Financial Services Report (11/4)

After passing the first "mini bus" last week, the Senate will return its focus to nominations, with a series of judges expected to consume the floor time this week. In the Committees, the Banking Committee will hold a hearing on housing, while a Judiciary Subcommittee will hold a hearing on data security as the legislative process on privacy legislation continues to grind.
 
The House is not in session this week.

From the Campaign Trail
 
The Democratic primary field winnowed a bit more on Friday when former Congressman Beto O'Rouke announced he was withdrawing from the nomination fight.
 
In other 2020 news, Sen. Elizabeth Warren (D-MA) released two major policy proposals last week.
 
First, on Tuesday, Team Warren expanded on her "good government" / anti-lobbying proposals, by proposing to prohibit large companies (defined as corporations worth over $150 billion or that control the product or labor supply of their industries) from hiring senior government officials for four years after they leave office. Intended to diminish "the political influence of monopolies," the proposal includes escalating fines ranging from 1% to 5% of total profits.
 
Then, on Friday, Sen. Warren also released her plan to pay for her "Medicare for All" proposal. The Senator's campaign says the the shift to universal health care would cost $52 trillion over a decade, which would be funded by an employer contribution and targeted taxes aimed at financial transactions, large banks, and foreign earnings. The campaign has emphasized that the plan will not raise taxes on the middle class.
 
Polls for the Democratic Presidential nomination held steady over the previous week. The RealClearPolitics average of polls for 10/17-10/29 has Vice President Joe Biden at 27 percent, Sen. Warren at 21 percent, Sen. Bernie Sanders (I-VT) at 17 percent, South Bend Mayor Pete Buttigieg is at 8 percent, and Sen. Kamala Harris (D-CA) is at 5 percent.
 
Last Week in the House
The Floor
 
The House's week was undoubtedly highlighted by a vote opening a formal impeachment inquiry into President Trump, which passed on a near party-line vote of 232-196. Beyond that historic vote, the majority of week was spent on legislation protecting the Grand Canyon, though the House did clear several financial services bills through the Suspension Calendar:
  • The Financial Inclusion in Banking Act. Sponsored by Rep. David Scott (D-GA), the bill directs CFPB to identify causes of and solutions to under-banked consumers.

  • The COUNTER Act. Sponsored by Reps. Emanuel Cleaver (D-MO) and Steve Stivers (R-OH), the stand-alone version of this legislation includes a host of provisions intended to modernize and close loopholes in anti-money laundering laws. Please note that the text of this bill was also included in the Financial Transparency Act beneficial ownership bill, which passed the House two weeks ago, but whose fate in the Senate remains uncertain.

  • The Crowdfunding Amendments Act. Sponsored by HFSC leaders Patrick McHenry (R-NC) and Maxine Waters (D-CA), the legislation addresses "structural flaws" in the SEC's regulation crowdfunding, including the “12-g problem” by raising the asset threshold for both small businesses that already have revenue, and for those startups that do not, "making it more likely that high-growth companies will consider crowdfunding as an option for raising capital."

Hearings and Markups
 
LGBTQ+ Lending (10/29): On Tuesday, the Financial Services Subcommittee on Oversight held a hearing on anti-LGBT discrimination in the lending and housing market. On the Democratic side of the dais, Subcommittee Chairman Al Green (D-TX) reiterated that LGBT people face economic insecurity, discrimination, and insufficient legal protections and called for legislation establishing stronger protections. Ranking Member Andy Barr (R-KY) echoed Mr. Green's sentiments, saying that "discrimination based on race, gender, or sexual orientation is wrong" and agreeing that evidence suggests that discrimination takes place. Rather than demographic data, he said, lenders should rely on risk-based metrics of creditworthiness such as credit reports.
 
HFSC Mark-Up (10/29): On Tuesday, the Financial Services Committee began what was supposed to be a two-day mark-up, but which ultimately required a third day to advance four pieces of legislation and formalize new subcommittee assignments for Republicans due to the retirement of Rep. Duffy and the attendant reshuffling that follows.
 
The majority of the mark-up was dedicated to reauthorizing the Export-Import bank via the United States Export Finance Agency Act. The bill would reauthorize the Export-Import Bank for 10 years, rename it the US Export Finance Agency, and institute a number of reforms to the bank. Previously set to expire on September 30, Ex-Im received a short-term extension under the most recent CR and is now set to lapse on November 21.
 
Committee Republicans harshly criticized the bill for omitting provisions preventing the financing of projects for Chinese state-owned enterprises and offered a number of anti-China amendments. These provisions were initially contained in a bipartisan agreement reached earlier this year but were later dropped amid concerns from Committee Democrats. The mark-up turned acrimonious, at one point leading Chairwoman Waters to accuse Republicans of offering duplicative amendments and temporarily adjourn the markup.
 
A secondary debate occurred over amendments increasing the role of environmental criteria in the bank's decision-making. Two amendments offered by members of the "Squad" on this topic were criticized by both Republicans and most Democrats who raised concerns that they were not enforceable or that they would simply drive companies to other sources of export finance.
 
Eventually, the Ex-Im bill passed 30-27 with every Republican, along with three Democrats—Reps. Alexandria Ocasio-Cortez (D-NY), Rashida Tlaib (D-MI), and Ayanna Presley (D-MA)—voting against.
 
In addition to Ex-Im re-authorization, the committee advanced three other bills unanimously:
Bills Introduced
 
Greater Supervision in Banking Act (Pressley): Requires G-SIB CEO's to testify annually before Congress.
 
Bridge to End Homelessness Act (Napolitano): Establishes a competitive grant program funding municipal initiatives to construct interim housing for the homeless.
 
White House Council on Affordable Housing (Foxx): Codifies the Executive Order establishing the White House Council on Eliminating Regulatory Barriers to Affordable Housing.
 
Other Activity
 
Waters Housing Letter: On Monday, Financial Services Chairwoman Waters sent a letter to the White House harshly criticizing President Trump's homelessness policies. "You're shamelessness knows no bounds," the letter begins prior listing actions that the Chairwoman argues have contributed to the homelessness crisis, including defunding HUD programs, raising rent on HUD tenants, and limiting benefits to mixed-immigration status families. The letter also criticizes the Administration's recent report on homelessness for promulgating an "oversimplified and misleading narrative" that promotes barriers to housing and overplays the rule of housing regulations in blocking access to shelter.
 
Pascrell/AOC Postal Banking Letter: On Wednesday, Reps. Bill Pascrell (D-NJ) and Alexandria Ocasio-Cortez (D-NY) sent a letter to the Postal Service and the Federal Reserve urging the two organizations to implement a postal banking program offering basic financial services to undeserved consumers. The letter describes postal banking as a positive complement to the Fed's recently announced FedNow faster payments system and cites recent reports from the USPS Inspector General promoting the potential of postal banking to improve service to the underbanked.
 
November HFSC Hearings: On Thursday, the Financial Services Committee published its November agenda. HFSC's schedule this month includes hearings on private equity, financial data, and housing and can be found here.
 
Cleaver/Kind/Booker Letter on OZs: On Thursday, Reps. Emanuel Cleaver (D-MO), Ron Kind (D-WI), and Sen. Cory Booker (D-NJ) Treasury Department Inspector General calling for an inquiry into alleged abuses of the Opportunity Zone program. The letter notes several recent allegations of the program being abused for political favoritism, including Treasury Secretary Steven Mnuchin's intervention in the approval of the Storey County, Nevada opportunity zone and Quicken Loans founder Dan Gilbert's lobbying of the White House for favorable opportunity zone decisions. Established under the 2017 Tax Cuts and Jobs Act, the Opportunity Zone program provides tax incentives for investments in under-served communities.
 
Flood Insurance Letter: On Friday, a bipartisan group of 64 House lawmakers sent a letter to House leadership calling for a long-term reauthorization of the National Flood Insurance Program, which has lately hobbled along through a series of short-term extensions. While appreciative of reauthorization efforts put forward by HFSC leadership, the letter raises concerns that Chairwoman Waters' bill will fail to address potential premium increases under FEMA's new Risk Rating 2.0 methodology and calls for more attention to ensuring affordable premiums in the bill.
 
Last Week in the Senate
The Floor

On Tuesday, the Senate cleared (84-9) its first four-bill minibus, advancing FY20 spending bills for Agriculture, Interior-Environment, Commerce-Science-Justice, and Transportation-HUD. While the $214 billion measure passed with broad bipartisan support, action on a second spending package quickly came to a halt. As expected, Senators did not approve (51-41) a motion to proceed to consideration of the spending package containing the upper chamber's spending bills for Defense and Labor-HHS-Education over disagreements on border security and family planning policies.
 
With the November 21 government funding deadline looming, lawmakers are increasingly expected to pass another continuing resolution funding the government at current levels and there is growing chatter that this one will fund the government into February or March of next year. Partisan roadblocks—most notably immigration and border security—continue to pose major challenges to reaching a final spending deal.
 
Bills Introduced
 
Small Business Audit Correction Act (Cotton, Tillis, Jones, and Sinema): Exempts privately-held, small non-custodial brokers and dealers from the requirement to use a PCAOB-registered audit firm to meet their annual reporting obligations.
 
Native American Housing Affordability Act (Rounds and Smith): Aims to accelerate the Section 184 Indian Home Loan Guarantee Program by allowing HUD to guarantee home loans for Native American borrowers prior to receiving trailing documents from the Bureau of Indian Affairs.
 
Hong Kong Be Water Act (Hawley, Scott, and Cornyn): Imposes sanctions on Chinese officials and entities found to have suppressed the rights of Hong Kong residents.
 
Sandy Duplication of Benefits Act (Gillibrand and Shumer): Waives duplication of benefit restrictions on recipients of Hurricane Sandy-related CDBG grant funding who were later told they have to repay their grants due to already receiving SBA loans.
 
Other Activity
 
Cramer/Sinema Op-Ed: On Monday, Sens. Kevin Cramer (R-ND) and Kirsten Sinema (D-AZ) published an op-ed in the Hill calling for Congress to prioritize the re-authorization of the Export-Import Bank. The two Senators are sponsors of legislation that would reauthorize Ex-Im for 10 years and framed the bank as crucial to US security and economic leadership.
 
Democratic Letter on Student Loan Forgiveness: On Monday, Sen. Sherrod Brown (D-OH) led 22 Democrats on a letter calling for a CFPB investigation into mismanagement of the Public Service Loan Forgiveness Program, which is intended to forgive the federal student loans of graduates in certain public service positions but has come under fire for exceptionally low application acceptance rates. The letter raises concerns that the Pennsylvania Higher Education Assistance Agency (PSLF's sole servicer) has accepted only one percent of applications for loan relief as a result of “flawed payment processing, botched paperwork and inaccurate information" and argues that "CFPB has failed to ensure that PHEAA makes good on the promise of loan forgiveness."
 
Democratic HUD Letter: On Monday, Sen. Sherrod Brown (D-OH) led 32 Democrats on a letter criticizing HUD policies on transgender individuals. In addition to proposed changes to the 2012 Equal Access rule that would allow federally funded shelters to deny non-cisgender individuals access on religious grounds, the letter raises concerns about Washington Post-published reports that HUD Secretary Ben Carson made pejorative comments about transgender individuals in meetings with staff.
 
Last Week in the Administration
Economy Adds 128,000 Jobs
On Friday, the Bureau of Labor Statistics announced that the US economy added 128,000 jobs in October, beating economist expectations. The release follows the Wednesday publication of Q3 growth estimates by the Bureau of Economic Analysis, which found that the economy grew at a solid if unspectacular 1.9 percent last quarter. The two data points have been taken to assuage fears of an impending economic downturn, despite economic challenges including trade tension and last month's strike of GM autoworkers. Responding to the news, President Trump tweeted praise for the "blowout" jobs numbers, which he incorrectly claimed reflected 300,000 new jobs last quarter.
 
Fed Issues Third Interest Rates Cut of 2019
On Wednesday, the Federal Open Market Commission announced that it would cut its benchmark interest rate 25 basis points to 1.5-1.75 percent. While the Fed's third interest rate cut of 2019 was intended to fend off a recession amid trade tensions and slowing global growth, it is likely the last for the foreseeable future. Fed Chairman Jerome Powell indicated that the central bank “will continue to monitor the implications of incoming information for the economic outlook," language which observers have taken to mean that the Fed will look to hold rates steady at upcoming meetings. The move did not earn praise from the White House, with President Trump reiterating calls for more aggressive cuts and tweeting that the Federal Reserve is a larger threat to the US economy than China.
 
White House, House Republicans Talking Tax Reform 2.0
On Thursday, the Washington Post reported that the White House is in talks with Congressional Republicans to push for a second round of tax reform. Administration officials publicly voiced interest in a “tax reform 2.0” package in September and while the contents of another tax package remain unclear, capital gains and individual tax cuts are possible candidates. Regardless, any tax package would be dead on arrival in the Democrat-controlled House but could provide ammunition on the 2020 campaign trail. 
 
Regulators Issue CBLR Final Rule 
On Tuesday, the Federal Reserve, Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency issued a final rule implementing the Community Bank Leverage Ratio, which allows community banks to adopt a single leverage ratio in lieu of calculating risk-based capital requirements. To qualify for the framework, a community bank must have less than $10 billion in total consolidated assets, limited amounts of off-balance-sheet exposures and trading assets and liabilities, and a leverage ratio greater than 9 percent. The agencies estimate that 85 percent of community banks will be able to take advantage of CBLR, which was created under last Congress’s banking regulatory relief package. 
 
Scalia to Participate in Fiduciary Rule Rewrite
On Tuesday, Labor Department Ethics officials found that Labor Secretary Eugene Scalia does not have to recuse himself from the Labor Department's rewrite of the Obama Era Fiduciary Rule. While Secretary Scalia handled a legal challenge to the rule while in private practice, officials found that the rulemaking did not involve specific parties of concern and that any relevant litigation has already ended. The Labor Department's rewrite of the Obama-era rule—which requires brokers and retirement advisors to act in the best interest of their clients and was struck down in court—is expected to align with the SEC's Regulation Best Interest.
 
HUD to Limit FCA Claims 
On Monday, the Department of Justice and HUD Development signed a memorandum of understanding limiting instances in which HUD will use the False Claims Act to seek prosecution of FHA mortgage lenders. Under the MOU, HUD will seek to allow FHA-related claims to be resolved administratively and will only refer cases to DOJ when more than 15 loans show serious violations or if the loan has an unpaid principal balance of at least $2 million and shows “systemic or widespread” violations. The move is intended to provide cover for banks to return to the FHA mortgage market, which they have largely left in recent years. Many, including HUD Secretary Ben Carson, have attributed that decline to HUD’s use of FCA to go after banks that underwrote FHA loans to ineligible borrowers in the years following the mortgage meltdown.
 
This Week's Schedule 
Mon. (11/4)
  • No events scheduled.
Tues. (11/5)
  • Open Meeting: Commodity Futures Trading Commission – 10:00 AM– The Commodity Futures Trading Commission (CFTC) will hold an open meeting to discuss pending business before the Commission. Details here.
  • Open Meeting: Securities and Exchange Commission– 10:00 AM– The Securities and Exchange Commission (SEC) will hold an open meeting to discuss pending business before the Commission. Details here.
  • Hearing: Senate Judiciary Sub. on Data Privacy – 2:30 PM– The Senate Judiciary Subcommittee on Crime and Terrorism will hold a hearing entitled "How Corporations and Big Tech Leave Our Data Exposed to Criminals, China, and Other Bad Actors." Details here.
Wed. (11/6)
  • WITA Event on the Digital Economy – 9:00 AM – The Washington International Trade Association (WITA) will hold an event entitled "Addressing the Tax Challenges of the Digital Economy. Details here.
  • CFPB Symposium on Dodd Frank – 9:30 AM – The Consumer Financial Protection Bureau (CFPB) will host a symposium on Section 1071 of the Dodd-Frank Act. Details here.
  • CSIS Event on Illicit Financing – 10:00 AM – The Center for Strategic and International Studies (CSIS) will host an event entitled "Lessons from Cyprus: Combating Illicit Finance." Details here.
  • Markup: Senate Budget Committee – 2:30 PM – The Senate Budget Committee will meet to mark up S. 2765 – The Bipartisan Congressional Budget Reform Act. Details here.
Thu. (11/7)
  • Hearing: Senate Banking Committee on Housing Legislation – 10:00 AM – The Senate Committee on Banking, Housing, and Urban Affairs will hold a hearing entitled "Examining Bipartisan Bills to Promote Affordable Housing Access and Security." Details here.
Fri. (11/8)
  • No events scheduled.
Further Out
  • Hearing: House Financial Services Sub. on Multilateral Development Institutions – Nov. 13 – The House Financial Services Subcommittee on National Security, International Development, and Monetary Policy will hold a hearing entitled “How America Leads Abroad: An Examination of Multilateral Development Institutions.” Details not yet available.
  • Markup: House Financial Services Committee – Nov. 13-14 – The House Financial Services Committee will hold a markup to consider pending legislation before the Committee. Details not yet available.
  • Hearing: House Financial Services Committee on Private Funds – Nov. 19 – The House Financial Services Committee will hold a hearing entitled “America for Sale? An Examination of the Practices of Private Funds.” Details not yet available.
  • Hearing: House Financial Services Sub. on Minority Depository Institutions – Nov. 20 – The House Financial Services Subcommittee on Consumer Protection and Financial Institutions will hold a hearing entitled “An Examination of Regulators’ Efforts to Preserve and Promote Minority Depository Institutions.” Details not yet available.
  • Hearing: House Financial Services Sub. on HUD Housing – Nov. 20 – The House Financial Services Subcommittee on Housing, Community Development, and Insurance will hold a hearing entitled “Safe and Decent? Examining the Current State of Residents’ Health and Safety in HUD Housing.” Details not yet available.
  • Hearing: House Financial Services Fintech Task Force on Data – Nov. 21 – The House Financial Services Task Force on Financial Technology will hold a hearing entitled “Banking on Your Data: the Role of Big Data in Financial Services.” Details not yet available.