Financial Services Report

Our Take
From the ashes of the of the failure of the Obamacare repeal on Friday might still rise the Phoenix of President Trump.   It also clearly shows that Senator McConnell continues to be one of the shrewdest political minds in town.  

While some will want to place responsibility for this legislative defeat on the President and, or Speaker Ryan, many commentators have also indicated that the inability to pass an Obamacare repeal spells trouble for tax reform.  As to the latter, we don’t agree.   The reality is that even though the road to tax reform will be bumpy the politics are nowhere near as challenging as it was for health care, and neither is the messaging that surrounds it (see, e.g., Republicans want to take away maternity care vs. Republicans want to cut your taxes).  As for the President, in addition to immediately pivoting toward tax reform and an infrastructure package, he also offered a glimpse of a pragmatic deal maker that many Democrats have always hoped he would be.   Whether that perception will become reality or if it will be precluded because this leopard can’t change his spots or because the politics doesn’t work will just have to play itself out.     
 
Finally, while Democrats were awash in self-congratulatory notes in the aftermath of the legislation’s defeat they should note that they just gave Trump, McConnell and Ryan a perpetual hostage for all future budget negotiations.  

Looking Ahead

Near Term

• The House Financial Services Committee will hold three hearings this week – a few of which, such as the one on Volcker and the SIFI designation process, should serve as the foundation for the Chairman’s continued effort to enact substantive Dodd-Frank regulatory relief. 
• The Senate Banking Committee will hold a hearing on the role of financial companies in fostering growth as well.
• The Senate Judiciary Committee may vote out Judge Gorsuch but it is equally possible that the vote could be delayed for a week.   In the HELP Committee Alex Acosta is expected to advance on Thursday. 

Further Out

• Nomination of Supreme Court Justice Gorsuch is expected to be on the Senate floor on April 3^rd
• Congress is expected to break for two weeks for the Passover / Easter recess.  If the schedule holds (and we expect it to) this means Congress will be out of session from April 10^th – 24^th)
• Funding for the Federal government runs out on April 28^th
• While the Debt Ceiling technically expired on March 15th, Treasury has started its extraordinary measures, and therefore the so-called X date when the government is no longer able to borrow is not anticipated to be breached until mid-to late October of this year. 

The Past Week

Legislative Branch
House
Hensarling to Reintroduce CHOICE Component Bills
On Wednesday, while addressing the American Bankers Association’s government relations summit House Financial Services Committee Chairman Jeb Hensarling (R-TX) reaffirmed his committee to his CHOICE Act legislation but acknowledged that the committee may need to move smaller packages of bills to get things through the Senate.  Hensarling said that he would work with Senate Banking Committee Chairman Mike Crapo (R-ID) on coordinating the committees’ efforts to roll back the 2010 Dodd-Frank law. Chairman Hensarling also suggested that budget reconciliation would be part of the process for the CHOICE package, saying that “numerous provisions . . . would only require 51 [Senate votes].”
 
House Advances Bill to Strip Health Insurers of Antitrust Exemption
On Wednesday, in the midst of its debate over the now-dead American Health Care Act (AHCA), the House successfully advanced a minor healthcare change that would repeal the McCarran-Ferguson Act for health and dental insurance. The bill (H.R. 372) would essentially strip health insurers of their protections from antitrust regulations, a move that is largely supported by both parties. The legislation maintains McCarran protections for other types of insurance, including annuities, life insurance, disability insurance, and property and casualty insurance.
 
In Subcommittee Hearing Wagner Suggests Cordray Firing Through OLC Decision
On Tuesday, the House Financial Services Subcommittee on Oversight and Investigation’s held its first hearing of the 115th Congress discussing the ongoing debate over the Consumer Financial Protection Bureau’s (CFPB) structure as an independent agency with a single director and appropriations through the Federal Reserve. In the hearing, Chairwoman Ann Wagner (R-MO) and panelist Theodore Olson – who represents PHH in their case against the CFPB – argued that the President could fire CFPB Director Richard Cordray and that a recent determination by the Department of Justice’s (DOJ) Office of Legal Counsel (OLC) had deemed the current CFPB arrangement unconstitutional. The tone of the hearing was highly partisan as Democrats defended the CFPB’s current structure and Republicans derided it as “unaccountable and unconstitutional.”
 
Republicans Blame Dodd-Frank for Decline of De Novo Charters
On Wednesday, the House Financial Services Subcommittee on Financial Institutions and Consumer Credit held a hearing entitled “Ending the De Novo Drought: Examining the Application Process for De Novo Financial Institutions.” The tone of the hearing was predictably partisan, with Democrats defending the Obama Administration’s regulatory approach, while Republicans on the panel cited Dodd-Frank regulations as the primary cause for the decline in de novo charters.
 
Senate
Banking Committee Asks for Proposals to Spur Economic Growth
In an effort to continue to work in a bipartisan manner, last week the Chair and Ranking Member of the Senate Banking Committee jointly announced an open process to accept legislative proposals from the public to help spur economic growth. The committee will prioritize proposals that “promote economic growth and/or enable consumers, market participants and financial companies to better participate in the economy.” Proposals will be accepted by the committee through Apr. 14.
 
Acosta Unsure on DOL Overtime, Fiduciary Rules in Confirmation Hearing
On Wednesday, the Senate Health, Education, Labor, and Pensions (HELP) Committee held  its hearing on the nomination of Alexander Acosta to be Secretary of Labor. The nominee was pressed frequently on his stance on the Department of Labor’s recently completed overtime rule, but only offered that it hadn’t been updated for too long, which made this process more difficult. He offered a similar response on the fiduciary rule to Sen. Elizabeth Warren (D-MA), pointing to a White House executive order on the rule that would “regulate and determine the DOL’s approach.” In general, however, Acosta said that he believes the fiduciary rule “goes far beyond simply addressing [advisor] standard of conduct.”
 
In Confirmation Hearing, SEC Nominee Clayton Grilled on Enforcement, Conflicts of Interest
On Thursday, the Senate Banking Committee held its confirmation hearing for the nomination of Wall Street lawyer Jay Clayton to lead the Securities and Exchange Commission (SEC), and the hearing took the tone of most other confirmation hearings for President Trump’s high-level nominations. The hearing focused on Clayton’s past history as an attorney and possible conflicts of interest, while largely avoiding the SEC’s ongoing policy work. Interestingly, given all of the attention of the fiduciary rule (see above) there were very few questions about advisers generally or even whether Clayton saw a role for the SEC in the pending fiduciary rule debate.   When asked about whether the SEC would forward with a rulemaking on mandatory arbitration clauses, Clayton side stepped a response, responding that he simply “doesn’t know a great deal” about the issue and pledged to work with the committee on it.
 
Senate Dems Presses SEC on Delay of Pay-Ratio Disclosure Rule
In two separate letters last week, Sen. Tammy Baldwin (D-WI) and Sen. Robert Menendez (D-NJ) wrote to Acting Chair of the Securities and Exchange Commission (SEC) Michael Piwowar expressing concerns on the SEC’s decision to delay the Dodd-Frank rule requiring companies to disclose a comparison of the annual total compensation for all employees to that of the company’s chief executive officer. Sen. Baldwin suggested that she feared the SEC was “seeking one-sided comments from issuers” and that she supports a “swift implementation of the rule.” The Menendez letter said they were “alarmed” by Piwowar’s remarks that the pay-ratio requirement is an attempt from “Big Labor” to shame CEOs. The latter letter also asks for a response from the SEC by April 7.
 
Select Highlights from the Administration
Consumer Financial Protection Bureau (CFPB)
CFPB Issues New Proposal Allowing for More Flexibility on Lenders’ Data Collection
On Friday, the CFPB issued a notice of proposed rulemaking to amend regulations under the Equal Credit Opportunity Act (ECOA) governing the collection of ethnicity information from consumers. The proposal would permit creditors “additional flexibility” in complying with the rules and would “facilitate the collection and retention of information about the ethnicity, sex, and race of certain mortgage applicants.” The CFPB’s release of the proposal comes ahead of a meeting of its Credit Union Advisory Council to discuss alternative data collection later this week.
 
CFPB Announces Review of Mortgage Rules
On Tuesday, the CFPB announced it would be conducting a five-year review of regulations, starting with “an assessment process for our major mortgage rules.” According to CFPB Associate Director of Supervision Chris D’Angelo, the review will include the agency’s ability-to-pay rule and its qualified mortgage rule, specifically monitoring the costs of the rule and whether its had the intended effect on the market. Both banks and housing advocates have offered concerns over the rules’ costs and allegedly insufficient consumer protections.
 
CFPB Fines Experian $3 Million Over Credit Scores Marketing
On Thursday, the CFPB took an enforcement action against Experian for allegedly deceiving consumers over the utility of the company’s credit scores. According to the consumer watchdog, Experian claimed that the scores it marketed were used by lenders to make credit worthiness decisions. The agency fined Experian $3 million and ordered the company to “truthfully represent” how its scores are used.
 
Department of the Treasury
Treasury Offers Few Clues on EU Covered Agreement in Response to Congress
On Friday, Politico obtained a letter the Treasury Department sent to House Financial Services Committee members Reps. Sean Duffy (R-WI) and Dennis Ross (R-FL) on the pending covered agreement between the United States and European Union (EU) over insurance regulation. With officials only offering to “continue engaging with key stakeholders,” it remains unclear whether Treasury Secretary Steven Mnuchin and the Trump Administration back the deal, which was agreed late in the final term of the Obama Administration. The deal would clarify insurance regulatory standards that govern the operation of American companies in Europe, and vice-versa, but has been opposed by some state-based regulators in the United States who fear international standards would put the Americans at a competitive disadvantage.