Will this election result in push-back on regulatory overreach?
... the agencies are proposing an agenda that is tailored to the goals of the progressive left.”
President Biden’s banking regulators are on a head-long rush to implement major regulatory changes on a pace that the industry has not seen since the 1970s.
CFPB Director Rohit Chopra, working with the two other FDIC board members, caused the departure of the only remaining Republican-appointed regulator, Jelena McWilliams, the former FDIC chair. Martin Gruenberg, a former FDIC board member and former Democrat-appointed FDIC Chair, is now the Acting Chair of the FDIC. The third FDIC board member, Michael Hsu, is also the acting Comptroller of the Currency. Lael Brainard, a former Clinton and Obama staffer, is the vice chair of the Federal Reserve Board of Governors.
Despite having two agency heads in an acting capacity and an almost evenly divided House and Senate, the agencies are proposing an agenda that is tailored to the goals of the progressive left. The regulatory burdens of these proposals will fall most heavily on community banks.
Section 1071
Chopra, who helped Elizabeth Warren set up the CFPB, has used four pages of statutory language from Section 1071 of the Dodd-Frank Act to issue a 925-page mandate that all banks must collect and report at least 21 distinct data points on all small business loans from entities that have $5 million or under in revenue each year.
Brainard led the team representing all the bank supervisory agencies that produced a new CRA proposal — based on two pages of law — that is almost 700 pages in length. CRA compliance and reporting burdens will increase for banks between $600 million and $2 billion in assets. Banks over $2 billion will have even greater compliance costs.
Satisfactory and Outstanding CRA ratings will be much harder to obtain. Chopra has used his position at the CFPB to make fair lending examinations for all agencies more arduous. He has also expanded fair lending concepts to the offering of bank services that don’t involve credit and favors the use of the term “junk fees” when he talks about what banks are offering.
What’s the rush?
The agencies are in a great hurry to implement the 1071 and CRA regulations. Despite their complexity, they have ignored pleas for additional time to comment on the proposals and want them in place within a one- to two-year period. In the past, complex rules, such as HMDA changes, have required a number of amendments and reinterpretations after they were put in place. Banks had to bear the initial compliance costs as well as those added by amendments.
The reason for the rush to implement may be due to political factors. Changes in the House, and possibly the Senate, could give new Republican majorities the opportunity express disapproval of regulatory excess.
Another CRA, the Congressional Review Act, may be influencing their actions. This law allows the House and Senate, along with a presidential signature, to invalidate rules implemented close to a presidential election. A number of Obama era regulations were invalidated in 2017 by Republicans in the House and Senate and President Trump.
Will congressional majorities change?
Speaker Nancy Pelosi presides over the House with a five vote majority. Since the 1940s, except in one election, the party that is not in the White House gains seats in the House of Representatives. The numbers have ranged from about a dozen up to the 67 seats that Republicans won in 2010.
Most political pundits believe that the House will change hands. President Biden’s approval ratings are low and inflation and energy costs are foremost in voters’ minds, according to polls. Still, a number of Democrats believe that the Inflation Reduction Act, essentially an environmental and IRS bill, will bring out the faithful along with voters disgruntled with the recent Dobbs decision from the Supreme Court.
Control of the Senate is a toss-up. The current 50/50 Senate has a Democratic majority with the vote of the Vice-President. If this is a “wave” election like those in the past when voters repudiated presidential leadership, Republicans could gain two to four seats. Democrats believe that there are weak Republican candidates in Arizona, Georgia, Pennsylvania and Ohio and that they will add to their majority.
A phrase that goes back to the first Reagan administration is that “personnel is policy.” Community banks need people in the agencies and Congress who understand the costs and consequences of regulations that hurt banks and limit their ability to serve their communities.