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114th Congress    }                                     {       Report
                        HOUSE OF REPRESENTATIVES
 2d Session       }                                     {      114-873




 December 12, 2016.--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 

                              R E P O R T

                        [To accompany H.R. 1660]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 1660) 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

    H.R. 1660 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 with 
the rights and duties of a national bank. The election is 
considered approved 60 days after the date on which the OCC 
receives the notice, unless the OCC otherwise notifies the 
electing entity. H.R. 1660 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. H.R. 
1660 also 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.

                  Background and Need for Legislation

    Federal savings associations and national banks are both 
chartered and regulated by the OCC and insured by the FDIC, but 
have different structures and different lending and investment 
    Federal savings association charters were created under 
HOLA and are community-based financial institutions that have 
no 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 national banks, including:
          (1) consolidated supervision by 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 association's portfolio assets must be 
comprised of mortgage and consumer-related assets. While the 
Dodd-Frank Act eliminated many of the benefits afforded 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 preemption: the OCC has the authority to preempt state 
statutes and regulations, which means that national banks can 
operate under a single set of laws and regulations, rather than 
having to comply with multiple sets of state laws and 
regulations that may or may not be consistent.
    Under current law, federal savings associations that want 
to offer products and services outside of these restrictions 
must convert to a national bank charter, a particularly 
burdensome process for smaller associations, as they must first 
convert to stock form before they can convert their charter.
    On February 6, 2015, the OCC sent a letter to the House 
Financial Services Committee proposing 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, which would give the 
institutions the ability to exceed the commercial and consumer 
loan limits that apply under HOLA, while retaining their 
charters and corporate forms, and continuing to be treated as 
federal savings associations for purposes of consolidation, 
merger, dissolution, conservatorship, and receivership.
    In a letter of support for H.R. 1660 dated April 15, 2015, 
the Independent Community Bankers of America wrote:

          H.R. 1660 would provide flexibility for institutions 
        to choose the business model that best suits their 
        needs and the communities they serve, without having to 
        go through the process or incurring the legal expense 
        of converting to a national bank charter.


    The Committee on Financial Services' Subcommittee on 
Financial Institutions held a hearing examining matters 
relating to H.R. 1660 on June 11, 2015.

                        Committee Consideration

    The Committee on Financial Services met in open session on 
November 3, 2015 and November 4, 2015, and ordered H.R. 1660 to 
be reported favorably to the House without amendment by voice 

                            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. 
There were no record votes in Committee with respect to this 

                      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. 1660 
will reduce regulatory burden and provide for the greater 
availability of financial products and services by establishing 
a mechanism for federal savings associations to function with 
the powers and authorities of a national bank without having to 
change their charter.

   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.

                        Committee Cost Estimate

    The Committee adopts as its own 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 14, 2016.
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. 1660, the Federal 
Savings Association Charter Flexibility Act of 2015.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Sarah Puro.
                                         Robert A. Sunshine
                                        (for Keith Hall, Director.)

H.R. 1660--Federal Savings Association Charter Flexibility Act of 2015

    H.R. 1660 would permit financial institutions known as 
federal savings associations to increase their commercial or 
consumer lending above current law limits without changing 
their charters and would require the Office of the Comptroller 
of the Currency (OCC) to complete a rulemaking process 
concerning this new authority. Implementing H.R. 1660 could 
affect direct spending; therefore, pay-as-you-go procedures 
apply. However, CBO estimates that any net increase in spending 
would be insignificant for each year. Enacting the bill would 
not affect revenues.
    Under the bill, institutions that choose to increase their 
lending would be known as covered savings institutions. Based 
on information from the OCC, CBO estimates that no more than 10 
percent of the 400 federal savings associations nationwide 
might be interested in becoming a covered savings institution 
under the provisions of the bill. Because the OCC would 
continue to regulate those institutions under the legislation, 
CBO expects that regulatory costs to the agency would be the 
    H.R. 1660 also would require the OCC to issue a rule to 
implement the new authority for federal savings associations. 
Based on 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. CBO expects that the OCC would collect 
fees to recover any costs associated with completing the 
rulemaking. In addition, CBO estimates that establishing such 
authority would not increase the likelihood of failure for any 
institution that converts its charter. As a result, the net 
effect on the deficit would be insignificant.
    CBO estimates that enacting H.R. 1660 would not increase 
net direct spending or on-budget deficits by more than $5 
billion in any of the four consecutive 10-year period beginning 
in 2026.
    H.R. 1660 contains no intergovernmental mandates as defined 
in the Unfunded Mandates Reform Act (UMRA).
    If the OCC increases fees to offset the costs associated 
with implementing the bill, H.R. 1660 would increase the cost 
of an existing mandate on private entities required to pay 
those fees. CBO expects that the incremental cost of the 
mandate would be about $1 million and would fall well below the 
annual threshold for private-sector mandates established in 
UMRA ($154 million in 2016, adjusted annually for inflation).
    The CBO staff contacts for this estimate are Sarah Puro 
(for federal costs) and Logan Smith (for private-sector 
mandates). The estimate was approved by H. Samuel Papenfuss, 
Deputy Assistant Director for Budget Analysis.

                       Federal Mandates Statement

    The Committee adopts as its own the estimate of Federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates Reform 

                      Advisory Committee Statement

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 

                  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

    H.R. 1660 does not contain any congressional earmarks, 
limited tax benefits, or limited tariff benefits as defined in 
clause 9 of rule XXI.

                    Duplication of Federal Programs

    Pursuant to section 3(g) of H. Res. 5, 114th Cong. (2015), 
the Committee states that no provision of H.R. 1660 establishes 
or reauthorizes a program of the Federal Government known to be 
duplicative of another Federal program, a program that was 
included in any report from the Government Accountability 
Office to Congress pursuant to section 21 of Public Law 111-
139, or a program related to a program identified in the most 
recent Catalog of Federal Domestic Assistance.

                   Disclosure of Directed Rulemaking

    Pursuant to section 3(i) of H. Res. 5, 114th Cong. (2015), 
the Committee states that H.R. 1660 contains one directed 

             Section-by-Section Analysis of the Legislation

Section 1. Short title

    This Section cites H.R. 1660 as the ``Federal Savings 
Association Charter Flexibility Act of 2015''.

Section 2. Option for federal savings associations to operate as a 
        covered savings association

    This section amends 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 after 60 days, 
unless stated otherwise by the OCC. Further, the OCC is 
required to issue rules on documentation, timeline and 
identification for the election process and rules for 
identifying federal savings association assets and subsidiaries 
that are different from those required of a national bank. 
Lastly, the OCC must establish a transition process for those 
federal savings association assets and subsidiaries to conform 
to national bank requirements.

         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

           *       *       *       *       *       *       *

  (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 
          (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; 
                  (B) that are held by the Federal savings 
                association on the date on which the Federal 
                savings association submits a notice of such 
          (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 
          (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.

           *       *       *       *       *       *       *