Leader Kevin McCarthy (R-CA) has told reporters he expects a full House vote
next week on H.R. 10, The Financial Choice Act which was voted out of the
Financial Services Committee (FSC) on May 4. The Act, sponsored by FSC Chairman
Jeb Hensarling (R-TX) would repeal or modify many of the changes made by the
Dodd-Frank Wall Street Reform and Consumer Protection Act, including broad
changes in financial regulations, revising the structure of the Consumer
Financial Protection Bureau, and limiting much of its authority. It also includes provisions that will affect
the home mortgage industry. In the
latter area, the bill would incorporate more than two dozen proposed regulatory
relief bills for community financial institutions, which we include for reader’s
reference; H.R. 2896, H.R. 1210, and H.R. 766.
Information provided by associates at the
Ballard and Spahr law firm, Richard J. Andreano and Pavitra Bacon has been used
to explain some of the impact passage of the law could bring to the mortgage
industry. Barbara Mishkin, another
Ballard Spahr attorney, has also written to clarify the impact on CFPB,
and other regulatory agencies.
H.R. 10 would create a safe harbor under
the Regulation Z ability to repay requirements if a depository institution
holds a loan in portfolio from the time of origination and complies with a
limitation on prepayment penalties. Originators working for depository
institutions would have a safe harbor from a related anti-steering provision if
they informed the consumer that the institution intended to hold the loan in
portfolio for the life of the loan.
Another provision would affect the
definition of points and fees under Regulation Z and high-cost mortgage loan
requirements to exclude charges for title insurance and/or title examinations and
similar purposes. Under current rules such exclusions were only allowed if the
vendor was not affiliated with the lender. Escrowed funds for taxes are
currently excluded from points and fees and H.R. 10 would also include insurance
escrows in that exclusion. Certain small
lenders, those with consolidated assets of
$10 billion or less, would be excluded from Regulation Z escrow requirements
for higher priced mortgages if the creditor portfolios the loan for a minimum
of three years.
The Act would also create, under the S.A.F.E. Mortgage Licensing Act, a temporary authority for a
loan originator to continue to originate loans while licensing issues are
resolved if he or she moves from a depository to a non-depository lender or
from a non-depository lender in one state to another non-depository lender in a
changes will affect reporting under CFPB’s revised Home Mortgage Disclosure Act
(HMDA) rule. The volume threshold for a
reporting institution would change to 100 closed-end mortgage loans or 200
open-end lines of credit in each of the prior two years from the CFPB threshold
of 25 closed-end and 100 open-end loans. The Act would also compel the
Comptroller General to study the issue surrounding the privacy of consumers
that has arisen from the proposed expansion of consumer and loan level data to
be collected and report his or her findings to Congress. It would also roll
back requirements for information reporting institutions must make available to
the public to those that existed under HMDA immediately prior to adoption of
The Act would also increase the threshold
for exemption of small servicers from some servicing requirements. The current minimum is 5,000 loans annually and
the servicers and its affiliates must be the creditor or assignee of all of
them. This would be expanded to 20,000 loans and the bill makes no reference to
ownership or assignment.
Passage of H.R. 10 would have a profound
impact on CFPB. First, its name would
change to the “Consumer Law Enforcement
Agency” (CLEA) and, while its single director format would not change, that
director would no longer serve a set term, but at the pleasure of the President.
The agency would also be brought into
the Congressional appropriations process (as would the Federal Deposit
Insurance Corporation (FDIC), National Credit Union Administration (NCUA,) and Office
of Comptroller of the Currency (OCC), have its own Inspector General, and be
subject to the same oversight by the Office of Information and Regulatory
Affairs (OIRA) as other non-independent regulatory agencies. The Deputy Director would also be a
CLEA would have no supervisory authority, no authority to make or enforce rules
under Unfair, Deceptive and Abusive Acts and Practices (UDAAP) that affect payday,
vehicle title or similar loans, and no authority over arbitration agreements
concerning consumer financial products or services.
CLEA could not use an administrative
proceeding in a case that could result in a cease and desist (CID) order or
penalty and must instead bring a civil action. The recipient of a CID could
file a petition with a federal district court to modify or set it aside. The
CLEA would be required to maintain a segregated Civil Penalty Fund for all
penalties it receives, with any undistributed funds reverting to the U.S.
Treasury after two years.
CLEA would have to establish an Office
of Economic Analysis to conduct an impact analysis of all proposed rules, review
them at regular intervals, and conduct a cost-benefit analysis of proposed
administrative actions, civil lawsuits, or consent order.
The law would also significantly
interject Congress into the rulemaking process, not only of CFPB, but also other
regulators including the Federal Reserve, FDIC, OCC, and NCUA. It creates
categories of major and non-major rules and requires a joint resolution of Congress
for the former to take effect and allows joint resolutions of disapproval of
The act would also repeal the
amendment to the Equal Opportunity Act made through Dodd-Frank that requires financial
institutions to collect and maintain certain data in connection with credit
applications made by women- or minority-owned businesses and small businesses.