Sec. 2. Findings
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/bill/115/hr/3937/ih/section-2·A research copy — for the controlling text, always check the official state or federal source. Not legal advice.
Congress finds the following: The Federal prudential banking agencies and the Bureau of Consumer Financial Protection ( Consumer Bureau ) are tasked with the responsibility for overseeing United States banking organizations and foreign banks operating in the United States. Prior to the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010 ( Dodd-Frank Act ) and the existence of the Consumer Bureau, the Federal prudential banking agencies were responsible for supervising banks for safety and soundness and compliance with Federal consumer financial laws.
Following the 2007–2009 financial crisis, Congress conducted a series of hearings and concluded that in the years leading up to the crisis, the Federal prudential banking agencies were not adequately utilizing their rulemaking and supervisory functions, nor enforcing Federal consumer financial laws appropriately, which led to widespread consumer abuses that in turn contributed to the crisis and led to the near collapse of the United States banking system. To the extent Federal prudential banking agencies took action to enforce consumer protection laws, their actions were extremely limited and focused on small banks even though the majority of consumer complaints were tied to the largest banks.
In order to better protect consumers from many of the predatory acts and practices within the consumer financial marketplace that contributed to the financial crisis, and to restore integrity to the country’s financial system, Congress enacted the Consumer Financial Protection Act of 2010 ( CFPA ), under title X of the Dodd-Frank Act. The CFPA established the Consumer Bureau to regulate the offering and provision of consumer financial products or services under the Federal consumer financial law for certain covered entities.
The Consumer Bureau’s enforcement powers with respect to very large banking organizations include investigative authority and the ability to— conduct hearings and adjudication proceedings; commence civil action lawsuits and make referrals to the U.S. Attorney General for criminal proceedings; issue consent orders, under which restitution, refunds, rescission or reformation of contracts, or claw-back of compensation, is required; and impose civil money penalties. In the years since Congress enacted the Dodd-Frank Act, some very large banking organizations operating in the United States have repeatedly violated Federal banking and consumer protection laws by engaging in unethical business practices, which have enabled them to maximize profits for shareholders at the expense of the interest of the public.
Enforcement actions have been taken, most notably by the Consumer Bureau, but these banks continue to act with impunity and violate numerous laws designed to protect consumers. Senior bank executives, including the chief executive officer, board of directors and other senior officers at the largest banking organizations have rarely been held personally accountable for Federal consumer protection law violations and other illicit practices that occurred during their tenure. In a report to Congress from the Office of the Special Inspector General for the Troubled Asset Relief Program ( SIGTARP ), the SIGTARP wrote in 2016:
The American people have called for stronger reforms on Wall Street, frustrated by the lack of senior executive accountability at the largest banks. I have called for Wall Street reform based on the difficulties SIGTARP has faced as a law enforcement agency in proving criminal intent of senior executives at large institutions given how isolated they are from knowledge of fraud in their company. This isolation is part of the culture at large institutions, and is something that is unlikely to change absent reform. .
The Consumer Bureau has taken strides in fulfilling its statutory objectives and mission to ensure that all consumers have access to markets for consumer financial products and services and that these markets are fair, transparent, and competitive. Yet, unlike the broad authority of Federal prudential banking regulators over entire operations of its regulated entities, the scope of and applicability of the Consumer Bureau’s supervisory authority is limited. The Consumer Bureau, for example, does not have the authority to revoke a bank’s charter or terminate a bank’s Federal deposit insurance, even when it has found a bank to have engaged in a pattern of recurring and egregious violations of Federal consumer financial laws and regulations.
The Federal prudential banking agencies are authorized to not only license, charter, and approve the operations of banking organizations, but also to supervise these institutions for compliance with Federal banking laws and regulations. Additionally, the Federal prudential banking agencies have indicated, and Congress agrees, that instances of consumer harm by a banking organization may be deemed an unsafe or unsound banking practice of an institution, warranting additional enforcement actions beyond those that have also been issued by the Consumer.
Federal Reserve Board Chair Janet Yellen said in 2016, Of course, consumer issues and issues that involve harm of consumers can become safety and soundness issues. And if there was—at least one of the lessons from the financial crisis, I think, is that abuses of consumers of the sort that we see—saw in subprime lending ultimately did become—become safety and soundness issues. And so, of course, we need to have that concern, and we’ll focus there. . Formal and informal enforcement authorities afforded to the Federal prudential banking agencies include consent orders, cease and desist orders, civil money penalties, written agreements, and the ability to place limitations on or remove institution-affiliated parties—such as a director or officer of an institution—for violations of laws or regulations.
For the most egregious cases, when institutions commit illegal acts or repeatedly fail to comply with laws or regulations, the Federal prudential banking agencies also have the authority, and duty, to take more serious actions, such as limit the activities or functions of a bank, permanently bar culpable bank officials from working again in the banking industry, terminate Federal deposit insurance for a bank, appoint a receiver to unwind the bank or revoke the bank’s national charter.
Despite these important statutory powers, the Federal prudential banking agencies continue to rely on enforcement tools such as consent orders, cease and desist orders, and civil money penalties, even in instances when an institution’s violations have demonstrated unsafe or unsound business practices and past supervisory and enforcement actions have not sufficiently deterred illegal practices. The failure of the Federal prudential banking agencies to exercise statutorily provided enforcement authorities—such as revoking a bank’s national charter or terminating its Federal deposit insurance—on institutions that have demonstrated a pattern or practice of unsafe or unsound banking practices related to repeat violations of Federal consumer financial laws or regulations, has resulted in insufficient regulatory oversight that has allowed institutions to continue to engage in inappropriate and illegal business practices harming millions of consumers.
Unlike small community banks that serve consumers in their local communities, megabanks (as identified as global systemically important bank holding companies) are comparatively extremely large and serve millions of consumers. Whereas Federal prudential banking agencies have demonstrated an ability to take enforcement actions against small community banks, including for violations of Federal consumer financial law, the same has not been demonstrated to be true of megabanks. While the Dodd-Frank Act established a regulatory framework that has made significant progress in leveling the playing field between large and small banks, including with respect to how the Consumer Bureau’s authorities were designed and how the toughest rules apply to megabanks, new laws should be enacted that build on the Dodd-Frank Act’s tiered and tailored regulatory framework to mandate action in areas where Federal prudential banking agencies have been reluctant to exercise their discretion to take appropriate action against megabanks that repeatedly violate laws and harm millions of consumers.
New laws should also be enacted to clarify repeated violations of Federal consumer protection law are sufficient grounds to take certain enforcement actions. To ensure market discipline and confidence in the U.S. financial system, Federal prudential banking regulators should exercise all statutorily mandated powers, including revoking the charter or terminating Federal deposit insurance of any large banking organization that has demonstrated a pattern of engaging in unsafe and unsound banking practices that extensively harms consumers.
Any megabank, either through its holding company, depository institutions, or affiliates, that repeatedly harms consumers or violates Federal consumer financial laws or regulations, has demonstrated a pattern of unsafe or unsound banking practices that necessitates that Federal prudential banking agencies immediately initiate proceedings, under existing statutory authority, to revoke the its national charter or terminate its Federal deposit insurance, and place the institution into receivership for sale or dissolution.
Furthermore, even if a banking organization’s violations of Federal consumer financial laws are deemed not to technically constitute unsafe or unsound banking practices, it still may demonstrate a pattern of wrongdoing causing unacceptable harm to its customers, such that continuing to enable it to engage in the business of banking distorts the regulatory purpose of providing national bank charters, deposit insurance and other benefits, and undermines the overarching mission of all Federal prudential banking agencies to protect the interest of the public and the needs of consumers.
Federal legislation is needed, therefore, to underscore the importance that Federal prudential banking regulators should, after consulting with the Consumer Bureau, exercise all their available enforcement powers with respect to large banking organizations that repeatedly violate Federal consumer financial laws, including authority to restrict business lines, revoke an institution’s national banking charter, terminate the institution’s Federal deposit insurance, and hold the institution’s board of directors and senior officers accountable.