House bill takes aim at over- zealous regulators

Yet another bill aimed at relieving some of the strain felt by community banks and small businesses is circulating in Congress, though regulators, unsurprisingly, think it’s unnecessary.

H.R. 3461, or the Financial Institutions Examination Fairness and Reform Act, was introduced in the House in November by Republican Rep. Shelley Capito of West Virginia. Since then, our very own 4th Congressional District Rep. Cory Gardner has added his name to the legislation.

This bill would make a number of changes, including the creation of an Office of Examination Ombudsman to serve as an intermediary between financial institutions and their regulators. The bill would also “clean up” the examination process and give banks the right to appeal regulatory decisions to an independent administrative law judge.

Gardner said he decided to put his name on the bill after a series of discussions with community bankers in which he heard protests about regulations imposed by agencies that require underwriting standards so strict banks are having difficulty lending money to would-be small businesses.

This concern has been the reasoning for many decisions made by legislators and industry groups since regulatory agencies began cracking down on bank operations, but this bill would take a different tack than others similar to it.

Rather than make a change to the way banks operate or handle their accounting, like the Capital Access for Main Street bill introduced earlier this year, supporters of H.R. 3461 said it would simply allow for better communication between banks and their regulators and increase regulatory transparency.

The text of the bill outlines six responsibilities of the ombudsman, not the least of which is: “The ombudsman shall receive and, at the ombudsman’s discretion, investigate complaints from financial institutions, their representatives, or another entity action on behalf of such institutions, concerning examinations, examination practices or examination reports.”

In other words, the bill would create an impartial office for listening to the issues bankers are experiencing and, when valid, exploring the regulations and agencies behind the complaint.

Supporters say it would allow banks a modicum of input and better understanding of why regulators do what they do, which would not only make for happier bankers, but happier customers when their local lending agent is able to better explain the rules.

Expediting the examination process is important to bankers as well, according to Don Childears, president and CEO of the Colorado Bankers Association.

The legislation would require regulators to provide their report of a financial institution’s examination no more than 60 days after the exit interview of the examination. This is a dramatic improvement over the way such reports are handled currently, Childears said. He has heard of the report return process taking as long as 10 months.

“That kind of delay of reports makes it difficult for banks to adhere to what regulators want,” Childears said. Typically, it is with federal regulators, rather than those at the state level, that banks have these kinds of problems, he said.
Gardner and Childears said a shortened examination process and increased regulatory transparency would trickle down to customers of banks, benefitting local businesses.

Childears said that the CBA is expressing its support of the bill by providing information on it to member banks and requesting that they contact their legislative representatives.

The bill has been referred to the House Committee on Financial Services. Aside from Gardner, the bill has 65 cosponsors, two of whom are from Colorado. These include Democratic Rep. Ed Perlmutter of the 7th Congressional District and Republican Rep. Scott Tipton of the 3rd District.

Regulators feel that the bill and the changes it calls for, including the establishment of an ombudsman, are not necessary to maintain the communication channels between banks and those who make the rules.

The Federal Deposit Insurance Corp. maintains that regulations are helping to avoid a return to the lending procedures that first created the issues that led to the recession by enforcing stricter underwriting standards and increasing litmus tests for potential borrowers.

Molly Armbrister covers Banking for the Northern Colorado Business Report. She can be reached at or 232-3139.

Molly Armbrister covers real estate, banking and health care for the Northern Colorado Business Report. She can be reached at 970-232-3139, or

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