If – and it is a big if – Congress is going to enact regulatoryoverhaul for the financial services industry, the next step must bethe passage of a bill in the Senate.

A bipartisan group of 24 senators, led by Banking CommitteeChairman Mike Crapo (R-Id.), has set the stage for the Senate toact by approving an overhaul bill that some are calling“modest.”

It now awaits floor action. While credit unions and otherfinancial services organizations have endorsed the Senate bill,consumer groups have condemned it, stating it rolls back many ofthe safeguards established in Dodd-Frank following the financialcrisis.

The delicate bipartisan deal that resulted in the bill wassolidified during the Banking Committee markup last month. Severalsponsors of the bill made it clear they would oppose any changesproposed by other senators in an effort to ensure support for themeasure.

“This legislation represents a significant breakthrough inbipartisan negotiations, and contains many provisions that wouldimprove the operating environment for credit unions and allow themto more effectively help their members realize their financialgoals,” CUNA President/CEO Jim Nussle said in a letter supportingthe measure.

NAFCU officials also expressed support for the bill, althoughthey said they had hoped for a more ambitious piece oflegislation.

“While the bill does not have everything that credit unionswould like to see in a package, S 2155 contains a number of keyprovisions … that will help credit unions continue to meet theneeds of their members,” Carrie Hunt, NAFCU's EVP of governmentaffairs and chief counsel, said in a letter to senators.

The consumer groups, on the other hand, expressed concern aboutthe bill.

“We understand and support the need for appropriate and tailoredregulatory flexibility for small depositories,” the Center forResponsible Lending, National Community Reinvestment Coalition andNational Consumer Law Center said in a letter to senators. “Weoppose any effort to use regulatory relief for community banks andcredit unions as a vehicle for larger financial institutions toavoid having the regulatory scrutiny and oversight that provedlacking in the build up to the financial crisis.”

If the Senate passes the bill, lawmakers could face a difficulttask: Reconciling their bill with the bill already passed by theHouse. The Financial CHOICE Act, sponsored by House FinancialServices Chairman Jeb Hensarling (R-Texas), is a much moreambitious rollback of Dodd-Frank.

It includes provisions that roll back many of the CFPB's powers;senators steered clear of including CFPB changes. And while theSenate bill is a bipartisan compromise, the House bill passed withno Democratic support.

Any House-Senate conference report would likely have to garner60 votes in the Senate, and many senators have expressed supportfor the CFPB. It is unclear whether the House would be willing tojettison some of its more controversial features in an effort toenact more modest changes to Dodd-Frank.

Nonetheless, credit union trade groups said there are severalspecific provisions in the Senate bill that appeal to them.

For instance, Nussle said one section wouldoffer relief from some of the requirements of the so-calledqualified mortgage rule for some lenders that hold mortgage loansin their portfolios. He said treating loans held on balance sheetsin this way is particularly appropriate for credit unions becausethey retain all the risk for these mortgages and are subject tosafety and soundness supervision from the NCUA. In addition, hesaid, credit unions have unique relationships with their membersand are more aware of their financial conditions than otherfinancial institutions.

Hunt said many of the loans held by credit unions fit the spiritof the Qualified Mortgage Standards even if they do not fit intothe QM “box.”

Another section changes Home Mortgage Disclosure Act reportingrequirements by increasing the threshold for reporting to 500closed-end and open-end loans in a calendar year.

One provision of the bill specifically applies to credit unions.It would specify that loans made for one-to-four-unit,non-owner-occupied residential properties would not be consideredbusiness loans. Banks already count those types of loans asresidential real estate loans.

“This is a key provision for credit unions and we would urge youto oppose any efforts to remove this provision from thelegislation,” Hunt wrote in her letter.

Nussle said as much as $4 billion in capital could be freed upif Congress makes this change.

The bill also contains a credit union-endorsed provision thatwould provide legal immunity for trained financial servicesemployees who disclose information concerning the financialexploitation of senior citizens.

During the Banking Committee markup, the committee adopted abi-partisan amendment that makes several changes to the bill. Theamendment added a provision that would require the NCUA to publishits budget in the Federal Register and hold a public hearing on itsproposal.

For the past two years, the NCUA board has held a hearing andmade its budget public before adopting the document.

However, the bill's provision would require the board toinstitute such transparency measures.

Hunt also called for the Senate to require the NCUA to repealits risk-based capital rule, stating credit unions must havemodernized capital standards that reflect a 21st Centurymarketplace.

She said NCUA Chairman J. Mark McWatters has expressed a desireto repeal the rule.

The House Financial Services Committee has passed separatelegislation that would repeal the risk-based capital rule, but theHouse has not yet considered the measure.