Choice Thoughts on the CHOICE Act

May 8, 2017 at 7:30 am Leave a comment

With the usual caveat that the opinions I’m expressing are those of a middle-aged insomniac typing away in his hotel room and not necessarily those of the Association for whom he works, here is my take on what’s good, bad and ugly about the CHOICE Act (HR 10) that was marked up and passed by the House Financial Services Committee last Thursday.

The Good

  • Making the CFPB’s director an at-will servant of the President.  Under the current structure, the Director is, at best, a benign dictator who acts as the judge, jury and executioner for every federal consumer protection law.  This is just too much power to give to one person and most likely unconstitutional.
  • Codifying the requirement for a public hearing on the NCUA’s budget and publicly disclosing the Overhead Transfer Rate – the secret sauce formula NCUA uses to divide up the cost of Share Insurance Fund audits between state and federally insured credit unions.
  • Providing banks an “off ramp” from Basel III’s risk-based capital requirements.  The bill allows banking organizations that maintain a leverage ratio of at least 10 percent to opt-out of Basel III capital and liquidity standards.  This one doesn’t apply directly to credit unions.  But, NCUA has always argued that it is required to impose capital requirements on larger credit unions that are similar to those imposed on larger banks, so this provision provides a further push for the NCUA to re-examine the need for phasing in RBC requirements.
  • Eliminating Chevron Deference.  The bill provides that courts reviewing the legality of federal regulations should not give deference to an agency’s interpretation of the federal law the regulation is implementing.  I love this one.  It would force Congress to write more coherent laws and dramatically trim the de facto legislative powers of administrative agencies.
  • Requiring all financial regulators to take into consideration the risk profile and business models of each type of institution or class when deciding whether they should be subject to regulations.

The Bad

  • Forcing regulators to consider whether enforcing regulations on credit unions and true community banks makes sense, but doesn’t go far enough.  Does anyone think that a $50 million credit union has anything in common with Wells Fargo?
  • We need a larger NCUA board so that members can actually talk to each other and a single member can’t veto proposed regulations every time one of the three seats is empty.

The ugly

  • Too big to fail, jail and regulate is alive and well. As long as banks are so large that the only way they could fail is if a majority of regulators and politicians are willing to risk being blamed for standing by and letting a Depression take hold, creating a bankruptcy framework for the largest banks won’t prevent bail outs.  For that matter, neither will the “living wills” mandated by Dodd-Frank.  Make institutions small enough so that the free market can decide who should win and lose, not investment bankers turned regulators.

Regardless of what you think of some of the specific provisions in this bill, there is something unseemly about seeing politicians doing so much to ease restrictions on the largest banks less than 10 years after they brought this country to its economic knees while doing so little to help the smaller lenders who played by the rules and suffered the consequences.  Is there any wonder why so many Americans think the system is rigged against them? Let’s hope the final product produced by Congress is better than this first draft.

Entry filed under: Advocacy, General, Regulatory. Tags: , , .

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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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