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115th Congress }                                          { REPORT
                        HOUSE OF REPRESENTATIVES
  2d Session   }                                          { 115-530

======================================================================
 
      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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