Should Financial Regulators Tailor Rules to Limit the Burden on Smaller Banks & Credit Unions? (H.R. 741)

What is H.R. 741?

(Updated September 25, 2019)

This bill — the TAILOR Act — would require federal financial regulatory agencies to tailor their regulatory actions so as to limit the burdens on the institutions involved given their risk profiles and business models, such as smaller community banks or credit unions. Regulators would be required to report to Congress on specific actions taken to tailor rules.This requirement would apply to future regulatory actions in addition to rules adopted within the last seven years.

The bill's full title is the Taking Account of Institutions with Low Operation Risk (TAILOR) Act.

Argument in favor

The compliance costs of Dodd-Frank’s one-size-fits-all regulations are crushing many of America’s smaller community banks and credit unions. This bill ensures that regulations take into account the risk profiles and business models of smaller institutions to limit the burden on them.

Argument opposed

Financial regulators and Congress already take steps to tailor rules so they don’t create an excessive burden on small financial institutions. This bill goes too far, and if enacted would lead to endless legal challenges of recent and future rules.

Impact

Smaller financial institutions; and federal financial regulators.

Cost of H.R. 741

The CBO estimates that enacting this bill would cost $80 million over the 2018-2027 period.

Additional Info

In-Depth: Sponsoring Rep. Scott Tipton (R-CO) reintroduced this bill from the 115th Congress to require that regulations be tailored to fit smaller financial institutions’ business models and risk profiles:

“Under Dodd-Frank rules, banks and credit unions are currently regulated under a one-size-fits-all approach regardless of size or risk profile. As a result, regulations designed and intended for big banks are also applied to small community and independent banks or credit unions. The compliance costs associated with these one-size-fits-all mandates are often unworkable for small community banks, which often don’t have the employees or resources to meet the compliance obligations. Regulations play an important role in keeping our communities safe and secure, but they should be tailored to meet the risk profile and business model of specific institutions. The TAILOR Act would allow federal regulators to better focus their oversight efforts, and allow small banks and credit unions to focus their time and assets on investing in their communities, helping to generate economic growth and job opportunities.”

The American Bankers Association (ABA) supports this bill, which is part of its Blueprint for Growth. James Ballentine, EVP of the ABA, says:

“This important bill would help address the huge flow of new regulations that have made it more difficult for banks to meet the needs of consumers and small businesses as well as local and regional economies. Regulators should be empowered — and directed — to make sure that rules, regulations and compliance burdens only apply to segments of the industry where warranted.”

Last Congress, most House Democrats opposed this bill in committee, explaining in the committee report:

“Congress has carefully monitored the implementation of the Dodd-Frank Act and, when warranted, has passed targeted legislation or encouraged regulators to further tailor rules to reduce unnecessary compliance requirements on community financial institutions while maintaining robust standards and appropriate protections that are in the public interest… We share the belief that regulators must take into account, and tailor rules, for smaller sized institutions when appropriate. Unfortunately, the TAILOR Act would only serve to put consumers and the financial system at risk by subjecting important regulations to endless litigation.”

A number of consumer groups, including Americans for Financial Reform, Demos, the NAACP, and Public Citizen, opposed this bill in the previous Congress. In a joint letter to the House, these organizations wrote: 

"T[his] bill will put consumers at risk from dangerous products or practices and undermine the established notice and comment process in place for financial regulations. If adopted, the TAILOR Act could allow financial institutions to justify and exploit potentially dangerous loopholes, create confusion in the marketplace and cause unnecessary delays in the adoption of important consumer protections. Prudential and consumer regulators already have broad discretion in the application of their rulemakings. The proposal, review and comment process is the appropriate means through which particular accommodations should be considered, as they have been throughout the development of regulations under Dodd-Frank... Since an appropriately 'tailored' approach to regulation is already in place, the main effect of [this bill] would be to add numerous new 'cost benefit' type requirements that would block needed regulatory actions in the future and force banking regulators to conduct a burdensome and time-consuming re-analysis of every single consumer and financial protection they had passed under the Dodd-Frank Act, the CARD Act, and other recent consumer protection laws... Strong and consistent oversight of financial products and practices leads to safer products, a more predictable regulatory environment and a more competitive market. The TAILOR Act could lead to confusion in the marketplace and unnecessary delays in much-needed consumer protections critical to preventing another economic collapse."

This bill has 27 Republican cosponsors in the current session of Congress. Last Congress, it passed the House by a 247-169 vote with the support of 85 bipartisan cosponsors in the House, including 80 Republicans and five Democrats. It also has the support of the Credit Union National Association (CUNA), National Association of Federally-Insured Credit Unions (NAFCU), and the American Bankers Association (ABA).

Media:

• Sponsoring Rep. Scott Tipton (R-CO) Press Release (115th Congress)
  
• NAFCU (In Favor, 115th Congress)
  
• Credit Union National Association (CUNA) (In Favor, 115th Congress)
  
• Consumer Groups Joint Letter (Opposed, 115th Congress)
• ABA Banking Journal