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Public Citizen comment on House Financial Services Commt bills, Feb 2024

February 28, 2024

 

Chair Patrick McHenry

Ranking Member Maxine Waters

Honorable Members of the Committee

U.S. House Committee on Financial Services

2129 Rayburn House Office Building

Washington, D.C. 20515

 

Re: Bills Slated for Committee Vote on February 29, 2024

 

Dear Chair McHenry, Ranking Member Waters and Members of the Committee,

On behalf of more than 500,000 members and supporters of Public Citizen, we offer the following comment on a suite of bills scheduled for committee consideration February 29, 2024. We are pleased to support several measures, including the Systemic Risk Authority Transparency Act, and the Bank Safety Act. Fifty weeks ago, the nation revisited the unsettling landscape of financial uncertainty when three regional banks failed. Congress appropriately responded with hearings that highlighted a number of policies ripe for reform. Congress should repeal S. 2155 (Sec. 401), the Trump Administration supported bill that eliminated enhanced supervision for banks as large as $250 billion in assets. Congress should pass strong banker pay reform as compensation plans led to the regional bank failures. Unfortunately, partisan division widened by industry political spending stifled needed concrete reform. The bills we support here are unassailable, if modest, reforms.

Meanwhile, the balance of the bills simply feathers the financial industry nest at the expense of consumers. We are especially concerned with HR 7428 whose title implies that it would protect consumers taking advantage of what’s known as “earned wage access,” but would, instead,  leave Americans vulnerable to financial predators. We are also especially concerned with the mistitled HR 7440 regarding financial innovation. With the likes of Artificial Intelligence (AI) transforming the landscape of nearly every industry, this committee should be shaping needed guardrails, not raising the speed limits for corporations using AI. We also oppose the Congressional Review Act rescission of Securities and Exchange Act (SEC) guidance regarding cryptocurrency custody practices.

 

Bills We Support

 

HR 4116, the Systemic Risk Authority Transparency Act

This bill requires the Comptroller General to report to Congress a post-mortem on bank failures. This report must include “any mismanagement” as well as “compensation practices” of the failed institutions, along with supervisory and regulatory shortcomings. Public Citizen believes that badly structured compensation can explain much mismanagement and misconduct. We support this bill.

HR 4206 the Bank Safety Act

This proposal would prevent large banks from masking losses through an accounting loophole technically known as “Accumulated Other Comprehensive Income.” Silicon Valley Bank (SVB) minimized its losses in its portfolio of long-term Treasury bonds by using this loophole, claiming it would hold the bonds to maturity, and therefore, didn’t deduct the market value loss from the bank’s net income metric. SVB’s use of the loophole allowed it to show an accounting profit, triggering executive bonuses. SVB also exploited the loophole to escape stricter capital safety rules. Public Citizen supports this measure to close this loophole. We also believe that Congress should go further than this by approving banker pay reform, which can address numerous manipulations that lead banks to failure, misconduct and consumer abuse.

HR 7437 the Fostering the Use of Technology to Uphold Regulatory Effectiveness in Supervision Act

This legislation calls on federal financial regulators to assess the adequacy of their technology to oversee and respond to problems. We expect that agencies already conduct such internal reviews, many of which are reflected in their respective annual reports. This bill simply calls for an initial review within a half-year, and thereafter every five years. We ask that the SEC be added to those agencies that would report on their technology capabilities. We also believe Congress should highlight the risks of Artificial Intelligence, risks that this bill’s language subordinates. We otherwise support this bill.

HR 7156 the Combatting Money Laundering in Cyber Crime

This bill takes steps to improve investigating powers over cyber-crime by adding investigative powers for the Secret Service.  We support this bill.

 

Bills We Oppose

HR 7440 the Financial Services Innovation Act

This measure would create a new office in each federal financial regulatory agency dedicated to promoting what the bill vaguely calls “innovation,” otherwise known as a new product. In reality, “innovation” in financial services often means a novel way to separate a customer from his or her hard-earned income. If financial services innovations truly improved the economy, this sector would become more efficient and absorb less of an individual American’s expenses. Instead, the opposite has been true. AI, for example, looms as a major transformation with both promise and peril. Customer service call centers relying on newly developed large language models may “hallucinate,” rendering false and misleading information. Smaller banks reliant on third party computer services may find themselves herding into collectively destructive decisions. This bill presumes that new developments only present benefits and may shield damaging products from existing consumer protection laws. We strongly oppose this bill.

HR 7428 Earned Wage Access Consumer Protection Act

This bill effectively enables financial technology companies to evade the Truth in Lending Act restrictions on fees and other costs associated with payday loans. Among other problems, it would prevent employees from comparing an earned wage credit advance from other options. Earned wage advances exploit those who do not earn a living wage. Employers enter contracts with payday lenders, and both extract fees and interest from the underpaid worker before the paycheck period. This perpetuates a cycle of debt and simply empowers predatory lenders to prey on vulnerable communities.  Workers should not pay to be paid. We oppose this bill.

HJ Res 109

This is a Congressional Review Act measure to overrule guidance from the SEC regarding custody for crypto-related firms. Collapse of FTX and the subsequent conviction of CEO Sam Bankman-Fried highlighted the need for firms dealing in cryptocurrency to protect their customers’ investments. Bankman-Fried funneled billions in customer assets from the FTX exchange to his Alameda Research  hedge fund. As the SEC and other federal agencies investigated this fraud, the SEC guidance cautioned firms to account for cryptocurrencies they held as liabilities; these were owed to customers and were not assets of the custodian. Rescission of this guidance will not only put more investors at risk, it will chill the practice of guidance generally. Guidance can be important way for an agency to respond to emerging nuances and uncertainties, such as new risks posed by financial services providers.

 HR 5535, the Insurance Data Protection Act

This legislation would strip the Federal Insurance Office of important investigation tools such as subpoena power. Approved as part of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, this office helps fill a void in the gaps caused by the nature of insurance company regulation, which is otherwise left to the states. Insurance giant AIG was the largest failure during the 2008 financial crash, a collapse that exposed the frayed patchwork of industry regulation. We oppose this bill.

 HR 6864 the HUD Accountability Act and HR 7280, the HUD Transparency Act

The HUD Accountability Act calls for annual testimony by the Secretary of Housing and Urban Development before the House Financial Services Committee. The HUD Transparency Act calls for annual testimony by the HUD Inspector General before the committee. While we support congressional oversight of federal agencies, we believe this pair of bills — among the first bills sponsored by Republicans on this committee regarding housing– fall embarrassingly short of the measures necessary to meet the nation’s pressing housing needs. Ranking Member Waters and other members promote responsible, sensible reforms and we ask committee leadership to bring them to a vote.

HR 802 the Respect State Housing Laws Act

This bill adds to the insult of woefully weak proposals on needed housing reform by eliminating a provision that requires a 30-day notice period before a landlord may begin eviction proceedings against a tenant in federally assisted or federally backed housing. Eviction traumatizes struggling Americans. Dwindling to non-existing affordable housing options make it especially difficult for individuals and families to find suitable alternative housing, making them vulnerable to homelessness. Many residents suffer economic problems beyond their control, including emergency medical issues that argue in favor of at least 30-day notice before eviction. We strongly oppose this bill.

For questions, please contact Bartlett Naylor at bnaylor@citizen.org.

Sincerely,

 

Public Citizen