Insights

Financial Services Report (5/6)

May 6, 2019
This week, the House Financial Services Committee is set to mark-up a series of bill, a few of which may end up achieving bipartisan consensus, while the Senate Banking Committee will hold a hearing on data privacy.
 
On the Floor, much of the messaging will be focused on the Pre-existing coverage bill, but a Disaster Relief bill is also scheduled to be on the floor, and that legislation contains an extension of the Flood Insurance program through September. As the overall Disaster measure has stalled in the Senate over Puerto Rico funding, it is unclear how this will all get resolved but current funding for the Flood program expires around Memorial Day.
 
The Senate will continue to take up nominations, including, potentially a few related to the Ex-Im Bank, perhaps bringing that saga to a close.

Last Week in the House
The Floor
 
On Tuesday, the House passed a bill and two resolutions dealing with financial literacy and senior investor protections:

  • A resolution sponsored by Rep. Bill Foster (D-IL) encouraging greater public-private sector collaboration to promote financial literacy among young adults.

  • A resolution sponsored by Reps. Sean Casten (D-IL) and John Rose (R-TN) "supporting the protection of elders through financial literacy."

  • The Senior Security Act, sponsored by Reps. Josh Gottheimer (D-NJ) and Trey Hollingsworth (R-IN), that would establish an SEC Senior Investor Taskforce.

Besides this trio of votes, the House's legislative agenda this week was headlined by the passage of the Climate Action Now Act requiring the United States to follow its commitments under the Paris Climate Agreement.
 
Hearings and Markups
 
Housing Infrastructure (4/30): On Tuesday, the Financial Services Committee held a hearing examining the country's housing infrastructure needs. Committee Members debated Chairwoman Maxine Waters' (D-CA) Housing is Infrastructure Act discussion draft (text, summary), which would provide nearly $100 billion supporting rural, public, and affordable housing, as well as disaster mitigation. Promoting the bill, Chairwoman Waters called for any federal infrastructure investment package to address America's housing stock. Ranking Member Patrick McHenry (R-NC) and other committee Republicans, however, questioned providing massive federal funds for decades-old housing programs without structural reforms.
 
Small Dollar Lending (4/30): On Tuesday, the Financial Services Subcommittee on Consumer Protection held a hearing on the small dollar lending industry. During the hearing, Committee Democrats consistently criticized the Consumer Financial Protection Bureau’s reassessment of the 2017 Payday Lending Rule’s underwriting requirement, while several voiced support for a 36 percent interest rate cap, modeled on the current cap on military borrowers for all consumer loans nationwide. Several Republicans, including Subcommittee Ranking Member Blaine Luetkemeyer (R-MO) disagreed, saying that a nationwide usury would be ineffective and translate to higher fees for consumers.
 
Robocalls (4/30): On Tuesday, the Energy and Commerce Subcommittee on Communications and Technology held a hearing examining legislative proposals to combat abusive robocalls, most notably Chairman Frank Pallone’s (D-NJ) Stopping Bad Robocalls Act and Subcommittee Ranking Member Bob Latta’s (R-OH) STOP Robocalls Act. Members on both sides of the aisle broadly condemned the proliferation of illegal robocalls and expressed interest in call authentication and blocking technologies. While several Democrats—joined by National Consumer Law Center’s Margot Saunders—directed criticism at unwanted but legal robocalls made by US companies, committee Republicans consistently stressed a distinction between illegitimate and unwanted but legal calls.
 
Discrimination in Automobile Finance and Insurance (5/1): On Wednesday, the Financial Services Oversight and Investigations Subcommittee held a hearing examining discrimination in the automobile lending and insurance industries. While sparsely attended by Committee Democrats, as only the Chair of the Subcommittee, Chair Waters and subcommittee member Rashida Tlaib (D-MI) spoke. Both Chairs focused their comments primarily on their concerns about allegations of discrimination in auto lending — specifically the use of the "dealer reserve" which they referred to as an unregulated mark-up. The Republican side of the aisle, which even had one member join as an honorary guest spent their time arguing against legislation sponsored by Rep. Tlaib that would prohibit the use of credit scores for care insurance purposes as an intrusion against the purity of the Nation's State-based system of insurance regulation.
 
Diversity and Inclusion (5/1): On Wednesday, the Financial Services Diversity and Inclusion Subcommittee held a hearing entitled: "Good for the Bottom Line: A Review of the Business Case for Diversity and Inclusion." With the hearing focused on the business benefits of a diverse workforce, Subcommittee Chairwoman Joyce Beatty (D-OH) argued: "diversity and inclusion is a business imperative. Those who embrace it are likely to prosper, while those who ignore it are more likely to fail." Republicans tended to agree such that in his opening statement, Ranking Member McHenry noted that they had attempted – though failed – to make the witness list truly bipartisan.
 
Bills Introduced
 
Primary Regulators of Insurance Vote Act (Heck and Loudermilk): Allows a state insurance commissioner to serve as a voting member of the Financial Stability Oversight Council. A Senate companion measure was introduced by Banking Committee Members Tim Scott (SC) and Doug Jones (AL).
 
Flood Mapping Modernization and Homeowner Empowerment Pilot Program Act (Quigley and Roooney): Establishes a HUD-administered pilot program providing grants to local governments in order to enhance the production and availability of flood maps. The bill was previously introduced last Congress and companion legislation has been introduced in the Senate by Sens. Dick Durbin (D-IL), Tammy Duckworth (D-IL), and Marco Rubio (R-FL).
 
Self-Employed Mortgage Access Act (Emmer and Foster): Allows mortgage lenders to verify income through documentation other than a W-2, with the intention of expanding access to mortgages for self-employed individuals and gig economy employees. Companion legislation is sponsored in the Senate by Sens. Mark Warner (D-VA), Cory Booker (D-NJ), and Mike Rounds (R-SD).
 
SEC Definition of Small Business (San Nicolas and Huizenga): Requires the SEC to revise the definition of "small business" for the purposes of Investment Advisers Act impact assessments.
 
Expanding Access to Capital for Rural Job Creators Act (Axne): Expands the authority of the SEC Advocate for Small Business Capital Formation to include a focus on rural-area small businesses. Senate companion legislation has been introduced by Sens. Doug Jones (R-AL) and John Kennedy (R-LA).
 
Improving Rural Access to Power Act (Scott and Riggleman): Allows Federal Home Loan Banks to purchase securities issued by cooperative lenders and provide additional funding diversity to ensure access to capital for rural electric cooperatives.
 
Fannkie Mae and Freddy Mac Lobbying Act (Velazquez, Foster, Loudermilk, and Hollingsworth): prohibits entities in government consevatorship from engaging in lobbying.
 
Other Activity
 
Trump Organization Investigation: On Monday, President Trump, three of his children, and the Trump organization filed a lawsuit attempting to prevent Deutsche Bank and Capital One from complying with subpoenas for financial records issued in connection with the Financial Services and Intelligence Committees' joint probe into the President's finances. The complaint alleges that the subpoenas have "no legitimate or lawful purpose" and seeks a permanent injunction quashing them.
 
White House Infrastructure Meeting: On Tuesday, Congressional Democrats and President Trump agreed to support an infrastructure package providing $2 trillion in federal infrastructure spending over 25 years. While the development marks a significant step forward for what would be the marquis legislative vehicle of this Congress, lawmakers are far from out of the woods on the issue. Allocating infrastructure funds, as well as finding an elusive funding mechanism will remain a challenge. Since the meeting, a number of Congressional Republicans have cautioned against using tax hikes—including increasing the gas tax—to pay for an ambitious infrastructure deal.
 
Last Week in the Senate
The Floor
 
On Thursday, the Senate voted 72-27 to approve the confirmation of Gordon Hartogensis to be Director of the Pension Benefit Guaranty Corporation (PBGC). Mr. Hartogensis—an entrepreneur and brother-in-law to Senate Majority Leader Mitch McConnell who was first nominated in 2017—will take over PBGC as the organization and Congress weigh solutions to the looming multiple employer pension crisis.
 
Besides Mr. Hartogensis's confirmation, the Senate spent the balance of its week on executive and judicial nominations, as well as holding a failed override vote of the President's veto of a War Power Act Resolution ending US involvement in the conflict in Yemen.
 
Hearings and Markups
 
Use of Regulatory Guidance (4/30): On Tuesday, the Banking Committee held a hearing examining financial regulators' use of supervisory guidance. During the hearing, Committee Chairman Mike Crapo (R-ID) reiterated concerns raised by many Republicans that financial regulators have enforced regulatory guidance as rules, thereby circumventing notice-and-comment processes and Congressional review. He called the Office of Management and Budget's recent memorandum expanding the review of agency guidance "a step in the right direction." Ranking Member Sherrod Brown (D-OH), in contrast, expressed the belief that criticism of certain guidance is due to their content, rather than their notification process, and argued that "this isn’t about guidance – it’s about getting rid of the rules that Wall Street doesn’t want to follow."
 
Consumer Data Privacy (5/1): On Wednesday, Commerce Committee lawmakers convened their most recent hearing debating a federal data privacy standard, this time hearing the perspectives of consumer advocates. During the hearing, the consumer advocates present—joined by key Senators including Ranking Member Cantwell (D-WA) and Sens. Brian Schatz (D-HI) and Ed Markey (D-MA)—cautioned against relying on notice and consent data privacy frameworks without additional guardrails on data collection and usage. Several Republican Members raised concerns about the unintended consequences of certain privacy regimes and promoted a federal preemption of state data privacy laws—a proposal that sparked pushback from witnesses and some Democrats absent sufficient consumer protections.
 
Bills Introduced
 
Protecting Consumers from Unreasonable Credit Rates Act (Durbin, Merkley, Whitehouse, Blumenthal): Caps annual percentage rates on all consumer loans at 36 percent, the same rate cap in place for loans marketed to military service members.
 
LOAN Act (Rubio): Eliminates interest on federal student loan and places borrowers in income-based repayment plans.
 
Housing Accountability Act (Rubio and Young): Codifies sanitation standards for low-income housing and requires private properties with Section 8 Housing Assistance Payment contracts to be surveyed twice a year.
 
Eliminating Federal Tax Subsidies for Stadiums Act (Booker and Lankford): Prohibits the financing of professional sports stadiums with tax-exempt bonds. Companion legislation in the House was introduced by Rep. Earl Blumenauer (D-OR).
 
Legacy IRA Act (Cramer and Stabenow): Allows retirees to make tax-free transfers of IRA savings into charitable life income plans that automatically donate remaining retirement funds to designated qualified charities.
 
MSRB Reform Act (Kennedy): Requires Municipal Securities Rulemaking Board public representatives to be no less than five years removed from association with a municipal securities broker, dealer or adviser, and for the SEC to confirm new MSRB members.
 
PCAOB Enforcement Transparency Act (Reed and Grassley): Allows the Public Company Accounting Oversight Board to make disciplinary hearings public. Sens. Reed and Grassley previously introduced the legislation last Congress.
 
Condemning Modern Monetary Theory (Perdue, Braun, Ernst, Moran, and Tillis): A Resolution condemning Modern Monetary Theory—which argues that currency issuing governments can never run out of money and has been embraced by some high-profile progressive Democrats—and recognizing that MMT would "lead to higher deficits and higher inflation."
 
Other Activity
 
Crapo Marijuana Banking Comments: On Tuesday, Banking Committee Chairman Mike Crapo declined to commit to moving legislation providing legal protections for financial institutions that do business with state-legal marijuana businesses. "As long as cannabis is illegal under federal law, it seems to me to be difficult for us to resolve the issue," Chairman Crapo said at a conference hosted by the Independent Community Bankers of America. The SAFE Banking Act—which provides a legal safe harbor for institutions doing business with state-legal marijuana businesses—was recently reintroduced in the Senate and referred to the Banking Committee.
 
Brown HMDA Letter: On Tuesday, nine Democrats led by Banking Committee Ranking Member Sherrod Brown sent a letter to Consumer Financial Protection Bureau Director Kathleen Kraninger criticizing CFPB's recent decision to retire the Home Mortgage Disclosure Act Explorer tool allowing users to access HMDA data. The letter calls on CFPB to reverse its decision and alleges that retiring the Explorer tool without a replacement would undermine the purposes of HMDA by impeding research and awareness of mortgage-lending discrimination.
 
Democratic Tax Preparers Letter: On Friday, Sen. Elizabeth Warren (D-MA) led a bicameral group of Congressional Democrats in two letters calling for action following recent reports that five of the twelve tax preparation companies participating in the Internal Revenue Service's Free File program deliberately hid their free products and pushed eligible taxpayers to use paid products. One letter to the Federal Trade Commission calls for an FTC investigation into whether the concealment of Free File products constitutes an unfair and deceptive practice. Another letter to IRS Commissioner Charles Rettig urged him to terminate agreements with the five companies and ensure refunds are issued to affected taxpayers.
 
Last Week in the Administration
Mulvaney Floats NAFTA Survival
On Tuesday, White House Chief of Staff Mick Mulvaney raised the possibility that President Trump keeps the United States in the North American Free Trade Agreement absent approval of his United States Mexico Canada Agreement replacement deal. “Your real two Plan Bs are either Nafta or withdraw from NAFTA,” Mr. Mulvaney commented at a Milken Institute conference—seemingly walking back President Trump's repeated threat to withdraw should Congress fail to approve USMCA while also pushing back on calls from Congressional Democrats to reopen certain parts of the deal. The comments come on the heels of several Senate Republicans individually casting doubt on the prospect of a Senate vote on the deal while the President keeps tariffs in place on steel and aluminum imports.
 
Stephen Moore out for Fed Board
On Thursday, Stephen Moore withdrew from consideration for the Federal Reserve Board of Governors—hours after publishing an op-ed in the Wall Street Journal reiterating his commitment to the nomination. Since the President announced his intention to nominate the Heritage Foundation economist in March, Mr. Moore had received criticism for several unorthodox economic positions, as well as other controversies including unpaid child support and previous criticisms of women in sports. Leading up to his stepping aside, a number of GOP Senators voiced doubts about Mr. Moore's prospects for confirmation. Mr. Moore joins former Godfather's Pizza CEO Herman Cain to become the White House's second Fed nominee to withdraw from consideration in recent weeks.
 
Progress Continues in China Trade Talks
On Wednesday, Politico reported that Chinese and US officials have reached an agreement in principle for rolling back tariffs on $250 billion in Chinese goods amid ongoing efforts to end the US-China trade dispute. Per the reported understanding, the US would immediately lift some of the 10 percent tariffs on $200 billion in Chinese goods, with the rest of the 10 percent tariffs to be lifted "quickly." The 25 percent tariffs on $50 billion in Chinese goods would be left in place longer, potentially past 2020.
 
Mnuchin to Meet Individually with Agency Heads on Leveraged Lending
On Wednesday, Federal Deposit Insurance Corporation Chair Jelena McWilliams said at an Independent Community Bankers of America conference that financial regulators closely watching levels of leveraged lending in the economy. While pumping the breaks on the potential for rulemaking given overlapping regulatory jurisdictions, Chairwoman McWilliams said that Financial Stability Oversight Council Agencies talk about leveraged lending "all the time." She added that Treasury Secretary Steven Mnuchin is planning to meet individually on the topic with financial regulatory heads in the coming weeks.
 
Fed Holds Rates Steady; Attracts Pence, Kudlow Criticism
On Wednesday, the Federal Reserve Board of Governors voted to keep benchmark interest rates steady at 2.25-2.5% amid continued indicators of strong economic growth. Following the vote, Fed Chairman Jerome Powell attributed the steady rates to what he called a "good path" for the economy and expressed the belief that inflation indicators running below the central bank's two percent target is "transient." With the Fed Board having been a frequent target of criticism for the Trump Administration in recent weeks, Vice President Mike Pence called on the Board to lower rates following the vote, commenting: “The economy is roaring…this is exactly the time not only to not raise interest rates, but we ought to consider cutting them.”
 
CFPB Proposes to Raise HMDA Threshold.
On Thursday, the Consumer Financial Protection Bureau issued a notice of proposed rulemaking that would raise the threshold for collecting and reporting Home Mortgage Disclosure Act data. Intended to provide relief to smaller mortgage lenders, the proposed rules would raise the HMDA coverage threshold from 25 to either 50 or 100 closed-end mortgage loans, as well as extend for two years the current temporary coverage threshold of 500 open-end lines of credit. The announcement quickly elicited push-back from Congressional Democrats, with Banking Committee Ranking Member Sherrod Brown (D-OH) saying that the change would "allow lenders to no longer report any data."
 
OCC Aims for New Executive Pay Rule this Year
On Tuesday, speaking at a panel hosted by the Milken Institute, Comptroller of the Currnency Joseph Otting said that OCC hopes to propose a new new version of long-delayed rules implementing Dodd-Frank limitations on executive compensation by the end of the year. With six federal agencies responsible for the rule, Mr. Otting said that OCC and SEC would take leadership on the issue, and that any document would likely be "principles-based."
 
OCC Invites Comment on Innovation Pilot Program
On Tuesday, the Office of the Comptroller of the Currency invited public comments on its proposed Innovation Pilot Program providing qualifying financial institutions with regulatory input early in the testing of innovative products. The program is intended to build on OCC's existing innovation initiatives aimed at fostering the development of fintech and other innovative products. Stakeholders will have 45 days to submit comments.
 
NY State Allowed to Pursue Lawsuit Against OCC Fintech Charter
On Thursday, US District Court Judge Victor Marrero denied a request made by the Office of the Comptroller of the Currency (OCC) to dismiss New York State's lawsuit challenging the legality of OCC's special purpose national bank charter for fintech firms. The decision allows the state to move forward with its lawsuit alleging that the OCC's special purpose bank charter—announced last summer with the intention of allowing qualifying fintech firms to report to a single primary federal regulator—improperly violates the regulatory authority of state banking regulators.
 
Unemployment Falls to Lowest Level Since 1969
On Friday, the Bureau of Labor Statistics announced that the US economy added 263,000 jobs in April, easily beating economist expectations of 190,000 new jobs. With the unemployment rate dropping to 3.6%, joblessness reached its lowest level since 1969—an accomplishment seized on by Congressional Republicans and President Trump, who tweeted "JOBS JOBS JOBS" Friday morning. The jobs report provides more good economy news for the President, who a CNN poll last week reported has a 56% approval rate on his handling of the economy.
 
This Week's Schedule
 
Mon. (5/6)
  • Hearing: House Oversight and Reform Sub. on Government Shutdowns – 9:00 AM – The House Oversight and Reform Subcommittee on Government Operations will hold a hearing to examine the effects of government shutdowns on federal contractors. Details here.
  • SEC Small Business Roundtable – 9:30 AM – The Securities and Exchange Commission (SEC) will host a roundtable discussion on small business perspectives. Details here.
  • SEC Small Business Capital Formation Advisory Committee On Small And Emerging Companies – 1:00 PM – The SEC's Capital Formation Advisory Committee will host its inaugural meeting to discuss small and emerging companies. Details here.
Tues. (5/7)
  • Hearing: Senate Banking Committee on Privacy and Data Collection in the Digital Economy – 10:00 AM – The Senate Committee on Banking, Housing, and Urban Affairs will hold a hearing entitled "Privacy Rights and Data Collection in a Digital Economy" Details here.
Wed. (5/8)
  • FTC Forum on Small Business Financing –8:30 AM – The Federal Trade Commission will host a forum entitled "Strictly Business: An FTC Forum on Small Business Financing." Details here.
  • Hearing: House Financial Services Sub. on Minority Ownership – 10:00 AM – The House Financial Services Subcommittee on Housing, Community Development, and Insurance will hold a hearing entitled "A Review of the State of and Barriers to Minority Homeownership." Details here.
  • Hearing: Senate FSGG Sub. on CFTC and SEC Budget Requests – 10:00 AM – The Senate Appropriations Subcommittee on Financial Services and General Government (FSGG) will hold a hearing to examine the SEC's and Commodity Futures Trading Commission's (CFTC) fiscal year (FY) 2020 budget requests, featuring testimony from SEC Chairman Jay Clayton and CTFC Chairman J. Christopher Giancarlo. Details not yet available.
  • Hearing: House Energy and Commerce Sub. on FTC Oversight – 10:30 AM – The House Energy and Commerce Subcommittee on Consumer Protection and Commerce will hold a hearing entitled "Oversight of the Federal Trade Commission: Strengthening Protections for Americans' Privacy and Data Security." Details here.
  • CFPB Townhall on Debt Collection – 12:00 PM – The Consumer Financial Protection Bureau (CFPB) will host a town hall meeting on debt collection. Details here.
  • Hearing: House Education and Labor Sub. on Organized Labor – 2:00 PM – The House Education and Labor Subcommittee on Health, Education, Labor, and Pensions will hold a hearing entitled “The Protecting the Right to Organize Act: Deterring Unfair Labor Practices." Details here.
  • Hearing: Senate Aging Committee on the Older Americans Act – 2:30 PM – The Senate Special Committee on Aging will hold a hearing entitled "The Older Americans Act: Protecting and Supporting Seniors as they Age." Details here.
  • Hearing: Senate Budget Committee on the Budget Process– 2:30 PM – The Senate Budget Committee will hold a hearing entitled "Fixing a Broken Budget Process: Lessons from States." Details here.
Thurs. (5/9)
  • Federal Reserve System Community Development Research Conference – 8:30 AM – The Federal Reserve will host a two-day Community Development Research Conference, featuring remarks from Chairman Jerome Powell. Details here.
  • SEC Open Meeting – 9:00 AM – The SEC will hold an open meeting to discuss cross-border application of certain security-based swap requirements, as well as amendments to the accelerated flier and large accelerated flier definitions. Details here.
  • Confirmation Hearing: Senate Finance Committee – 9:30 AM – The Senate Finance Committee will hold a confirmation hearing to consider the nominations of David Black to be Deputy Commissioner of the Social Security Administration, and Emin Toro to be a Judge of the U.S. Tax Court. Details here.
  • Hearing: House Small Business Sub. on the Digital Ecosystem– 10:00 AM – The House Small Business Subcommittee on Innovation and Workforce Development will hold a hearing entitled “The Digital Ecosystem: New Paths to Entrepreneurship.” Details here.
  • Hearing: House Ways and Means Committee on the Tax Gap – 10:00 AM – The House Ways and Means Committee will hold a hearing entitled "Understanding the Tax Gap and Taxpayer Noncompliance." Details here.
  • Hearing: House Judiciary Sub. on USPTO Oversight– 2:00 PM – The House Judiciary Subcommittee on Courts, Intellectual Property, and the Internet will hold an oversight hearing of the U.S. Patent and Trademark Office (USPTO). Details here.
  • Markup: House Financial Services Committee – TBA – The House Financial Services Committee will continue its markup of several pending legislative measures. Details here.
Fri. (5/10)
  • Federal Reserve System Community Development Research Conference – 8:30 AM – The Federal Reserve will host a two-day Community Development Research Conference, featuring remarks from Governor Lael Brainard. Details here.
Further Out
  • Hearing: House Financial Services Sub. on Minority Homeownership – May 15 – The House Financial Services Subcommittee on Housing, Community Development, and Insurance will hold a hearing entitled "A Review of the State of and Barriers to Minority Homeownership." Details here.
  • Hearing: Senate Banking Committee on Oversight of Financial Regulators – May 15 – The Senate Committee on Banking, Housing, and Urban Affairs will hold an oversight hearing with the heads of the FDIC, OCC, NCUA, as well as Federal Reserve Vice Chair Randal Quarles. Details not yet available.
  • Hearing: House Financial Services Sub. on Worker Rights and Protection – May 15 – The House Financial Services Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets will hold a hearing entitled "Promoting Economic Growth: A Review of Proposals to Strengthen the Rights and Protections for Workers." Details here.
  • Hearing: House Financial Services Sub. on Economic Sanctions – May 15 – The House Financial Services Subcommittee on National Security, International Development, and Monetary Policy will hold a hearing entitled "Assessing the Use of Sanctions in Addressing National Security and Foreign Policy Challenges." Details here.
  • Hearing: House Financial Services Committee on Oversight of Prudential Regulators – May 16 – The House Financial Services Committee will hold a hearing entitled "Oversight of Prudential Regulators: Ensuring the Safety, Soundness and Accountability of Megabanks and other Depository Institutions." Details here.
  • Hearing: House Financial Services Committee on Oversight of HUD – May 21 – The House Financial Services Committee will hold a hearing entitled "Housing in America: Oversight of the U.S. Department of Housing and Urban Development." Details here.