House Passes TRID Improvement Act Despite Democrat Opposition

March 5, 2018 by David Basen

On February 14, the House of Representatives passed legislation modifying Consumer Financial Protection Bureau (CFPB) mortgage disclosure regulations, along with Securities and Exchange Commission (SEC) oversight guidelines and corporate disclosure mandates. Proponents of the bills claim the new laws will help facilitate future market growth by reducing burdensome regulations.

The House of Representatives passed the TILA-RESPA Integrated Disclosures (TRID) Improvement Act of 2017 (H.R. 3978) by a vote of 245 to 171, sending the bill to the Senate for approval. The legislative package includes the Fostering Innovation Act, Protection of Source Code Act, and the National Securities Exchange Regulatory Parity Act. Despite the bill drawing criticism from several Democrats, Rep. Jeb Hensarling (R-Tex.), acting House Financial Services Committee Chairman, countered their complaints by saying the bill would remove troublesome stipulations from the CFPB and SEC, streamline the regulatory process, and allow companies to accumulate capital faster.
Democratic opposition centered on provisions that would alter the standards empowering the SEC to monitor algorithmic transactions closely. Under the Protection Source Code Act, the SEC would have to first acquire a subpoena before examining source codes for individuals, investment entities, and advisers. Rep. Maxine Waters (D-Cal.) and her Democratic colleagues claimed the requirement would hinder the agency’s capacity to detect flash crashes.
Supporters of the TRID Improvement Act, including Rep. Sean Duffy (R-Wis.), argued that current SEC procedures could potentially leave the agency vulnerable to hackers seeking to obtain source code. They claim the subpoena requirement would help improve the agency’s security protocol and safeguard firms’ data.
Another TRID Improvement Act provision would allow firms which are earning less than $50 million per annum to withhold public certifications of their financials for ten years after joining an exchange, rather than the current five-year mandate under the Sarbanes-Oxley Act.
The TRID measures would further amend the CFPB rules for the Truth in Lending Act and Real Estate Settlement Procedures Act (RESPA) integrated disclosure framework, mandating that the disclosures indicate all modifications in a mortgage exchange, such as any discounts extended to customers.
The legislation would also modify which securities qualify as covered under federal securities regulations to one that qualifies for being listed on an exchange. This change would exempt those securities from state security guidelines.
Democrats claim that several outside consumer and investment entities, such as the Consumer Federation of America, have opposed the bills, claiming that the changes will erode investor confidence in emerging companies and weaken the SEC’s and states’ ability to provide additional oversight.
“In order to oversee the markets effectively, the SEC needs to be able to accurately and efficiently reconstruct order entry and trading activity, including for algorithmic traders,” the group said in a statement.
Another trade group, the North American Securities Administrators Association sent a letter to House Majority Leader Paul Ryan (R-WI) urging House members to vote no.” The group said that provisions in the bill would change the definition of covered security” and change the way federal and state regulators approach the industry.
In the letter to the Leader, the group said, Such listing standards give investors a voice when it comes to important decisions, ensure independent directors are in place to watch out for investors, provide oversight of conflicts of interest to ensure investors have a chance at earning a return.”