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Senate Banking Committee Holds Hearings on Consumer Finance Regulations

Laying the Groundwork for the Next Administration

Russell McIntyre    |    Housing Policy

Since the last election cycle, the Senate’s Banking, Housing, & Urban Affairs Committee has been one of the least active committees in Congress. From October 2015 through March of this year, the full committee held only a half dozen hearings, three of which were to address the backlog of executive nominations that had piled up over the previous years. Therefore, it was quite a surprise when the committee exploded with activity in early April, holding four hearings during the first three weeks on a myriad of financial issues, several dealing with the Consumer Financial Protection Bureau (CFPB) and its consumer finance regulations.

To kick the month off, the committee convened to assess the effects of consumer finance regulations, in which four witnesses provided their firsthand accounts of the extensiveness of regulation currently found in today’s financial system. All four individuals testifying were from the private sector and roundly criticized the CFPB’s practice of “regulation via enforcement,” and specifically the use of CFPB consent orders. Arguments were made, both by witnesses and house representatives, for a more transparent and accountable CFPB, one that would abide by a straightforward and open rulemaking process. As expected, Democrats and Republicans continue to differ on almost everything regarding the CFPB. Senate GOP members criticize the agency for overregulating the average consumer, driving them toward riskier services from check cashers and payday lenders, as the number of community banks and credit unions continues to shrink. Alternatively, Democrats remain defenders of the CFPB and its actions over the past five years, noting the billions of dollars the agency has returned to consumers, as well as the crucial oversight role it plays in the financial sector. Due to the drastically different stances of the two parties, the outcome of this upcoming election will impact the direction of the dialogue on the future of the CFPB, its funding, and its regulatory capabilities.

That initial hearing was used by the banking committee’s Republican members to set the tone going into CFPB director Richard Cordray’s semi-annual report to Congress. Throughout Cordray’s testimony, he defended the actions of the CFPB, reiterating the benefits of enacted regulations and highlighting the billions in savings that have been returned to Americans across the country. Director Cordray also referenced the increase in mortgage issuances, auto loans and credit union memberships since the CFPB began enforcement in 2011. Issues identified for further discussion included the previously mentioned controversy over “regulation-by-enforcement,” the Ally Financial fair lending court settlement and the jurisdiction of the CFPB over indirect auto lending, the latter of which has become a popular Republican punching bag. If Republicans retain control of Congress in this fall’s elections, they will look to increase Congressional oversight of the CFPB, perhaps by altering its funding process, an avenue they have explored since the bureau’s inception.

In mid-April, the committee held a hearing on the current trends and changes in fixed-income markets. Two witnesses attended this session, including U.S. Treasury Counselor Antonio Weiss, who told members of the committee that the federal government is developing a plan to gather more complete data on trading in the Treasury market, which will be finalized by the end of the year. This public reporting of trading data could have a variety of consequences. Michael Cloherty, an interest-rate strategist with RBC Capital Markets, claimed that it may raise the cost of Treasury transactions and benefit automated traders at the expense of bond dealers that hold clients’ securities on their balance sheets. However, other researchers have found that added transparency can reduce trade execution costs in corporate debt. As this plan is developed over the coming months, the central questions will pertain to the availability of this trading data and how widely it should be disseminated.

Heading into 2016, most political pundits and Washington insiders foresaw a general lack of legislation that usually comes with the uncertainty of a presidential election year. Proposals seem to dry up, D.C. empties out, and every representative’s main concern becomes his or her own re-election. Historically, significant legislation does not get passed in the final year of an administration; however, that doesn’t mean the ball completely stops rolling. Though we may not see any major action this calendar year, committees are undergoing a lot of groundwork and preparation for 2017 so that significant reforms can begin once a new president is sworn into office. The schedule of hearings during the next several months will give us a clearer picture as to where financial reform is on Congress’ list of priorities for 2017.

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