANPR) to gather comments on the best ways to modernize the regulatory framework implementing the anti-redlining CRA. (The comment period on the ANPR closes Nov. 19.) The agency said modernization of the rules would strive to “better achieve the statute’s original purpose, increase lending and investment where it is needed most, and reduce the burden associated with reporting and assessing CRA performance.”

The ANPR came on the heels of a July report from the Treasury Department Treasury calling for CRA regulations that would “better align CRA activity with the needs of the communities that banks serve, while being conducted in a manner consistent with a bank’s safety and soundness.” In September, Federal Reserve Board Chairman Jerome H. (“Jay”) Powell (a Trump appointee) said his agency remains deeply committed to CRA. However, he said the Fed has “also been of the view for some time that evolution of technology makes it appropriate to revisit the way we think about CRA.” However, he added that the Fed doesn’t want to lose “that focus on community.”

And, late last month, FDIC Board Member (and former Chairman) Martin Gruenberg – a Democrat whose term runs out this month – said it is important to retain the foundations of the CRA, and he suggested that proposals for altering the law should be weighed carefully. “For example, a ‘CRA ratio’ for a bank that attempts to aggregate all CRA-eligible activities into one quantitative performance ratio for the institution, as has been suggested to provide greater clarity and certainty to the CRA evaluation, could obscure the current community-based focus of CRA and undermine its basic purpose,” he said.

Payday lending: Last month, the Bureau of Consumer Financial Protection (BCFP, formerly known as the CFPB) said it expects to propose action to “reconsider” its rules regarding payday lending. Details of what the agency will propose are scanty for now (the agency said those will be forthcoming closer to the time of the proposal’s release), but the bureau did say it plans to propose revisiting only the “ability-to-repay provisions” and not the payments provisions. The bureau, in a statement, said it was making that distinction “in significant part because the ability-to-repay provisions have much greater consequences for both consumers and industry than the payment provisions.” The bureau will be proposing changes to the rules – titled the Payday, Vehicle Title, and Certain High-Cost Installment Loans, set to take effect Aug. 19, 2019 – adopted in 2017 and the focus of both legal and administrative contention since then.

Revised standards, capital requirements for big banks: Late last month, the Federal Reserve Board proposed easing enhanced prudential standards, and tailoring capital and liquidity rules, to fit large banks’ risk profiles. In a divided vote (3-1, with Gov. Lael Brainard – appointed by President Barack Obama – voting no) the proposal establishes four categories of standards for banking organizations with more than $100 billion in total consolidated assets. The proposal, required by this year’s Economic Growth, Regulatory Relief and Consumer Protection Act (EGRRCPA, S. 2155), and altering rules put in place following the 2008 financial crisis, would offer banking organizations a reduction in regulatory complexity and easier compliance, “with no material decline in the strength of the U.S. banking system,” according to Fed Board Vice Chairman for Supervision Randal Quarles (a Trump appointee). However, Brainard said the proposal would “weaken the buffers that are core to the resilience of our system,” thus raising the risk that “American taxpayers again will be on the hook.”

New BCFP director: In June, Trump nominated Kathleen (“Kathy”) Kraninger to be the permanent director of the bureau, replacing current Acting Director (and Office of Management and Budget Director) John (“Mick”) Mulvaney. Kraninger was recommended for confirmation by the Senate Banking Committee in a split vote (along party lines) of 13-12. Only two Republican members of the committee made statements then in support for Kraninger: Chairman Mike Crapo (Idaho) and Mike Rounds (S.D.). Democrats strongly criticized Kraninger’s lack of experience in consumer protection, with six members of the committee offering statements in opposition to her nomination. Ranking Member Sherrod Brown (Ohio) called Kraninger in “a class by herself,” adding that she had “no – zero – experience” in consumer affairs, and he asserted that Kraninger said after her hearing with the committee last month that she could not “think of a decision Mulvaney has made with which she disagrees.” Since then, her nomination has been pending before the Senate, with no date set for a vote for final confirmation.

Mulvaney is serving now as an appointee under the Federal Vacancies Reform Act of 1998 (FVRA). Under that statute, he may remain in his post for an additional 210 days if a nomination is made for someone, such as Kraninger, to take the position permanently (that is, as long as the nomination is not confirmed). Under that timing, Mulvaney could remain in office until mid-January without the Senate taking action.