By Trey Walker, CPA | Business Assurance & Advisory Services Senior Associate
Economic Growth, Regulatory Relief, and Consumer Protection Act
On May 24, 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act was signed into law. The Act makes significant modifications to financial regulatory acts including the Truth in Lending Act, the Federal Deposit Insurance Act, the Fair Credit Reporting Act, the Home Owner’s Loan Act, and several aspects of Dodd-Frank. The Act is intended to relieve some of the financial regulations put on smaller banks as a result of the post-crisis framework put into place in 2010 that many argued drew little to no distinction between massive institutions that contributed to the crash and smaller community-based banks which did not. The below summarizes some of the areas that should have the largest impact.
Changes to the Volcker Rule:
The Volcker Rule was amended in order to provide relief to small and community-based banks by excluding depository institutions if the institution has less than $10 billion in total consolidated assets and the institution’s trading assets and liabilities are less than five percent of its total consolidated assets. The Volcker Rule prohibits banking institutions from engaging in proprietary trading and from owning or investing in a hedge fund or private equity fund.
Brokered Deposit Exemption:
Section 202 of the Act amend the Federal Deposit Insurance act to enable the exemption of deposits placed through a network of FDIC-insured depository institutions from treatment as brokered deposits on deposits in an aggregate amount that equals the lesser of $5 billion and 20% of the depository institution’s total liabilities. Exempted deposits must not exceed the maximum deposit insurance amount, the depository institution must have received a good or outstanding composite exam rating, and the deposit cannot have been originated from a deposit broker.
Additional actions the provide relief to small and community-based banks:
In addition to the two actions above, the Act increases the asset threshold of banks under the regulatory oversight of the Financial Stability Oversight Council (“FSOC”) from $50 billion to $250 billion. The Act requires the Federal Reserve to take the size of banks into consideration when crafting any future financial regulations in order to prevent smaller banks from having to comply with regulations that are more restrictive on them than their larger counterparts. Banks with less than $10 billion in assets will be subject to the “Community Bank Leverage Ratio”, which will be determined by the appropriate Federal banking agency. Any banking institution in compliance with this less restrictive ratio will be considered to have met any applicable leverage capital requirements associated.
Consumer Protection under the Act:
The Consumer Protection aspect of the Act also brings in some notable changes to individuals, including a requirement for the Social Security Administration to develop a database to be used by financial institutions to assist in reducing identity fraud. The data base will include social security numbers, names, and dates of birth of consumers, with that particular consumer’s consent being required for entry into the system. The Act also makes it a federal law to require credit report agencies to grant a “freeze” on a consumer credit files. The Act preempts any state laws that previously contained similar language to this particular requirement.
In summary, the changes made to the thresholds applied to certain banks regarding certain leverage ratios and restrictions are expected to ease the regulatory burden that was put on smaller financial institutions during the post-crisis era. The consumer protection aspect of the Act, despite many portions of the bill previously being covered by the states, should provide a consistent framework for consumer protection in regards to identity fraud going forward and enable financial institutions to provide better protection. The Economic Growth, Regulatory Relief, and Consumer Protection Act represents the first major bill that fulfills the Trump Administration’s campaign promises of rolling back Dodd-Frank.
Additional Financial Services Industry Resources:
- Cybersecurity remains focus for financial institutions and service firms’ regulators
- FINRA to focus on high risk firms and brokers for 2018
- Are changes coming to the SEC?
- The fiduciary rule’s impact on the retail investment industry
- Tax reform: The impact on a financial services business
- Financial Services Industry Blog
The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.