The Definitive Guide to Banking Panel's Voting Marathon

WASHINGTON — The House Financial Services Committee began a marathon two-day voting session Tuesday on more than a dozen bills aimed at changing a wide swath of financial policies.

In the final legislative business the panel will undertake before the August recess, the panel considered bills that tackled Operation Choke Point, executive compensation at Fannie Mae and Freddie Mac and changes or delays to several actions by the Consumer Financial Protection Bureau.

The debate is expected to last two days with all final votes being held late Wednesday. Still, discussion of several important bills has already taken place, giving a clear idea of what lawmakers will pass. Following is a guide to the most critical bills up for a vote:

Operation Choke Point

The first bill the panel debated was a measure offered by Rep. Blaine Luetkemeyer, R-Mo., that would forbid the Office of the Comptroller of the Currency, Federal Reserve, Federal Deposit Insurance Corp. and National Credit Union Administration from "suggesting, requesting or ordering" a bank to terminate a specific business relationship without specific complaints about that individual business.

Luetkemeyer said that the bill is aimed at keeping the Justice Department's "Operation Choke Point," which is attempting to clamp down on illegal activity operating through the payments system, from targeting legitimate businesses.

"The government should not be able to intimidate businesses … based on purely personal and political motivations," Luetkemeyer said.

Rep. Ed Perlmutter, D-Colo., offered an amendment to the bill that would have expanded the legislation's protections to marijuana-related businesses in states or communities where it has been legalized.

Perlmutter said that roughly 40% of marijuana-related businesses in his state remain unbanked because very few institutions are willing to extend their services to an industry that remains illegal under federal law. The Senate Appropriations Committee last week voted to include a similar measure in the upper chamber's fiscal 2016 financial services spending bill. Perlmutter said that, while DOJ guidance suggesting that state-licensed marijuana businesses would not be subject to federal investigation is helpful, Congress must act.

"Ultimately we need to change the law," Perlmutter said. "That is the only way we can solve the banking crisis."

But House Financial Services Committee Chairman Jeb Hensarling said the Operation Choke Point bill was not the venue for such an amendment because it was limited to ensuring that banks could provide services freely to legitimate businesses. The amendment was defeated on a voice vote, and a recorded vote is expected on Wednesday night.

"The sale of marijuana is unlawful under federal law, and that's a very different thing than what we're trying to get at," Hensarling said. "We're trying to get federal banking regulators to obey the law, not disobey the law."

The unpopularity of the "Choke Point" program among Congressional Republicans makes the overall measure certain to pass the committee and highly likely to pass the House. The measure may also gain traction in the Senate, though the issue is not as popular there.

Still, the measure is highly unlikely to be signed by the President, even if it included in otherwise must-pass legislation.

Qualified Mortgages

The panel also debated a bill to establish a "safe harbor" that would exempt banks from the CFPB's "qualified mortgage" requirements if the institution holds the loan in its portfolio, thus assuming 100% of the risk of the loan's default.

The bill's author, Rep. Andy Barr, R-Ky., said he wants to expand the availability of mortgage lending, which he claims has been stymied in recent years because it is easier to sue lenders if they originate loans that fall outside of the QM definition.

"By bearing the risk, a financial institution will have every incentive to make sure a borrower can repay a loan," Barr said.

Rep. Maxine Waters, D-Calif., the top Democrat on the committee, offered an amendment to the bill that would have excluded high-cost mortgages and other exotic products from qualification for the safe harbor. The amendment also would have limited the safe harbor to institutions whose assets are below $10 billion, are not "specialty banks" and have a limited geographic footprint. The CFPB could also set additional restrictions under Waters' amendment.

"Under our proposal, consumers couldn't be hit with high upfront fees or exotic products," Waters said. "For those who say this [amendment] is unnecessary ... I would remind them that both Countrywide and Washington Mutual added many exotic loans to their portfolios, with disastrous results."

Barr, who opposed the amendment, nonetheless said that he had been working with Rep. John Carney, D-Del., and other Democrats to set up appropriate "guardrails" in the bill that could address some of the concerns raised by Waters and other Democrats. He pledged to continue that work on "potential legislative language as [this bill] advances to consideration on the House floor."

What exactly the nature of such an agreement might be is unclear. Issac Boltansky, an analyst with Compass Point Research and Trading, said in a memorandum ahead of the vote that the bill will be more likely to advance in the Senate if there are some limitations made, and that his expectation was that "there is room for a compromise … if the bank asset cap is set at $10 billion."

Executive Compensation at the GSEs

Lawmakers on both sides of the aisle appeared more supportive of a measure to cap the salaries of executives at Fannie Mae and Freddie Mac, making their top salaries equivalent to the highest salaries at the Federal Housing Finance Agency.

Rep. Ed Royce, R-Calif., the bill's author, said that the bill would undo the FHFA's decision earlier this spring to approve the government-sponsored enterprises' executive salary increases from $600,000 per year to $4 million. Because those firms are backed by taxpayers and remain extremely vulnerable to distress in the event of a financial downturn, executives' compensation should reflect the fact that they are paid by the taxpayer, he said.

"Multimillion-dollar paydays for Fannie and Freddie executives are being borne by the public," Royce said. "These [compensation packages] represent a failed grasp on reality on the part of these institutions and their regulator."

The bill also included language that would place non-executive employees on the same pay scale as all other federal agencies. Royce later introduced an amendment, unanimously approved by a voice vote, that struck that portion of the bill in an effort to "garner bipartisan support" for the measure in the full House.

The bill fielded no opposition among Democrats on the committee and is likely to be passed by the Senate and signed by the President. The White House and Treasury have already called the compensation packages excessive, and Democrats in Congress have likewise supported reining them in. Whether the bill is introduced on its own or combined into a package with more divisive legislation is the main question about whether it will pass, according to Boltansky.

"Passage may ultimately depend on whether other measures — such as Sen. [Bob] Corker's [R-Tenn.] prohibition on the disposition of the U.S. Treasury's stake in the GSEs — are attached to the effort," Boltansky said.

Exam Relief for Small Banks

Another uncontroversial bill that is likely to gain traction would double the threshold for banks that must face annual regulatory exams to $1 billion, making them subject to an 18-month exam cycle.

The bill by Rep. Scott Tipton, R-Colo., was praised by Democrats, including Rep. Lacy Clay of Missouri, who said that the measure would be a boon for smaller institutions.

"I firmly believe that well-managed and capitalized community banks should spend less time preparing for annual examinations and spend more time doing what they do best -- investing in local communities," Clay said.

Mortgage Disclosures

The panel also took up a bill that would delay the CFPB's ability to enforce violations of its new mortgage disclosure form if lenders have made a "good-faith effort" to comply.

The CFPB issued a rule in 2013 integrating requirements from the Truth in Lending and Real Estate Settlement Procedures acts into a single set of disclosures to mortgage borrowers, known as TRID. The rule was meant to go into effect Aug. 1, but the agency extended the deadline to Oct. 3 after a clerical error. Critics still argue lenders need more time to get their systems fully compliant with the rule.

The bill, sponsored by Rep. French Hill, R-Ark., would not delay the effective date of the TRID rule but would forbid private lawsuits or CFPB enforcement actions related to violations of the rule until Feb. 1, 2016.

Rep. Brad Sherman, D-Calif., who cosponsored the bill, said that it does not hurt CFPB, but instead just helps lenders.

"This bill does not delay for one minute the new form," Sherman said. "It simply says that, for a period of a few months, if you do everything possible to implement the new policy, and you screw up this way or that way, you are not going to be faced with the lawsuits or the enforcement actions."

More Bills on the Way

The panel is expected to take up more controversial bills on Wednesday.

One offered by Rep. Bill Huizinga, R-Mich., would make broad changes to the Federal Reserve system. It would require the Fed to develop a reference policy rule for interest rates and explain any discrepancies between it and the Federal Open Market Committee's actual interest rate decisions; conduct a cost-benefit analysis on all new rules; change the FOMC voting membership; require the Fed chairman to appear before Congress quarterly rather than semi-annually; and expand the "blackout period" to forbid all FOMC member governors from discussing aspects of FOMC meetings for a week before a meeting until midnight on the day following a meeting.

The committee is also scheduled to take up a bill to block the CFPB's 2013 indirect auto lending bulletin, which said lenders could be responsible for unintentional discrimination that takes place at partnering dealerships. Another bill would exempt inter-affiliate swaps made by so-called "end users" of derivatives contracts from most reporting and clearing requirements under Title VII of Dodd-Frank.