Financial Services Report (10/21)

Another busy week in Congress will be capped by the testimony of Facebook CEO Mark Zuckerberg before the House Financial Services Committee on Wednesday. Based on the hearing memo, Zuckerberg can expect to be grilled on Libra, Housing, Data Privacy and Diversity issues. And that's just from the Democrats.

 

Data, and its role in financial services will also be the focus of two hearings at the Senate Banking Committee, as they examine both the Consolidated Audit Trail as well as data rights.

 

The full Senate may take up the first spending bill soon, as Leader McConnell started the process to move two different minibuses last week, while the House is focused on Russia and election security this week.

From the Campaign Trail

Campaign Updates

 

October Debate: On Tuesday, CNN and the New York Times hosted the fourth Democratic presidential debate in Westerville, Ohio. Featuring 12 qualifying candidates, the debate continued to highlight high-profile progressive policy priorities including Medicare for All, a wealth tax, and impeachment.

 

Key takeaways from the event included: (1) Sen. Elizabeth Warren (D-MA) continuing to cement her roll as one of the two leading candidates in the race for the Democratic nomination; (2) Sen. Bernie Sanders (I-VT) showing vigor just weeks after suffering a heart attack; and (3) Sen. Amy Klobuchar (D-MN) and South Bend Mayor Pete Buttigieg being noticeably more aggressive compared to previous debates, particularly in going after leading progressive candidates.

 

Finances: On Tuesday, the Federal Election Commission (FEC) published campaign financial filings for the third quarter. Most notably, the filings show the Biden campaign with only $9 million on hand, which caused some pundits to raise alarms as to the frontrunner's financial strength after his campaign spent more money than it took in last quarter. Sen. Sanders currently leads the financial pack with a $33.7 million war chest, followed by Sen. Warren ($25.7 million,) Mayor Buttigieg ($23.4 milllion,) and Sen. Kamala Harris (D-CA) ($10.5 million.)

 

This Week's Polls

 

The RealClearPolitics average of polls for 10/6-10/15 shows Vice President Biden at 29 percent, Sen. Warren at 23 percent, Sen. Sanders at 15 percent, and Sen. Harris and Mayor Buttigieg both around five percent.

 

Policy Proposals

 

Sanders Corporate Accountability Pitch: On Monday, Sen. Sanders released a plan to improve "Corporate Accountability and Democracy." The Senator's latest slate of policies taking aim at corporate America includes: (1) requiring corporations with at least $100 million in revenue or that are publicly traded to be 20 percent employee-owned, have employees compose at least 45 percent of their boards, and obtain a federal "stakeholder charter" requiring the consideration of "all stakeholders" rather than just shareholders; (2) banning stock buybacks; (3) requiring firms to furnish equity to laid off employees; (4) returning the corporate rate to 35 percent accompanied by a host of anti-avoidance measures; (5) drastically expanding the scope of the Federal Trade Commission's anti-trust authority; and (6) restricting the power of asset managers.

 

Last Week in the House

The Floor

 

Last week the House voted on two bills that would impact the financial services industry. First, on Thursday, lawmakers passed the SEC Disclosure Effectiveness Testing Act (HR 1815), which would require the SEC to review and test its disclosures for retail investors. Rep. Sean Casten's (D-IL) legislation passed in a 229-186 party-line vote.

 

On Friday, lawmakers passed the Outsourcing Accountability Act (HR 3624), which would require publicly-traded companies to disclose where their employees are located. Sponsored by Rep. Cindy Axne (D-IA), the legislation cleared the House on a 226-184 vote.

 

Neither bill is expected to gain traction in the Senate.

 

Hearings and Markups

 

CFPB (10/16): On Wednesday, Consumer Financial Protection Bureau Director Kathleen Kraninger delivered her semiannual testimony to the House Financial Services Committee. Committee Democrats broadly panned Director Kraninger's "anti-consumer" leadership of the bureau, particularly criticizing her enforcement record, oversight of student loan servicers, and rulemaking on small dollar lending, debt collection, and mortgage disclosures. HFSC Republicans, in contrast, voiced support for what they described as transparency and a commitment to process at CFPB and defended recent rulemakings.

 

Ahead of the hearing, HFSC Democrats released a report alleging that CFPB has "left consumers high and dry" under Director Kraninger's leadership. The report was particularly critical of instances of the bureau declining to seek restitution for harmed consumers and of political appointees overruling career staff. Both points were frequently raised by Democrats at the hearing.

 

TRIA (10/16): On Wednesday, two Financial Services Subcommittees held a joint hearing examining the reauthorization of the Terrorism Risk Insurance Act (TRIA), which is currently set to expire at the end of 2020. Lawmakers on both sides of the aisle broadly agreed on the importance of reauthorizing the federal terrorism reinsurance backstop. GOP members suggested further clarification on cyber threats and coverage, an adjustment that aligns rates with those specified under the 2017 tax law, and making TRIA permanent. Democrats did not explicitly endorse the changes suggested by Republican members, but did indicate that they support greater protections for non-profit organizations. 

 

At the hearing, HFSC Chairwoman Maxine Waters (D-CA) announced the introduction of legislation (HR 4634) providing a 10-year clean extension of TRIA. Reps. Peter King (R-NY), Lance Gooden (R-TX), and Lee Zeldin (R-NY) have joined 24 Democrats in cosponsoring the bill. The measure is expected to be part of the mark-up that the Committee will hold later this month.

 

Stock Buybacks (10/17): On Thursday, the Financial Services Subcommittee on Investor Protection convened a hearing to discuss the impact of stock buybacks. The discussion focused on the recent spike in stock buybacks following the 2017 Tax Cuts and Jobs Act and the current regulatory framework surrounding buybacks. Lawmakers discussed several Democratic bills aimed at restricting buybacks, which are outlined in the Committee memorandum. The majority of Committee Democrats supported these pieces of legislation while Republican Members cautioned that such restrictions would limit companies’ ability to distribute capital to shareholders.

 

Hiring Diversity (10/17): On Thursday, the Financial Services Subcommittee on Diversity and Inclusion held a hearing examining diversity practices for America's changing workforce. In addition to talent pipelines, Chairwoman Joyce Beatty (D-OH) in her opening statement emphasized the importance of retaining diverse talent, noting that even well-intentioned employers often fail to account for unique challenges faced by diverse employees even after they have secured a rung on the corporate ladder. Ranking Member Ann Wagner (R-MO) echoed the importance of a diverse workforce, noting the positive benefits of diversity on company performance.

 

Financial Data Security (10/18): On Friday, the Financial Services Task Force on Artificial Intelligence discussed how financial data is stored, protected, and maintained by cloud service providers (CSP). There was bipartisan support for financial institutions’ use of CSPs with committee members acknowledging the important role cloud computing has played in revolutionizing the financial industry. Members expressed concern regarding the shared responsibility between CSPs and financial institutions when it comes to protecting user data. Additionally, committee members discussed the role artificial intelligence (AI) and encryption technology could play in mitigating data security risks. 

 

Other Activity

 

HFSC Musical Subcommittee Chairs: On Wednesday, Financial Services Committee Republicans announced several changes to committee leadership resulting from the retirement of former Rep. Sean Duffy (R-WI). Rep. Steve Stivers (R-OH) will take Rep. Duffy's position as Ranking Member of the Housing Subcommittee. This opens up a position as head Republican on the National Security Subcommittee, which will be filled by Rep. French Hill (R-AR). Reps. Tom Emmer (R-MN) and Barry Loudermilk (R-GA) will fill Rep. Hill's leadership of the Fintech and Artificial Intelligence Subcommittees respectively.

 

McHenry Letter on Fed Balance Sheet: On Thursday, Financial Services Committee Ranking Member Patrick McHenry (R-NC) sent a letter to Federal Reserve Chairman Jerome Powell inquiring into the Fed's plan to resume buying US treasuries. The letter seeks clarity on the central bank's recent reversal of its push to downsize its balance sheet, which Fed officials have stressed is an attempt at addressing last month's dysfunction in money markets rather than a monetary policy move. Rep. McHenry's letter also seeks the Fed's opinion on to what extent financial regulations contributed to that situation.

 

Last Week in the Senate

The Floor



The Senate did not consider any financial services items last week.

 

Hearings and Markups

 

CFPB Oversight (10/17): On Thursday, Consumer Financial Protection Bureau Director Kathleen Kraninger delivered her semiannual testimony to the Banking Committee. Keeping with trends from her House appearance the previous day (see above), Committee Democrats harshly criticized Director Kraninger for CFPB's enforcement history and rulemakings under her tenure, while Republicans spoke favorably of her transparency and commitment to regulatory clarity. Most aggressive was Ranking Member Brown, who accused the Director of lying to Congress.

 

Bills Introduced

 

Identity Theft Victims Protection Act (Rick Scott): Adds fraudulent actions resulting from identity theft to the perpetrator's credit history rather than the victim's.

 

Other Activity

 

SECURE Act Letter: On Tuesday, seven Republican Senators sent a letter to Majority Leader Mitch McConnell (R-KY) calling for Senate to take action on the Setting Every Community Up for Retirement Enhancement (SECURE) Act (HR 1994) "as soon as possible." The SECURE Act contains a slate of provisions intended to encourage retirement savings and passed the House near-unanimously in May. Despite broad bipartisan support, the high-profile package has yet to receive consideration in the upper chamber and is perceived as awaiting a legislative vehicle, such as an appropriations agreement, that would provide the momentum for final passage.

 

Democrats Letter on FHFA URLA Decision: On Thursday, Sens. Catherine Cortez Masto (D-NV) and Bob Menendez (D-NJ) led a group of 19 Senate Democrats on a letter calling on the Federal Housing Finance Agency to reverse its June decision delaying mandatory inclusion of language preference and housing counseling questions on Fannie Mae and Freddie Mac's Uniform Residential Loan Application (URLA). The letter's authors argue that both requirements ensure that the mortgage industry is properly serving minority and immigrant communities and FHFA's "arbitrary" decision to move the disclosures to a voluntary form that lenders will be under "no obligation to use."

 

Last Week in the Administration

 

Short-Lived Selection of Trump Resort For G20 Sparks Controversy

On Thursday, the White House announced that the June 2020 G7 summit of global leaders would be held at the Trump National Doral Miami golf resort. The announcement sparked immediate accusations from Congressional Democrats and others that President Trump is abusing his office to prop up his financially struggling Florida resort—and resulted in legislation being added to the calendar to condemn the decision. Then late on Saturday evening, the Administration announced it was reversing the decision and would consider other locations for the meeting.

 

FASB Approves Another CECL Delay

On Wednesday, the Financial Accounting Standards Board (FASB) voted to approve its August proposal delaying the implementation deadlines of several accounting standards—including the much-maligned Current Expected Credit Loss (CECL) standard—for certain lenders. Private companies, non-profits, and small public lenders will now be required to implement CECL by 2023, two years later than previously planned. Large publicly traded lenders are unaffected by the delay and beginning in 2020 will have to begin recording expected future losses on loans up-front, which critics have argued will restrict access to credit.

 

Fed Announces IPAC Members

On Wednesday, the Federal Reserve announced the inaugural members of its Insurance Policy Advisory Committee (IPAC). The 21 members will serve terms ranging from 1 to 3 years and includes representatives from diverse insurance companies, academia, and other stakeholders. Established as part of last Congress's banking regulatory relief package, IPAC is tasked with providing information, advice, and recommendations to the Fed Board on international insurance capital standards and other insurance issues.

 

San Francisco Fed Publishes Climate Risk Report

On Thursday, the Federal Reserve Bank of San Francisco published a review of the financial risks posed by climate change. The report is composed of 18 academic articles discussing the possible consequences of increasing climate risk, including falling real estate values, loss of credit in flood-prone communities, immigration upheaval, and new patterns of infrastructure investment. The report received press attention and comes after significant calls from Democrats in Congress for federal banking regulators to assess their approach to climate risk.

 

Banking Regulators Seek Input on CECL Stance

On Thursday, the Federal Reserve, FDIC, NCUA, and OCC issued a request for comment on a proposed "Interagency Policy Statement on Allowances for Credit Losses." Per the agencies, the policy statement would serve to "promote consistency in the interpretation and application" of the Current Expected Credit Loss accounting methodology. Jointly, the agencies also requested input on a proposed Interagency Guidance on Credit Risk Review Systems, which would present guiding principles for establishing a system of independent, ongoing credit risk review in accordance with safety and soundness standards.

 

CFPB Private Education Loan Ombudsman Issues 2019 Annual Report

On Tuesday, the Consumer Financial Protection Bureau published its 2019 Annual Report detailing the Bureau's student loan enforcement activities over the last two years. The report found that between September 2017 and August 2019, CFPB handled 20,600 student loan complaints and that complaints dropped in each of the previous two years. This year's report is the first from Student Loan Ombudsman Robert Cameron, who was appointed to the position in office. The previous vacancy of the Ombudsman position and corresponding gap in reporting had been a frequent source of criticism for consumer advocates and Congressional Democrats.

 

Supreme Court to Hear CFPB Constitutionality Case

On Friday, the Supreme Court agreed to hear appeals brought by Seila Law, a California-based law firm, challenging the constitutionality of the Consumer Financial Protection Bureau. Echoing long-cited conservative criticisms of the bureau, the group's lawsuit argues that CFPB's leadership structure—consisting of a single Director removable only for cause—makes the bureau unaccountable to voters and unconstitutional. The case is likely to be decided by the end of June.

 

By agreeing to hear the case it is possible that the agency could be eliminated, though legal observers have also raised the possibility of a more limited ruling, for instance by limiting the Director's independence. The Trump Administration, and more recently CFPB itself, have supported supported legal challenges to the Bureau's structure.

 

This Week's Schedule

Mon. (10/21)

 

Tues. (10/22)

Wed. (10/23)

Thu. (10/24)

Fri. (10/25)

Further Out