Legislation that would act prophylactically to restrain the Consumer Financial Protection Bureau from extending its tentacles into the insurance industry has now been introduced in the U.S. Senate by Sen. Tim Scott, R-S.C.

Scott’s Business of Insurance Regulatory Reform Act, S. 2702, will serve as the companion bill to H.R. 3746, which passed the House Financial Services Committee by a 37-18 vote in January. Like that earlier measure, the bill has bipartisan support, with Sens. Tammy Baldwin, D-Wis., and Joe Manchin, D-W.Va., listed among the original cosponsors.

In a statement announcing the bill’s introduction, Scott noted that he sold insurance for 23 years and as such “answered to our state’s insurance director in Columbia, not bureaucrats in Washington.”

Congress never intended for the CFPB to be an insurance regulator, and this bipartisan, commonsense bill ensures that our 150-year old system of state-based insurance regulation stays in place while keeping costs down for policyholders of all kinds.

The CFPB was created under Title X of the Dodd–Frank Act, which granted the bureau power to regulate “financial products or services.” But that legislation proscribed the CFPB from intervening in the business of insurance, over which Congress reserved regulatory power to the states in the McCarran-Ferguson Act. The Dodd-Frank Act also dictates that the CFPB lacks power to enforce regulations on “a person regulated by a State insurance regulator.”

However, current law does allow the bureau to take actions against state-regulated insurance entities where they are “engaged in the offering or provision of any consumer financial product or service or…otherwise subject to any enumerated consumer law.” This opens a potential loophole for CFPB overreach that Scott’s bill looks to close by clarifying that:

if such person is subject to any enumerated consumer law or any law for which authorities are transferred…the authority of the Bureau to enforce such law with respect to such person shall be narrowly construed to the extent such person is engaged in the business of insurance.

In other words, state insurance regulators would be given broad deference to regulate insurers, insurance agents and other insurance entities where the relevant law applies.

With bipartisan sponsorship in both chambers, the bill potentially could hitch a ride on broader financial services reform legislation. While the House-passed Financial CHOICE Act was always a nonstarter in the Senate, House Financial Services Committee Chairman Jeb Hensarling, R-Texas, has made his intentions clear that he wants to put his own stamp on S. 2155, which passed the Senate in March and makes relatively modest tweaks to Dodd-Frank.

What remains to be seen is whether members of the Senate, and particularly those Democrats who agreed to support S. 2155, are open to any changes at all. If not, then the 115th Congress likely will conclude without passing any of the consensus reforms currently on the table.

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