Financial Institutions Examination Fairness and Reform Act - H.R.4545
The House passed (283-133) H.R.4545 creates an Office of Independent Examination Review within the Federal Financial Institutions Examination Council (FFIEC) to hear appeals by financial institutions regarding material supervisory determinations included in final examination reports by banking regulatory agencies.
BACKGROUND: The Financial Services Committee reported the bill with minority views by a 50-10 vote (H Rept 115-589). Nearly identical provisions were included in HR 10, Financial Choice Act, which passed the House last year by a 233-186 vote.
Federal law requires financial institution regulators to provide a process to appeal regulatory determinations, including examination results, and the 1994 Riegle Community Development and Regulatory Improvement Act directed the regulators to establish an independent appellate process within each agency by which an institution could seek review of certain regulatory determinations.
Consequently, each federal financial regulator instituted its own unique process for appeals of material supervisory determinations. The committee in its report notes that these determinations include examination ratings, adequacy of loan loss reserves, and classifications of loans significant to the institution (collectively known as material supervisory determinations).
Critics of the current system say this intra-agency process of appealing material supervisory determinations provides financial institutions with limited opportunities to challenge, that the appeals process is not impartial, and that either appealing or opposing examination findings usually incurs retaliation from regulators.
Member Concerns
Supporters of the bill, primarily Republicans, say it establishes clear standards by giving supervised financial institutions the right to have material supervisory determinations reviewed by an independent examination review director to ensure the consistency of all examinations. They say it also would ensure that financial institutions receive timely examination reports that include full documentation of the information used by regulators to make their determinations; create an expedited process for banks to appeal examination decisions; and impose safeguards to ensure institutions do not improperly use the review process.
Opponents of the bill, primarily Democrats, say it would enable any bank, regardless of size, to appeal and postpone material supervisory determinations by the bank's regulator, including adverse determinations. They say the bill would make it more likely that megabanks would be able to escape or delay accountability for egregious violations of federal laws protecting consumers and the economy, and would allow any bank, as well as any nonbank under the Consumer Financial Protection Bureau’s (CFPB) supervisory authority, to appeal negative supervisory determinations made in the examination process.
SUMMARY: This bill creates an Office of Independent Examination Review within the Federal Financial Institutions Examination Council (FFIEC) to hear appeals by financial institutions regarding material supervisory determinations included in final examination reports by banking regulatory agencies, and it prohibits federal banking regulators from retaliating against a financial institution for exercising its rights.
Under the measure, the merits of an appeal would be determined by the director of the new office, although financial institutions would have the right to petition for judicial review of the director's decisions. Both the director and, in cases of further review, an administrative law judge, would be required to consider the financial institution's appeal anew (i.e., de novo). Neither would be permitted to defer to the opinions of the financial regulator that conducted the examination.
The measure also establishes deadlines within which regulatory agencies must hold exit interviews and issue final examination reports to financial institutions. Specifically, it requires a federal financial regulator to provide a final examination report to a financial institution within 60 days of the later of either the exit interview for an institution's examination, or when an institution provides additional information to the regulator relating to the examination.
Finally, it includes nondepository institutions subject to supervision by the Consumer Financial Protection Bureau (CFPB) under the law's definition of financial institution, and requires the CFPB to establish its own independent intra-agency appellate process to consider appeals of its actions.
CBO Cost Estimate
The Congressional Budget Office (CBO) estimates that enacting the bill would increase net direct spending by $82 million and reduce revenues by $41 million over the 2018-2027 period. In total, CBO estimates that the measure would increase budget deficits by $123 million over the 2018-2027 period. The bill would not affect spending subject to appropriations, but would affect direct spending and revenues, therefore pay-as-you-go procedures apply.
The measure contains no intergovernmental mandates as defined in the Unfunded Mandates Reform Act (UMRA). However, if financial regulators increase fees to offset some of the costs of implementing the bill, it would increase the cost of an existing mandate on private entities required to pay those fees. Using information from the affected agencies, CBO estimates that the incremental cost of the mandate would fall well below the annual threshold for private-sector mandates established in UMRA ($156 million in 2017, adjusted annually for inflation).
AMENDMENTS: The Rules Committee is expected to recommend a structured rule that makes in order only specified amendments; members have been asked to submit proposed amendments to the panel by 3 p.m. on Monday, March 12.
COMMENTARY: The administration position was unavailable as of press time Friday.
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House Democratic Whip Steny Hoyer:
This measure would establish the Office of Independent Examination Review within the Federal Financial Institutions Examination Council (FFIEC). The new office would investigate complaints from financial institutions about examinations, regularly review the quality of examinations, and adjudicate appeals of determinations made within examinations. If enacted, H.R. 4545 would grant banks the right to appeal supervisory determinations made by financial regulatory agencies (the FDIC, Office of the Comptroller of the Currency, the Federal Reserve, and the National Credit Union Administration, as well as the Consumer Financial Protection Bureau) to the new Office of Independent Examination Review that is independent of the regulatory agencies. Upon appeal by a supervised bank, this new office would be required to undertake a complete review of the agency’s supervisory decision.
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