This has been a fairly quiet week for Washington's regulation of financial services providers. It is August, the time of year when the weather forces its inhabitants to recall that it was originally built on a swamp, and the mugginess drives residents to vacation out of town. The consequence is that regulatory developments slow down.
Nonetheless, there were a couple of important developments that went mostly unremarked. On Monday, the comment period closed on the Consumer Financial Protection Bureau's (CFPB) request for comment on the development of a rule governing what non-depository firms it should supervise beside firms in residential mortgage, private education lending, and payday lending markets. Also, the House Financial Institutions and Consumer Credit Subcommittee conducted a hearing on Tuesday on the supervision of community banks and its effect on the economic recovery.
The CFPB opportunity for comment elicited interesting comments. Community groups took the opportunity to set forth their views as to which consumer financial services markets the CFPB should supervise. Specifically, the consumer groups identified check-cashing services, issuers of prepaid debt cards, collection agencies, for-profit debt settlement companies, and originators of auto loans as being in need of closer supervision by the CFPB. The CFPB is to propose and adopt a final rule on this by next July.
The Congressional hearing elicited interesting testimony from the Office of the Comptroller of the Currency (OCC) addressing specific concerns that had been expressed about actions of bank examiners. The OCC acknowledged that loans to firms in certain geographic areas or industries might be discouraged because market conditions might adversely affect repayment prospects and also that appraisers may be second-guessed in some cases. It also acknowledged that loan modifications might be penalized because generally-accepted accounting principles prohibit the accrual of principal and interest unless performance can be demonstrated under a loan's pre-modification terms. The OCC also acknowledged that capital requirements higher than the minimums set forth in regulations may be imposed by the OCC on a case-by-case basis.
While next week may appear likely to be a slow one for regulatory developments as August lingers on, we anticipate a considerable amount of activity in September. That would include a re-proposal of the Financial Stability Oversight Council's rule on designation of systemically significant nonbank firms (as well as detailed guidance on that process). It would also include the Federal Reserve Board's proposal of regulations to implement the Dodd-Frank Act-required enhanced prudential supervision of systemically significant nonbank firms and bank holding companies with consolidated total assets of $50 billion or more. The general counsel of the Federal Reserve Board has estimated that the proposed regulations would consist of thousands of pages.