While the future of health care legislation has been dominating headlines, some quiet but important developments in Washington regarding the future of federal financial regulation have also been taking place. These developments do not significantly clarify the path forward; much of the uncertainty about which we have written here remains. But recent developments do signal issues to monitor in the near and longer term.
The Trump Administration has announced nominations for two important federal bank regulatory posts.
In early June, the White House announced its intent to nominate a permanent Comptroller of the Currency, marking the first nomination by this Administration for a permanent head of one of the federal banking agencies. Nominee Joseph Otting has held a number of roles at banks and financial companies, including serving as President and CEO of OneWest Bank N.A. (Current Treasury Secretary Steven T. Mnuchin founded OneWest Bank Group LLC and served as its Chair and Chief Executive Officer until its acquisition by CIT Group Inc.)
Keith Noreika has been serving as acting Comptroller since the beginning of May, following the departure of Comptroller Thomas J. Curry. Noreika also holds the title of “First Deputy Comptroller,” and it seems possible that he could stay on in that role after a permanent Comptroller is installed.
On June 16, James Clinger was nominated to the Board of Directors of the Federal Deposit Insurance Corporation (FDIC), and also nominated to serve as Chairperson of that board once current FDIC Chair Martin Gruenberg’s term ends in November 2017. (By statute, FDIC board members serve for a term of six years and the Chairperson’s term is subject to a separate limit of five years.) Clinger has served as Chief Counsel for the House Financial Services Committee (HFSC) since 2007. He has held other positions on the HFSC over the years as well, and has also worked in the Department of Justice. He also was an attorney at a large law firm for several years after graduating from law school.
These nominations are subject to confirmation by the Senate. As with any nomination, it is unclear how long that process will take for each nominee.
Over the next few years, this Administration also will have the opportunity to nominate other leaders of federal bank regulatory agencies.
At the Federal Reserve, Janet Yellen’s four-year term as Chair expires in February 2018, although her term as a Governor extends to 2024. Fed Vice Chair Stanley Fischer’s four-year term lasts until January 2020. The other Fed Governors, whose terms are for 14 years, are Daniel Tarullo, whose term expires in January 2022; Lael Brainard, whose term expires in January 2026; and Jerome Powell, whose term expires in January 2028.
And Consumer Financial Protection Bureau (CFPB) Director Richard Cordray’s term expires in July 2018. For all the attention given the PHH v. CFPB case, which addresses whether the President can remove the CFPB director at will, by the time that case reaches its ultimate conclusion, Director Cordray’s term may have ended through the simple passage of time. Still, the outcome would have relevance for any subsequent Director of the CFPB.
The Financial CHOICE Act has passed the U.S. House of Representatives. This bill incorporates the financial regulatory reform vision of Sen. Jeb Hensarling (R-TX), Chair of the HFSC and long a critic of the Dodd-Frank Act. It would make sweeping changes to the financial regulatory system, including rolling back many changes made by the Dodd-Frank Act of 2010. Hensarling has introduced versions of this bill in past sessions of Congress, but this is the furthest that any version has made it in the legislative process. It remains unclear, though, what the bill’s fate will be now that it is for the Senate to consider.
The Treasury Department also issued a report to President Trump with recommendations for changes to the federal government’s approach to financial regulation, including curtailing and streamlining numerous regulatory requirements. While Treasury has no authority to propose or enact legislation, Hensarling stated that the Treasury report “closely mirrors key, foundational principles that are in the Financial CHOICE Act.”
It is possible that other bills may be introduced in the future that affect financial regulation, perhaps more narrowly targeted than the Financial CHOICE Act. For example, on June 22, Acting Comptroller Noreika offered suggestions for Congress to consider in that regard. In testimony before the Senate Banking Committee, he provided several ideas for streamlining and otherwise changing specific regulatory processes.
Noreika’s suggestions included amending the Bank Holding Company Act to bring supervision of certain bank holding companies and banks under the examination and enforcement authority of the agency that regulates the bank, rather than subjecting the holding company to Fed oversight and the bank to other agency oversight. He also gave several examples of ways Congress could address the “overlap” between the CFPB and prudential regulators for supervision of financial institutions with over $10 billion in assets, such as returning examination and supervision authority for banks to the prudential regulators, still leaving supervision of nonbank financial companies to the CFPB. Noreika also cited the need to streamline and simplify the de novo chartering process.
In contrast to ideas like those, which may or may not ever be formalized into a bill, one very concrete regulatory subject Congress is considering relates to flood insurance. As Congress prepares to reauthorize the National Flood Insurance Program (NFIP), which is scheduled to expire on September 30, 2017, the HFSC is considering numerous bills that would affect discrete issues involving flood insurance requirements.
Decisions on the flood insurance bills may shake loose the pending flood insurance regulations. The federal agencies charged with issuing flood insurance regulations have proposed, but have held off on finalizing, certain rules under the Biggert-Waters Act, perhaps in anticipation of further statutory changes affecting them. Thus, new flood legislation should result in some action on those rules, whether amendments to or withdrawal of the proposed regulations, or finalization of the proposed regulations (and/or newly proposed regulations).
Another closely watched rulemaking affecting investments, the Department of Labor’s Fiduciary Rule, is set to go into effect on January 1, 2018.
But the fate of other rulemakings, particularly from the banking agencies, is less clear. Since the Trump Administration requested that executive agencies halt rulemakings to allow the new leadership to review them, substantive rulemaking activity by the banking agencies has largely slowed or stopped, whether due to that request or otherwise.
Some rulemakings aimed at reducing regulatory burden have been taking place. For example, the Federal Financial Institutions Examination Council (FFIEC) has proposed another round of changes to call report forms, building on related changes finalized late last year, in an effort to relieve reporting burden for smaller financial institutions. The FFIEC stated in releasing this latest proposal that they expect to propose additional simplifying changes to the call report later this year.
Some regulations proposed before the Presidential election remain in a state of suspended animation, such as the interagency proposed rule on incentive-based compensation arrangements, whose public comment period closed July 22, 2016, and whose status and fate remain unknown and generally unmentioned by the agencies. And the CFPB’s perpetually protracted rulemaking on prepaid accounts, (whose rule, after being made final, then saw its effective date delayed), has now been reopened for public comment on certain aspects of the rule. Other than that prepaid rule, the CFPB has issued some requests for information regarding data collection activities, but has not recently proposed any significant substantive rules.
In short, the federal financial regulatory landscape, like many things in Washington these days, remains in a state of flux and uncertainty. We continue to monitor the situation and will provide updates as warranted. In addition, if you have questions on any of these issues, please contact any of the attorneys in Dykema’s Financial Services Regulatory and Compliance Group.