Following unsuccessful attempts to overhaul Dodd-Frank through varied iterations of the Financial CHOICE Act, the Senate is expected to vote in the immediate future on the “Economic Growth, Regulatory Relief, and Consumer Protection Act” (S. 2155).
The bill is sponsored by Idaho senator Michael Crapo (R), and it includes revisions to the Truth in Lending Act (“TILA”), the Bank Holding Company Act, the Volcker Rule, and the United States Housing Act, among others. As part of its bipartisan appeal, the proposed law also includes new protections for consumers to prevent identity theft and cybersecurity breaches, as well as relief for from private student loan debt.
If passed, this act would relieve relatively smaller banks from some of the burdens imposed by heightened regulations, such as ability-to-repay evaluations, record retention, reporting to regulators, and stress-testing. Dodd-Frank requires those banks with more than $50 million in assets, representing roughly the 40 largest banks, to follow the most stringent protocol, while the new bill would raise that tipping point to $250 billion in assets, or the top 12 banks.
Mortgage origination would be impacted as well. The bill creates somewhat of an incentive for lenders to hold on to the mortgages they originate, as it exempts them from the strict underwriting standards of Dodd-Frank if the lender continues to service and hold the loan. Furthermore, banks that originate less than 500 mortgages a year would have relaxed reporting requirements for racial and income data.
Touted as maintaining necessary protections of Dodd-Frank while providing much-needed relief to small and regional banks, the bill represents the first major bipartisan effort to reform financial regulation in recent history, with 20 co-sponsors from both major parties. Although there has been some difficulty in determining which amendments will be accepted and rejected, it is expected to pass at some point. The bill will face a challenge, however, if it proceeds to the House, as House Republicans have already indicated that, in its current form, the bill does not go far enough to undo Dodd-Frank.
The full text of S. 2155, as well as the bill’s progress, may be tracked here.
He now leads the Consumer Financial Protection Bureau (the “CFPB”) – the very organization he once called a “sad, sick joke.” But acting director Mick Mulvaney assures the public that he has no intention to burn it down, and that the CFPB will continue enforcing consumer protection laws.
2017 ended with former CFPB Director Richard Cordray stepping down from his post, so that he could pursue his candidacy for Governor in Ohio. Mulvaney was subsequently appointed by President Trump as interim director, and he will continue in this role until a permanent replacement is appointed by the Senate.
Mulvaney issued a memo last week stating his intentions with respect to how the CFPB would change under his leadership. He focused on the language of his predecessor, Cordray, who publicly described the CFPB during his tenure as “pushing the envelope” in its fight to protect consumers from unscrupulous practices of lenders and other businesses. Contrarily, Mulvaney reasoned that the CFPB works for all people, including “those who use credit cards, and those who provide the cards; those who take loans, and those who make them; those who buy cars, and those who sell them.”
That, it seems, could be the most significant change in tune from the Cordray to the Mulvaney era. Since its inception, we have seen the CFPB’s one-sided focus on protecting the consumer; after all, that is the “C” in “CFPB,” and the assumption was that business can take care of itself. Now, we see a new perspective – that banks, creditors, and merchants are people in need of protection under the law, because they are comprised of people.
Mulvaney further assured that the CFPB would strive to protect consumers from unavoidable harm but would not “look for lawsuits to file,” and that the CFPB would no longer engage in the unpredictable practice of regulation by enforcement.
We already have the first concrete examples of the CFPB policy shift. Earlier this month, the CFPB issued a statement that the Bureau intends to engage in a rulemaking process so that it may reconsider the Payday Rule, which if it went into effect, would place the onus on payday lenders to determine the borrower’s ability to repay before making the loan. Just two days later, the CFPB dismissed a lawsuit that it had filed last year in Kansas federal court against four payday lending companies.
The CFPB has also invited industry personnel and attorneys to comment on the Civil Investigative Demand process, recognizing that many in the financial services industry felt their critiques about the enforcement process were disregarded or ignored in the past.
The full content of Mulvaney’s memo concerning the CFPB policy shift may be found here.
Its exact origins are somewhat of a mystery, but it is believed that Satoshi Nakamoto, perhaps a pseudonym for more than one creator, first developed the concept of the bitcoin in 2007. In October of 2008, “Nakamoto” published his first paper describing the peer-to-peer, online-based cash system. The first Bitcoin transaction occurred in early 2009, and since then, the cryptocurrency market has exploded, and now major retailers, including Overstock.com, Microsoft, Dish Network, Etsy, Expedia, and even Subway have begun accepting Bitcoin for transactions in some capacity. And its value has catapulted, now exceeding $11,000 USD.
But what’s on the other side of the coin? First, Bitcoin users can make anonymous transfers, which lends itself well to criminal, underground activity. Likewise, a virtually unregulated market leaves Bitcoin transactions subject to a high risk of fraud, with no recourse for jilted consumers. While some individual U.S. states have introduced legislation attempting to regulate cryptocurrency, the federal government has not, leaving the environment unstable.
Furthermore, the exponential increase in its value and lack of regulation leaves many experts wondering if this Bitcoin craze is just a bubble, only to be followed by a crash.
While cryptocurrency faces skepticism, the blockchain technology used to effectuate Bitcoin transfers has earned much praise as an alternative for future banking systems, particularly in expediting international payments. And in light of this year’s highly publicized data breaches, financial institutions may be well advised to explore the use of blockchain technology to prevent public dissemination of sensitive information, as it is touted for its resilient data protection capabilities.
Financial institutions in particular have been wary about the growing popularity of the Bitcoin. Jamie Dimon, CEO of JPMorgan Chase Bank, issued a statement questioning its legitimacy. “It’s just not a real thing, eventually it will be closed,” said Dimon, who further threatened to “fire in a second” any JPMorgan trader who attempted to trade Bitcoin. The Bank’s CFO, Marianne Lake, shortly thereafter qualified Dimon’s statements, avowing that JPMorgan remains “ very open minded to the potential use cases in future for digital currencies that are properly controlled and regulated.” This sentiment reflects that held by many institutions – most are open to the idea of a new type of currency, but are reluctant to engage until the currency is widely regulated.
Regulating the Bitcoin presents several challenges. For one thing, while Bitcoin transcends borders, there is no uniformity among nations, or even states in the U.S., about how it should be treated or regulated. Furthermore, there is inconsistency among legislators and the judiciary about whether Bitcoin is a currency or a commodity, thus making legislation difficult to draft. Even so, the SEC has recently expressed its intent to begin regulating the sale of Bitcoin and other cryptocurrency.
Fad or not, the Bitcoin is sure to be a continued hot topic internationally among regulators and financial institution in the coming months.
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The BSCR Financial Services Law Blog explores current events, litigation trends, regulations, and hot topics in the financial services industry. This blog will inform readers of issues affecting a wide range of financial services, including mortgage lending, auto finance, and credit card/retail transactions. Learn more about the editor, Megan Stumph, and our Financial Services practice.
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