Five Legislative Battles to Watch in 2016

The past year has proven to be a mixed bag for financial services officials, who won a host of smaller, bipartisan measures earlier in December as part of the federal transportation bill and saw the passage of a long-sought cybersecurity bill in the budget deal.But lawmakers were unable to move more sweeping reforms, leaving plenty remaining on the agenda for the coming year. But though lawmakers will have to contend with the Democratic and Republican conventions this summer and other presidential fanfare as the race for the White House heats up.Click through this roundup of what to watch in 2016, including a few new fights on the horizon.

Despite a few small gains in recent years, regulatory relief will remain a top priority for credit unions in the coming year. Several presidential candidates have warned about the impact of the Dodd-Frank Act on small institutions, and lawmakers on both sides of the aisle continue to express interest in the issue.

“We really are trying to kick up the momentum that we started seeing towards the end of last year,” said Carrie Hunt, executive vice president of government affairs and general counsel at NAFCU. She noted that there were some small gains in the transportation bill but that credit unions were hoping for more through the appropriations process.“During a lot of those discussions we saw that there was more of an appetite to consider those [regulatory relief] issues,” she said. There might not have been enough time to move Senate Banking Committee Chairman Richard Shelby’s legislation in the lead-up to the budget deal, but the conditions could be ripe to move the parts of the bill that credit unions value most.

“The provisions credit unions are interested in [Title I of the Shelby bill], there is a lot of room for agreement on a bipartisan basis,” said Ryan Donovan, chief advocacy officer at CUNA. “For us in 2016, it is looking at what is left over in the Shelby bill that did not get enacted and how do we position that so it has got a chance of getting enacted this year.”To be sure, lawmakers face a tough road ahead. Progressives remain deeply skeptical about many proposed changes to the Dodd-Frank Act, particularly those that would benefit larger firms as well as credit unions. Their public efforts to keep financial industry provisions out of December’s spending package were largely successful, even as lawmakers agreed to a handful of less controversial, bipartisan measures as part of the highway bill.

“The budget deal and transportation bill showed that a bipartisan approach can work to provide meaningful regulatory relief for community banks and credit unions, without rolling back Wall Street reform,” Sen. Sherrod Brown, D-Ohio, ranking member on the banking panel and a vocal critic of Shelby’s bill, said in a statement. “We should take a similar approach to strengthen consumer protections for renters, service members and others.”The tight calendar means Congress will have to act fast to move any bill through regular order. Adding to that pressure, the political climate is bound to grow more partisan as the months pass, with neither party wanting to hand the other a victory.“With this compressed calendar, the windows of opportunity are also relatively narrow so we have got this period of time here at the beginning of the year where there may or may not be a window of opportunity,” Donovan said, adding that without looming debt ceiling or appropriations deadline there is no deadline to prompt Congress to act.“The first five or six months of this year is important for us to try and position legislation and proposals so that they are ripe when congress does face a deadline at the end of the year,” Donovan said, adding that, “I see a window of opportunity perhaps after the election.”

In the meantime, House lawmakers are expected to renew their focus on the financial reform law.Rep. Jeb Hensarling, R-Texas, chairman of the Financial Services Committee, announced in December that he will produce a “visionary piece of legislation” that will include rolling back “huge swaths of Dodd-Frank” as part of Speaker Paul Ryan’s plan to shape the Republican message on policy.But House Democrats remain watchful of any changes.Asked about her goals for 2016 on the committee, Rep. Carolyn Maloney of New York said the biggest is to stop anything damaging from being passed into law.“We don’t set the agenda, so it’s to do no harm,” she said in an interview.Rep. Maxine Waters, D-Calif., ranking member on the banking panel, echoed concerns from other progressives about the scope of any regulatory relief provisions considered by the committee.“Every time we try and come up with a way of helping community banks, Mr. Hensarling and other Republicans say, well we can do it if we can do the same thing for the big banks,” she said in an interview. “We have not been able to get them to separate themselves from the biggest banks in the country and wanting to use whatever reforms or protections we come up with for the community banks for those big banks–so we’re going to keep trying.”

The consumer agency, in particular, is expected to remain a flashpoint as debates over Dodd-Frank continue. Republican presidential candidates have been critical of the agency and GOP lawmakers have long sought to change the agency’s structure to a commission and subject it to the congressional spending process. While it remains extremely likely that the current White House would veto either measure, especially one changing the agency’s funding mechanism, the issue could get teed up for next term if a Republican presidential candidate wins the election.Hensarling and Republican colleagues “hate Dodd-Frank, they hate the Consumer Financial Protection Bureau, which is one of the centerpieces of Dodd-Frank,” Waters said. “And whether we’re talking about that or we’re talking about [the Volcker Rule] or we’re talking about other issues in Dodd-Frank, he’s been clear. It’s not something he’s tried to sneak in–he’s been very open about that.”

Texas Republican Rep. Randy Neugebauer, who will be pushing his own bill to remove the CFPB’s director in favor of a commission, said he’ll also be focused on the bureau’s forthcoming payday loans rule and efforts to limit mandatory arbitration clauses in consumer contracts.Additionally, lawmakers are also expected to continue the push for a bill passed by the House this fall that would force the agency to throw out its 2013 guidance on indirect auto lending.Credit unions will be pushing hard for the additional changes to CFPB, including the “qualified mortgage” rule and the ability to qualify for safe harbor on loans held in portfolio, as well as structural changes to leadership. “No matter who is elected it is going to be somebody different and one of the key concerns credit unions have…is they are being inundated with new regulations and it is kind of nonstop,” Donovan said. “With a commission, it at least gives you the prospect of that being moderated a bit.”

Though Congress finally passed a long-standing bill that will make the sharing of cyberthreat information easier between the private sector and government as part of the budget package, there’s still plenty to do when it comes to monitoring potential threats to the industry. That includes both the potential for abuse of the financial system for illegal purposes and attacks on individual institutions and the system more broadly.Lawmakers are expected to review long-standing anti-money-laundering rules as part of that effort.“The existing AML regime has not been seriously looked at in over a decade by Congress,” said Aaron Klein, director of the financial regulatory reform initiative at the Bipartisan Policy Center. “The tools necessary to effectively fight ISIS are very different than the regime put in place in the 1970s to go after the mafia and 1980s to go after organized drug dealers.”The attack last month in San Bernardino, Calif., has thrust online lenders back in the spotlight, after reports that one of the shooters had recently taken out a loan from Prosper Marketplace, although there’s not yet any evidence the firm should have been able to detect the plot at that time.Hensarling and Waters have both indicated they wish to address the issue.And while the cybersecurity information sharing legislation was seen as a win, credit unions are looking for more action on that front including making sure other businesses such as retailers are required to maintain the same data security standards that financial institutions are.NAFCU’s Hunt said that while data security isn’t traditionally thought of as a regulatory relief issue, a breach can be detrimental to credit unions and their members. Creating a level playing field would be a relief since it might help prevent breaches from happening in the first place. “I think certainly there was a lot of momentum on data security so we are certainly hopeful that potentially can pass but we will see where we go from here,” Hunt said.

While few predict that comprehensive mortgage finance reform is in the offing for 2016, there’s likely to be continued discussion around what to do with Fannie Mae and Freddie Mac. The budget deal contained a provision co-authored by Sen. Bob Corker, R-Tenn., that would prohibit the Treasury Department from selling its shares of the government-sponsored enterprises until 2018, putting the onus back on Congress to come up with a legislative solution. That effort could help spur further talks about the future of the housing giants.The provision “has reignited in a very significant way people’s desire to address this issue,” Corker said in December. “I understand what the dynamics are going to be in 2016 — I understand it’s a presidential year, I understand the calendar is short. But my guess is, because of what has happened, people will be working on a foundational opportunity for something really big after the elections, if not before, and the incremental pieces you’re talking about to me are a real possibility this next year.”Over in the House, Carney said that he’s also going to continue his work with Delaney and Rep. Jim Himes, D-Conn., on their bill to establish a mortgage insurance program through Ginnie Mae.“We’re looking at maybe a way to do something other than the full bill that would move the ball down the field a little bit on how to provide a government guarantee for mortgage-backed securities with private capital in a first-loss position,” he said, noting that the lawmakers are looking into possible pilot programs based on the legislation.CUNA’s Donovan also said the group will be lobbying to enact a part of Shelby’s existing bill that would ensure credit unions are on a level playing field with banks of similar size in accessing the Federal Home Loan Bank system.

The Fed has come under increasing scrutiny over the past year for everything from its handling of interest rates—raised in December for the first time in nine years—to the scope of banking industry influence on its actions.Senate Republicans have already scheduled Kentucky Republican Rand Paul’s “audit the Fed” bill for January, a move that will likely spark additional discussion around the agency’s board structure and its transparency. Shelby’s bill also contains a number of Fed provisions on the handling of monetary and regulatory policy that could gain new attention as part of that debate.