[House Report 115-530]
[From the U.S. Government Publishing Office]
115th Congress } { REPORT
HOUSE OF REPRESENTATIVES
2d Session } { 115-530
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FEDERAL SAVINGS ASSOCIATION CHARTER FLEXIBILITY ACT OF 2017
_______
January 29, 2018.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Hensarling, from the Committee on Financial Services, submitted the
following
R E P O R T
[To accompany H.R. 1426]
[Including cost estimate of the Congressional Budget Office]
The Committee on Financial Services, to whom was referred
the bill (H.R. 1426) to amend the Home Owners' Loan Act to
allow Federal savings associations to elect to operate as
national banks, and for other purposes, having considered the
same, report favorably thereon without amendment and recommend
that the bill do pass.
Purpose and Summary
Introduced by Representative Keith Rothfus on March 8,
2017, H.R. 1426, the ``Federal Savings Association Charter
Flexibility Act of 2017'' amends the Home Owners Loan Act (12
U.S.C. 1464) to permit a federal savings association to elect
to operate subject to supervision by the Comptroller of the
Currency (OCC) with the same rights and duties of a national
bank. Unless the OCC otherwise notifies the institution, the
election is effective 60 days after the date on which the OCC
receives the notice. The bill also requires the OCC to issue a
rulemaking that clarifies the required documentation and
timeline for the election process, and one that requires the
federal savings association to identify assets and subsidiaries
that do not conform to those required of a national bank.
Finally, the bill requires the OCC to establish a transition
process that permits an electing Federal savings association to
bring any assets that do not conform to national bank
requirements after notice of election into conformance, or the
ability to justify the grandfathering of such assets and
subsidiaries.
Background and Need for Legislation
The Office of the Comptroller of the Currency (OCC)
charters and regulates and the Federal Deposit Insurance
Corporation (FDIC), insures both federal savings associations
and national banks. Each institution has different structures
and different lending and investment powers.
The Home Owners Loan Act (HOLA) [12 U.S.C. 1461 et seq.]
created the Federal savings associations charter. These
institutions serve local community-based and do not have
shareholders. Because they are non-stock institutions, federal
savings associations are built on the foundation of pledged
deposits (similar to long term certificates of deposit) that
provide the capital to operate. Federal savings associations
specialize in real estate financing, and are subject to several
specific lending constraints.
Federal savings associations historically enjoyed several
advantages not accorded to national banks, including:
(1) consolidated supervision under the Office of
Thrift Supervision (OTS);
(2) broad interstate branching authority;
(3) liberal branching rights; and
(4) the absence of uniform regulatory holding company
capital requirements.
In order to qualify for these benefits, HOLA requires that
federal savings associations be subject to statutory commercial
lending limits and restrictions under the so-called qualified
thrift lender (``QTL'') test. The QTL test requires that at
least 65 percent of a savings associations portfolio assets
must be comprised of mortgage and consumer-related assets.
While the Dodd-Frank Act eliminated many of the benefits
provided to federal savings associations, the HOLA restrictions
remain.
National banks are for-profit business corporations owned
by private investors and governed by a board of directors
chosen by the stockholders. Unlike federal savings
associations, national banks enjoy the ability to engage in a
wider range of lending activities because they are not required
to focus on a particular area of lending and investment, and do
not have specific asset-type lending constraints. Additionally,
national banks are provided significant benefits in the form of
federal pre-emption. The OCC has the authority to pre-empt
state statutes and regulations, which means that national banks
can operate under a single set of laws and regulations, rather
than to comply with multiple sets of state laws and regulations
that may or may not be consistent.
As discussed above, HOLA constrains federal savings
associations in their ability to pursue certain activities.
Under current law, the only option for federal savings
associations that want to offer products and services outside
of these HOLA restrictions is to expend human and financial
resources to convert to a national bank charter. This is a
particularly burdensome process for smaller associations, as
they must first convert to stock form before they can convert
their charter.
In testimony on April 23, 2015, OCC Senior Deputy
Comptroller Toney Bland, proposed several legislative measures
to reduce the regulatory burden on banks, including a proposal
to add a new section to HOLA that would give federal savings
associations the flexibility to exercise national bank powers
without changing their charters.\1\ This legislative change
would give the institutions the ability to exceed the
commercial and consumer loan limits that apply under HOLA, but
retain their charters and corporate forms, and continue the
treatment as federal savings associations for purposes of
consolidation, merger, dissolution, conservatorship, and
receivership.
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Because the OCC already supervises both the national bank
and federal savings association charters, the regulator can
maintain safe and sound operation of institutions that elect to
operate as national banks under its proposal. The OCC bases its
proposal on the model used in Massachusetts, which permits all
state-chartered financial institutions, regardless of charter
type, to exercise the same basic set of powers.
Hearings
The Committee on Financial Services held a hearing
examining matters relating to H.R. 1426 on April 26, 2017 and
April 28, 2017.
Committee Consideration
The Committee on Financial Services met in open session on
January 17 and 18, 2018, and ordered H.R. 1426 to be reported
favorably to the House as amended by a recorded vote of 55 yeas
to 0 nays (Record vote no. FC-138), a quorum being present.
Committee Votes
Clause 3(b) of rule XIII of the Rules of the House of
Representatives requires the Committee to list the record votes
on the motion to report legislation and amendments thereto. The
sole recorded vote was on a motion by Chairman Hensarling to
report the bill favorably to the House with amendment. The
motion was agreed to by a recorded vote of 55 yeas to 0 nays
(Record vote no. FC-138), a quorum being present.
Committee Oversight Findings
Pursuant to clause 3(c)(1) of rule XIII of the Rules of the
House of Representatives, the findings and recommendations of
the Committee based on oversight activities under clause
2(b)(1) of rule X of the Rules of the House of Representatives,
are incorporated in the descriptive portions of this report.
Performance Goals and Objectives
Pursuant to clause 3(c)(4) of rule XIII of the Rules of the
House of Representatives, the Committee states that H.R. 1426
will permit a federal savings association to elect to operate
subject to supervision by the Comptroller of the Currency (OCC)
with the same rights and duties of a national bank.
New Budget Authority, Entitlement Authority, and Tax Expenditures
In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee adopts as its
own the estimate of new budget authority, entitlement
authority, or tax expenditures or revenues contained in the
cost estimate prepared by the Director of the Congressional
Budget Office pursuant to section 402 of the Congressional
Budget Act of 1974.
Congressional Budget Office Estimates
Pursuant to clause 3(c)(3) of rule XIII of the Rules of the
House of Representatives, the following is the cost estimate
provided by the Congressional Budget Office pursuant to section
402 of the Congressional Budget Act of 1974:
U.S. Congress,
Congressional Budget Office,
Washington, DC, January 26, 2018.
Hon. Jeb Hensarling,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 1426, the Federal
Savings Association Charter Flexibility Act of 2017.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Sarah Puro.
Sincerely,
Keith Hall,
Director.
Enclosure.
H.R. 1426--Federal Savings Association Charter Flexibility Act of 2017
H.R. 1426 would permit financial institutions known as
federal savings associations to increase their commercial or
consumer lending above the limits in current law without
changing their charters. The bill also would require the Office
of the Comptroller of the Currency (OCC) to issue a rule
concerning this new authority.
Under H.R. 1426, institutions that choose to increase their
lending would be known as covered savings institutions. Using
information from the OCC, CBO estimates that no more than 10
percent of the roughly 325 federal savings associations
nationwide might be interested in becoming a covered savings
institution under the provisions of the bill. Those
institutions hold less than 0.1 percent of the assets at banks.
Because the OCC would continue to regulate those institutions
under the bill, CBO expects that regulatory costs to the agency
would not increase. In addition, CBO estimates that
establishing such authority would not change the likelihood of
failure for any institution that converts its charter.
H.R. 1426 also would require the OCC to issue a rule to
implement the new authority for federal savings associations.
Using information from the agency, CBO estimates that it would
cost $1 million to complete the rulemaking process. Costs
incurred by the OCC are recorded in the budget as an increase
in direct spending. However, the OCC is authorized to collect
fees from the institutions it supervises to cover
administrative expenses; those fees are recorded as reductions
in direct spending. Thus, the net effect on direct spending
would be insignificant.
Because enacting H.R. 1426 would affect direct spending,
pay-as-you-go procedures apply. Enacting the bill would not
affect revenues.
CBO estimates that enacting H.R. 1426 would not increase
net direct spending or on-budget deficits in any of the four
consecutive 10-year periods beginning in 2028.
H.R. 1426 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act.
The CBO staff contact for this estimate is Sarah Puro. The
estimate was approved by H. Samuel Papenfuss, Deputy Assistant
Director for Budget Analysis.
Federal Mandates Statement
This information is provided in accordance with section 423
of the Unfunded Mandates Reform Act of 1995.
The Committee has determined that the bill does not contain
Federal mandates on the private sector. The Committee has
determined that the bill does not impose a Federal
intergovernmental mandate on State, local, or tribal
governments.
Advisory Committee Statement
No advisory committees within the meaning of section 5(b)
of the Federal Advisory Committee Act were created by this
legislation.
Applicability to Legislative Branch
The Committee finds that the legislation does not relate to
the terms and conditions of employment or access to public
services or accommodations within the meaning of the section
102(b)(3) of the Congressional Accountability Act.
Earmark Identification
With respect to clause 9 of rule XXI of the Rules of the
House of Representatives, the Committee has carefully reviewed
the provisions of the bill and states that the provisions of
the bill do not contain any congressional earmarks, limited tax
benefits, or limited tariff benefits within the meaning of the
rule.
Duplication of Federal Programs
In compliance with clause 3(c)(5) of rule XIII of the Rules
of the House of Representatives, the Committee states that no
provision of the bill establishes or reauthorizes: (1) a
program of the Federal Government known to be duplicative of
another Federal program; (2) a program included in any report
from the Government Accountability Office to Congress pursuant
to section 21 of Public Law 111-139; or (3) a program related
to a program identified in the most recent Catalog of Federal
Domestic Assistance, published pursuant to the Federal Program
Information Act (Pub. L. No. 95-220, as amended by Pub. L. No.
98-169).
Disclosure of Directed Rulemaking
Pursuant to section 3(i) of H. Res. 5, (115th Congress),
the following statement is made concerning directed
rulemakings: The Committee estimates that the bill requires one
directed rulemaking within the meaning of such section. The
rulemaking requires the Comptroller of the Currency to
establish streamlined standards and procedures that clearly
identify required documentation or timelines for an election.
Section-by-Section Analysis of the Legislation
Section 1. Short title
This section cites H.R. 1426 as the ``Federal Savings
Association Charter Flexibility Act of 2017.''
Section 2. Option for Federal savings associations to operate as a
covered savings association
This section amends Section 5 of the Home Owners Loan Act
to permit Federal savings associations to elect to operate with
the rights and duties of national banks without changing their
charters, by submitting a streamlined election notice to the
OCC. The application is considered approved 60 days after the
date on which the OCC receives the notice, unless the OCC
otherwise notifies them. The bill also requires the OCC to
issue a rulemaking that clarifies the required documentation
and timeline for the election process, and one that requires
the federal savings association to identify assets and
subsidiaries that do not conform to those required of a
national bank. Finally, the bill requires the OCC to establish
a transition process for bringing any assets of an electing
Federal savings association that do not conform to national
bank requirements after notice of election into conformance, or
the ability to justify the grandfathering of such assets and
subsidiaries.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italics, and existing law in which no
change is proposed is shown in roman):
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (new matter is
printed in italic and existing law in which no change is
proposed is shown in roman):
HOME OWNERS' LOAN ACT
* * * * * * *
SEC. 5A. ELECTION TO OPERATE AS A COVERED SAVINGS ASSOCIATION.
(a) Definition.--In this section, the term ``covered savings
association'' means a Federal savings association that makes an
election approved under subsection (b).
(b) Election.--
(1) In general.--Upon issuance of the rules described
in subsection (f), a Federal savings association may
elect to operate as a covered savings association by
submitting a notice to the Comptroller of such
election.
(2) Approval.--A Federal savings association shall be
deemed to be approved to operate as a covered savings
association on the date that is 60 days after the date
on which the Comptroller receives the notice under
paragraph (1), unless the Comptroller notifies the
Federal savings association otherwise.
(c) Rights and Duties.--Notwithstanding any other provision
of law and except as otherwise provided in this section, a
covered savings association shall--
(1) have the same rights and privileges as a national
bank that has its main office situated in the same
location as the home office of the covered savings
association; and
(2) be subject to the same duties, restrictions,
penalties, liabilities, conditions, and limitations
that would apply to such a national bank.
(d) Treatment of Covered Savings Associations.--A covered
savings association shall be treated as a Federal savings
association for the purposes--
(1) of governance of the covered savings association,
including incorporation, bylaws, boards of directors,
shareholders, and distribution of dividends;
(2) of consolidation, merger, dissolution, conversion
(including conversion to a stock bank or to another
charter), conservatorship, and receivership; and
(3) determined by regulation of the Comptroller.
(e) Existing Branches.--A covered savings association may
continue to operate any branch or agency the covered savings
association operated on the date on which an election under
subsection (b) is approved.
(f) Rulemaking.--The Comptroller shall issue rules to carry
out this section--
(1) that establish streamlined standards and
procedures that clearly identify required documentation
or timelines for an election under subsection (b);
(2) that require a Federal savings association that
makes an election under subsection (b) to identify
specific assets and subsidiaries--
(A) that do not conform to the requirements
for assets and subsidiaries of a national bank;
and
(B) that are held by the Federal savings
association on the date on which the Federal
savings association submits a notice of such
election;
(3) that establish--
(A) a transition process for bringing such
assets and subsidiaries into conformance with
the requirements for a national bank; and
(B) procedures for allowing the Federal
savings association to provide a justification
for grandfathering such assets and subsidiaries
after electing to operate as a covered savings
association;
(4) that establish standards and procedures to allow
a covered savings association to terminate an election
under subsection (b) after an appropriate period of
time or to make a subsequent election;
(5) that clarify requirements for the treatment of
covered savings associations, including the provisions
of law that apply to covered savings associations; and
(6) as the Comptroller deems necessary and in the
interests of safety and soundness.
* * * * * * *
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