CHOICE. CLEARR. Politics. Payments?
Lest you think the words above are incongruous, consider they’re all connected by a spate of legislation looming large on Capitol Hill, with the potential to impact everything from banking firms to payday lenders to the Consumer Financial Protection Bureau (CFPB).
Here are a couple of examples: The Financial CHOICE Act — the financial regulatory reform bill introduced by House Financial Services Committee Chairman Jeb Hensarling in April, and which passed in the House in June — now awaits the Senate’s vote. The Community Lending Enhancement and Regulatory Relief Act (CLEARR) is also making news, exempting some payday lenders from mortgage servicing regulations as required by the CFPB.
Against that backdrop, PYMNTS’ Karen Webster sat down with Bill Sullivan, senior director and group manager of Government and Industry Relations at NACHA — The Electronic Payments Association, to get the lay of the land on Capitol Hill.
First things first: What’s in a name? The CFPB serves as the regulatory watchdog, with oversight of several facets of the financial services industry — some might say too many. In any case, the CFPB could potentially be rebranded the Consumer Law Enforcement Agency through the CHOICE Act, and, beyond that cosmetic change, real structural shifts may be afoot.
As Bill Sullivan noted, the CHOICE Act is Hensarling’s “vision of how the financial services industry should change as a result of the Dodd-Frank Act.” The CHOICE Act remains an expansive bill, he said, especially when it comes to revamping the CFPB.
The CFPB’s structure would change to have a single director, who could be removed by the President, at his or her discretion. For months, there has been jousting in the halls of Congress and courts as to whether Richard Cordray has too much power in his current position as director. The timing of this intense debate surrounding the CFPB is one that is fortuitous — or not, depending on the side of the aisle.
It is no secret that Republicans are looking to refashion the entity. But as Webster noted, to have a dismantling of sorts of the CFPB may not play out all that well, even on the Hill. The Wells Fargo scandals, and the CFPB’s role in pursuing that bank, may be presented as “Exhibit A” as an argument for why the organization’s reach and structure should be preserved.
To further complicate the CFPB matter, reelections are in the offing. According to Sullivan, there is “a strong chance” that Cordray may step down this year or early next and announce his candidacy for Ohio’s governorship. Should Richard Cordray be fired for any reason by President Trump, “he could go home to Ohio as a political martyr,” said Sullivan. Ohio, as an important red state, naturally draws the attention of Republicans.
Other elections will spotlight financial services regulation and the CHOICE and CLEARR Acts, as well as whether regional and local banks — such as Fifth Third Bank, KeyBank and Huntington Bank — will be exempted from certain “dollar thresholds” tied to capital requirements, said Sullivan. This includes that of Sherrod Brown, a ranking member of the Senate Committee on Banking, Housing and Urban Affairs. Sullivan predicted that “Ohio to be a big winner, along with community banks, in a lot of this [jockeying over financial services].”
The Looming Debates, and a Slam Dunk (about what won’t happen)
Details across many legislative fronts still need to be worked out, and in politics nothing is really certain until the ink is dry on a bill or amendment, and maybe not even then.
A new Congress will be seated in 2019 with one-third of the Senate up for re-election in the midterm skirmishes of 2018, setting the stage for at least some flurry of change. Then again, what might we expect from the current crop of House and Senate occupants? Sometimes it’s easier to bet on what “ain’t” than what might be.
“Slam dunk,” said Sullivan. “Here is what is not going to happen: They still, in the CHOICE Act, have a repeal of the Durbin Amendment [which lowered credit card swipe fees] … there is no way, shape or form that the Senate will take that up.”
Passing along a scenario that had been relayed to him by well-placed sources, Sullivan noted early in January, that at a retreat, four freshmen Congressmen on the Financial Services Committee asked to be removed. “The minute [there was talk] about repealing Durbin … they asked to be removed from the committee because they knew they’d never get reelected.” That’s if the Durbin repeal was brought to legislation, Sullivan said.
So, other than what won’t happen, what will happen? With a nod to community banks, Sullivan explained these smaller entities would become exempt from new mortgage rules as part of CLEARR. This would, in effect, expand those exemptions, while having the advantageous effect of loosening up the credit markets. Those same community banks would escape the reach of the CFPB if their on-the-books assets come in under $50 billion.
Taken in combination, CHOICE and CLEARR offer additional benefits to community banks, as the legislation “[frees] them up from regulations that are costing them money [in part through] a lot of new hires in the compliance area,” Sullivan noted. “If they are not hiring in the compliance area or [are] hiring a bunch of new lawyers they can barely afford, they’ve got more money to start creating loan products and services to lend out to the community, whether it’s individuals or businesses.”
Speaking illustratively on that possibility, Sullivan said that a regulator cannot come in and tell a bank it needs to drop a firearms dealer or adult content provider (the Obama-era regulation known as Operation Choke Point). The regulator must instead put into writing why that originator must be booted from the bank. As such, this pair — payday lending and Choke Point — promises to generate some contentious Congressional conversation.
Beyond the seats that may change hands in Congress, other seats may be filled with a bit more staying power. Think of the appointments process here, and look to the Federal Reserve and beyond, Sullivan advised. The fact remains that many appointments have yet to be made elsewhere on Capitol Hill, and those may influence at least some of what is playing out in Congress.
Not all those who need to be sitting at the regulatory table have been seated. But, senior-level appointments, at the Department of the Treasury, for example — which saw a whopping five positions filled in the last few weeks — mean the financial services industry has been better off than other sectors, Sullivan maintained.
The Rumor Mill Grinds On
At the time of writing, rumor mills were churning about who might be leaving the private sector for the public domain. Sullivan said Jelena McWilliams, legal officer at Fifth Third Bank, may be headed for a role at the Federal Deposit Insurance Corporation (FDIC).
“I will also comment that the appointments in the financial world are those that you [would] have seen if it had been a Bush presidency, a Kasich presidency,” said Sullivan.
Potential appointments, like McWilliams for the FDIC role, are not tied to big donors to the Trump campaign or people who have longstanding relationships with the President. Randal Quarles, vice chair of the Federal Reserve, for example, was a Bush appointee. Other possibilities include Economic Advisor Gary Cohn, who is “rising to power very quickly.” Cohn, noted Sullivan, has been mentioned as a possible replacement for Federal Reserve Chairwoman Janet Yellen. By the way, he’s a registered Democrat.
It bears watching, too, who President Trump appoints to oversee community banking as part of the Federal Reserve. One name being considered here: Jeff Dick, CEO of MainStreet Bank in Fairfax, Virginia, who has “publicly said that he would divest [his holdings],” according to Sullivan.
What Lies Ahead
You may recall this past June’s Department of the Treasury’s tome to the President, which touted ways to roll back a significant spate of financial regulations. Said NACHA — The Electronic Payments Association’s Bill Sullivan of the Treasury report, “They did a fantastic job in a short period of time getting the pulse of what the industry thinks.”
But, many people do not realize there are more reports due to drop. Two will come next month, with one following in late 2017 or early 2018 covering FinTech and its access to the banking system, among other topics.
According to Sullivan, those reports are going to be key to how the administration, Congress and regulators respond to FinTech over the next few years.