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FinReg Update -- What's Happened, What's Next

May 12, 2010 - by Donny Shaw

The votes have really been rolling in on the financial reform bill in the Senate. So far, there have been 20 roll call votes on the bill — 4 on ending the initial Republican filibuster of beginning the debate and 16 since on amendments. Of those 16 amendment votes, 9 have been approved and added to the bill. Additionally, six amendments have been adopted without roll calls by voice votes.

The latest substantial amendment to be adopted to the bill was one from Sen. Jeff Merkley [D, OR] and Sen. Amy Klobuchar [D, MN] on Wednesday. The amendment, S.A.3962, would prohibit mortgage brokers and loan originators from receiving bonuses for steering borrowers into more expensive loans.

“In general, for any consumer credit transaction secured by real property or a dwelling, no loan originator shall receive from any person and no person shall pay to a loan originator, directly or indirectly, compensation that varies based on the terms of the loan (other than the amount of the principal),” the amendment text states.

The amendment also sets up stronger underwriting standards to guarantee to help ensure that borrowers will be able to repay their loan. “No-doc,” or “liar loans,” would become illegal under the amendment.

“A determination…of a consumer’s ability to repay a loan…shall include consideration of the consumer’s credit history, current income, expected income the consumer is reasonably assured of receiving, current obligations, debt-to-income ratio or the residual income the consumer will have after paying non-mortgage debt and mortgage-related obligations, employment status, and other financial resources other than the consumer’s equity in the dwelling or real property that secures repayment of the loan,” the amendment text states. Loan originators would be required to verify this information by reviewing W-2s, tax returns, pay stubs, bank records, and “other third-party documents that provide reasonably reliable evidence of the consumer’s income or assets.”

The vote on the amendment was 63-36, with all Democrats (except the absent Sen. Robert Byrd [D, WV]) voting in favor and most Republicans opposing. Five Republicans crossed the aisle to support the amendment. You can see that list at this link. There’s nothing like this in the financial reform bill the House approved last year (H.R.4173), so it will have to be adopted by the House-Senate conference committee if it is to become law.

On the docket for Thursday: the Merkley/Levin amendment to put some teeth on the “Volcker rule” in the underlying bill by banning banks from proprietary trading — investing their own money for profit rather than their clients money — and making it illegal for them to get into any securities transaction win which their could be a “material conflict of interest.”

The amendment already has 19 co-sponsors and the support of both the Treasury and Banking Committee Chairman Sen. Chris Dodd [D, CT]. If it passes, this amendment would be the biggest victory for Wall Street reform advocates yet in the Senate debate. Public Citizen is maintaining a whip count — see whee your senator stands.

Be sure to subscribe to this blog (or follow on Facebook) for updates on what’s happening on financial reform. You can also check out our past blog posts tagged “financial reform” for the back story on Congress’s efforts to reign in Wall Street post-2008 crisis.

UPDATE: It appears that the vote on Merkley/Levin has been delayed. Here’s what will be voted on today:

* Collins amendment to mandate minimum leverage and risk-based capital requirements for insured depository institutions, depository institution holding companies, and nonbank financial companies that the Council identifies for Board of Governors supervision and as subject to prudential standards. (#3879)

* Brownback amendment to provide for an exclusion from the authority of the Bureau of Consumer Financial Protection for certain automobile manufacturers, and for other purposes. (#3789, as modified)

* Snowe-Pryor amendment to ensure small business fairness and regulatory transparency. (#3883)

* Specter amendment to amend section 20 of the Securities and Exchange Act of 1934 to allow for a private civil action against a person that provides substantial assistance in violation of such Act (#3776, as modified)

* Leahy amendment to restore the application of the Federal antitrust laws to the business of health insurance to protect competition and consumers. (#3823)

* Sessions amendment to provide an orderly and transparent bankruptcy process for non-bank financial institutions and prohibit bailout authority. (#3832)

* Durbin amendment to ensure that the fees that small businesses and other entities are charged for accepting debit cards are reasonable and proportional to the costs incurred, and to limit payment card networks from imposing anti-competitive restrictions on small businesses and other entities that accept payment cards. (#3989)

* Franken amendment to instruct the Securities and Exchange Commission to establish a self-regulatory organization to assign credit rating agencies to provide initial credit ratings. (#3991)

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