Financial Services Report

Our Take

Say what you want about an ineffective Congress, but starting with the introduction of “The Tax Cuts and Jobs Act” through until whenever this crazy train reaches its destination, things are definitely moving full steam ahead.  If the schedule holds – and there is every reason to think that it will in the House, but may be delayed slightly in the Senate – the first session of the 115th Congress will come hurtling down the tracks with a flurry of intensity not seen in years.   While the end of sessions shenanigans we have grown accustomed to have primarily focused on debt limits and government spending, issues that have broad impact and allow for easy free-riding, tax reform is a whole different kettle of fish.   While there is sometime overlap amongst companies or industries, it is not always case.  Furthermore, much of these negotiations are zero sum gains, so at the end of the day there is a strong incentive of “every man/woman for themselves.”  Selfishly, we would add that even at this early point in the process the tax reform debate has shown the value of having a strong government affairs team in DC.   

Looking Ahead

Near Term

  • Another crushing week, as the Ways and Means Committee in the House plows forward with tax reform legislation.  The process begins today with opening statements and then will commence in earnest tomorrow.   Any effort to amend the legislation in the House will have to be done at during the Committee mark, or at the Rules Committee because Chairman Brady has made it clear this bill there will be no amendments during consideration by the full House.
  • The Financial Services Committee is looking to stay busy while their Ways and Means counterparts take the spotlight. Five Financial Services subcommittee hearings are scheduled next week, including two on housing finance reform as lawmakers start to discuss a legislative solution on the issue.
  • The House is also expected to take up Flood Insurance Reform next week as Chairman Hensarling and Majority Whip Scalise have apparently ironed out a deal.
  • The Senate will continue to move nominations on the floor, while the Banking Committee will take up a North Korea sanctions bill.  

Further Out

  • Currently, the anticipated time line for tax reform is for the Ways and Means Committee to pass it out in the House this week, and for it to be on the Floor of the House of Representatives next week.  
  • Also next week, it is possible that the Senate Finance Committee will mark up its version of a tax reform bill.   If that happens it could be possible that the Senate would take up the bill the following week, which could mean an abbreviated Thanksgiving week recess for Senators and Staff. 
  • The House Financial Services Committee is expected to hold another mark-up before the end of the month. 

The Past Week

Legislative Branch
House GOP Releases Text of Tax Reform Legislation with Markup to Start Today
Following days of around-the-clock negotiations and speculation, House Ways and Means Chairman Kevin Brady (R-TX) released the legislative text for H.R. 1 ­– The Tax Cuts and Jobs Act (TCJA) (text; section-by-section), on Thursday.  As expected, the bill takes on some incredibly politically sensitive provisions that could complicate final passage, most notably including the repeal of the state and local tax deduction (SALT), eliminations of popular itemized deductions for medical expenses and student loan interest, and abolishing the alternative minimum tax (AMT). According to Chairman Brady, TCJA adds an additional $1.51 trillion in deficit spending over the next ten years, which is in line with the 2018 fiscal year budget passed by both chambers late last month. The bill will start the formal legislative process, with the Ways and Means Committee expected to gavel in today at noon for opening statements.
Lawmakers Strike Deal on Flood Insurance; Bill to Hit Floor This Week
On Friday, House lawmakers reached an agreement on a bill to reauthorize the National Flood Insurance Program (NFIP). The measure will be considered by the House Rules Committee tomorrow ahead of floor consideration later this week. House Financial Services Committee Jeb Hensarling (R-TX) and House Majority Whip Steve Scalise (R-LA) reportedly hashed out an agreement bringing Republicans together on the issue.  It is our understanding that some of the more controversial grandfathering provisions were taken out of this version of the bill.
Energy and Commerce Panel Holds Data Security With Emphasis on Equifax
On Tuesday, the Energy and Commerce Subcommittee on Digital Commerce held a hearing entitled “Securing Consumers’ Credit Data in the age of Digital Commerce,” following a series of high-profile breaches, most notably at the credit reporting Equifax. The panel held initial discussions on the development of a legislative proposal to deal with the issue and set up a national standard on data security and consumer notifications. Members took a particularly harsh tone towards Equifax, including by endorsing and promoting the Federal Trade Commission’s reported enforcement investigation against the credit reporting agency.
Financial Services Panel Follows E&C Session on Data Security
Later on Tuesday, the House Financial Services Subcommittee on Financial Institutions and Consumer Credit followed with a hearing on data security entitled, “Data Security: Vulnerabilities and Opportunities for Improvement.” While also touching on the Equifax hack, lawmakers were more concerned with the effect some policy solutions may have on small businesses. Members questioned how the Gramm-Leach-Bliley Act (GLBA) could be improved and encouraged the use of a new legislative solution. Chair Blaine Luetkemeyer (R-MO) said he hoped to see legislation hit the committee soon.
Financial Services Subcommittee Holds Second Hearing in Series on Housing Finance Reform
On Thursday, the House Financial Services Subcommittee on Housing and Insurance held a hearing entitled, “Sustainable Housing Finance: Private Sector Perspectives on Housing Finance Reform, Part II.” As the title implies, the panel is holding a series of sessions housing finance reform, with further sessions scheduled this week. Among the topics discussed were ensuring equal market access for all lenders, and determining the long-term status of the government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac.
Cap Markets Subcommittee holds hearing on Small Business Access to Capital
The House Financial Services Subcommittee on Capital Markets, Securities, and Investment held a rare Friday hearing last week, focusing on legislative proposals to improve small business access to capital. The Committee has put forth a number of proposals to reduce red tape in certain industries, with this set of resolutions hoping to streamline rules on money market funds and business development companies. The bills under consideration can be found on the committee website here.
Crapo and Brown Hit Roadblock on Reg Reform Effort
The two leaders of the Senate Banking Committee — Chair Mike Crapo (R-ID) and Ranking Member Sherrod Brown (D-OH) — have been negotiating a financial regulatory reform bill, but apparently those efforts suffered a setback last week over the consumer protections in the bill, when Ranking Member Brown publicly announced that those talks had concluded without a deal.  Chair Crapo is preparing to go forward with the Moderate members of the Banking Committee in the hope that there might be an opportunity to add that compromise language (assuming a compromise can be reached) to some end of the year, or early 2018 legislative vehicle.  
Garrett Receives Tough Reception in Senate Hearing
On Wednesday, the Senate Banking Committee held a hearing to consider a series of nominees to bring the Export-Import Bank back to full strength, including a new president for the bank: former Congressman Scott Garrett. When in Congress, Garrett had called the bank “taxpayer-funded welfare for mega corporations” and struggled to explain his new position on the bank’s usefulness in American domestic policy. Lawmakers from both parties pressed Garrett on his past remarks and appeared to possess significant skepticism on his ability to lead to lead the agency. The bank is currently short of a quorum on its board, limiting its ability to issue loans and carry out other day-to-day functions.
Senate Banking Committee Approves SEC Nominees Peirce and Jackson
Last Wednesday, the Senate Banking Committee on Wednesday unanimously approved Hester Peirce and Robert L. Jackson Jr. to serve on the Securities and Exchange Commission. Should they be confirmed by the Senate, Ms. Peirce, a Republican, and Mr. Jackson, a Democrat, would give the SEC a full complement of five commissioners for the first time in more than two years. It's not yet clear when a Senate floor vote will be scheduled, however, the committee's unanimous voice vote gives the pair momentum as their nominations head for a vote.
Select Highlights from the Administration
The White House
Trump Taps Jerome Powell as Next Fed Chair
On Thursday, the White House officially announced that President Trump would nominate current Federal Reserve Governor Jerome Powell to replace Janet Yellen as Chair of the Federal Reserve when her term ends in February. The central bank post is generally considered one of the most important economic policy jobs in the world and Powell will be entering the chairmanship as the Fed unwinds from its unprecedented interest rates policy following the 2008 financial crisis. President Trump is breaking from historic tradition in failing to re-nominate Yellen, but many moderates are likely to be relieved that it will be filled by Powell, an experienced Fed Governor and former Treasury official. On interest rates, Powell is considered to be similar to his predecessor – a dove-sided centrist. His nomination will be subject to Senate approval, and it remains unclear if Democrats are willing to mount significant opposition.
Trump Signs Congressional Review Act Overturning CFPB Arbitration Rule into Law
On Wednesday, President Trump signed into law a resolution repealing the Consumer Financial Protection Bureau’s (CFPB) rule barring mandatory arbitration clauses, effectively ensuring that the agency cannot publish a similar rule without express approval from Congress. According to published reports, the President appeared to use the signing ceremony for a “venting session” about CFPB Director Cordray.   Cordray’s tenure, expires in 2018, but faces a February 1st deadline if he want to run for Governor of his native Ohio, has been the subject of rampant speculation since Trump assumed the Presidency.   Apparently, he is interested in firing Cordray, but is concerned about the political ramifications of making the first CFPB Director a martyr.  
Consumer Financial Protection Bureau (CFPB)
CFPB Announces New Tool to Track Mortgage Delinquency Rates
On Monday, the CFPB announced the use of a new Mortgage Performance Trends tool designed to track delinquency rates across the country and provide additional information on trends in the lending market. The results taken from the new tool show that delinquency rates are at their lowest point since the 2008 financial crisis. Director Richard Cordray described the new program as a “rich information source and useful public tool.”
New CFPB Report Shows Spike in Long-Term Auto Loans
On Wednesday, the CFPB released a report on auto loan trends showing a significant spike in the number of longer-term auto loans that the Bureau believes are riskier than short-term loans. According to the report, 42 percent of auto loans made in the last year are of the long-term variety, compared to just 26 percent in 2009. In explaining the report, Director Cordray said that the move towards longer-term auto loans are “opening up more risk for consumers” and that consumers should seek to “know before they owe.”  
Department of Labor
DOL Transmits Fiduciary Delay Rule to OMB
Last Thursday, the Department of Labor sent a proposed final rule to the Office of Management and Budget (OMB) that is expected to outline the delay of the Department’s fiduciary rule. The substance of the final rule, titled “18 Month Extension of Transition Period and Delay of Applicability Dates, Best Interest Contract Exemption; Class Exemption for Principal Transactions; PTE 84-24,” has not yet been revealed. However, it is expected that OMB will quickly review and publish the rule in the near future.
Department of Treasury
Treasury Anticipates Hitting Debt Ceiling in January
Last week, the Treasury Department released a quarterly statement that suggested the Department’s extraordinary measures would allow for the nation to meet its debt obligations until January. The deal on government funding brokered in September had reportedly provided a longer timeline than that, but the Treasury’s announcement will undoubtedly force Congress to reconsider their timeline on the issue. Government funding is currently slated to expire on Dec. 8.