Financial Services Report

Looking Ahead

Near Term

• Despite strong rumors last week, the Financial CHOICE Act will not be on the House floor this week.   Leadership was reportedly whipping the bill last week and it now appears that the legislation will be on the floor sometime in June.
• There are no hearings this week in the House Financial Services Committee, though Majority staff will be busy deposing a CFPB staffer.
• The Senate Banking Committee is expected to hold an executive session on Tuesday morning to pass out a series of nominations.
• The White House Budget for next year is expected to be released on Tuesday. 

Further Out

• Congress will be in recess next week for the Memorial Day week.  When they return it will be for the start of a brutal stretch of almost 8 consecutive weeks of session running straight into the August recess.
• There are a few big-ticket items that are supposed to be completed before that August recess, including a tax reform bill coming out of the Ways and Means Committee, the CHOICE Act passing the House, and potentially legislation to extend the debt ceiling.  Reportedly, last week Treasury Secretary Mnuchin met with key legislative stakeholders and indicated his preference to have the debt ceiling resolved before the end of August.

The Past Week

Legislative Branch
House
Durbin Provision in CHOICE Continues to Cause Issues
Politico reported on Thursday that Rep. Ted Budd (R-NC) is aiming to recruit other members of the Republican caucus to write a letter to House leadership urging them to allow rank-and-file members to vote on whether to repeal the Dodd-Frank provision limiting debit card fees known as the Durbin Amendment. The current version of House Financial Services Chairman Jeb Hensarling’s Dodd-Frank replacement, known as the Financial CHOICE Act, includes language to repeal the rule. However, some Republican Members oppose the repeal as it would likely raise costs for retailers. A leaked draft of the letter says that a scenario where the House does not get to vote on the amendment would be “not acceptable under even an elastic standard of regular order.”
 
Ways and Means Holds First Hearing on Tax Reform
On Thursday, the House Ways and Means Committee held its first hearing on a possible tax reform package, focusing on the multitude of reasons why lawmakers feel that comprehensive tax reform is needed. Members from both sides were largely in agreement that comprehensive reform is needed, but offered differentiating solutions as to how to achieve it. The panelists – consisting of business executives and policy advisors – discussed some of their perspectives as to what they feel would work best in a tax reform package, notably (1) lowering the corporate business tax rate (2) border adjustment or territorial tax reform (3) research and development incentives (4) full expensing of capital investments and (5) a permanent, bipartisan solution.
 
House Subcommittee Holds Hearing on Retirement
On Thursday, the House Education and the Workforce Subcommittee on Health, Employment, Labor, and Pensions held a hearing on the “regulatory barriers” affecting access to retirement plans, including discussions on the Labor Department’s controversial fiduciary rule. Republicans argued the rule would reduce access to advice and asserted the Department needed to delay implementation of the rule beyond its current effective date of June 9. Other topics of discussion included the encouragement of open multiple employer plans (MEPs), which would allow for groups of small businesses to operate retirement offerings together in order to reduce the regulatory burden and cost associated with the plans. Additionally, Chairman Tim Walberg (R-MI) asked about lifetime income options, with panelists offering a positive review of their ability to help address some problems in the current retirement system.
 
New Democrat Coalition Proposes Bipartisan Infrastructure, Tax Reform Package
On Wednesday, a group of 46 Members of the New Democrat Coalition signed a letter to President Trump offering cooperation on a broad infrastructure package that would be coupled with the Administration’s ongoing effort to reform the American tax code. The letter cites issues with American infrastructure and asks for an investment of “at least $1 trillion” to be paid for “in part by a deemed repatriation in comprehensive tax reform.” Thus far, Republicans have seemed to indicate they will attempt to create their own tax reform package that could circumvent Democrats by using the budget reconciliation process in the Senate.  
 
Hatch, Brady Sign Bicameral Letter on IRS Probe of Bitcoin Exchange
On Wednesday, House Ways and Means Committee Chairman Kevin Brady (R-TX) and Senate Finance Committee Chairman Orrin Hatch (R-UT) wrote to Internal Revenue Service (IRS) Commissioner John Koskinen offering concerns on the agency’s actions regarding digital currencies. Specifically, the letter states that the lawmakers “strongly question” the IRS’s ongoing effort to collect records on all of Bitcoin exchange Coinbase’s American users, and the lawmakers suggest that the IRS’s actions “seem overly broad, extremely burdensome, and highly intrusive to a large proportion of individuals.”
 
Senate
McConnell Challenges Dems on Dodd-Frank; Brown Responds
Last week, Senate Majority Leader Mitch McConnell (R-KY) said that he was seeking cooperation from Democrats on revamping the 2010 Dodd-Frank financial reform law and that the minority party’s intransigence on the Senate Banking Committee was preventing reform from moving forward. He added that under the legislative filibuster, it would “require some Democratic involvement” in order to advance Dodd-Frank reforms. While Leader McConnell cited the burden on community banks as necessitating changes to the financial regulatory system, Banking Committee Ranking Member Sherrod Brown (D-OH) replied to the Majority Leader’s comments suggesting that Republican efforts were aimed at “leaving Americans at the mercy of predatory lenders and on the hook for another megabank bailout.”
 
Mnuchin Attempts to Clarify Administration’s position on a “modern Glass-Steagall”
On Thursday, during a hearing on domestic and international policy reform efforts by the Department of Treasury, Secretary Steven Mnuchin was the sole witness.   The hearing broadly covered tax, banking, and housing finance reform, as well as providing details on the report ordered by the White House to review the 2010 Dodd-Frank financial reform law.  During the hearing, Secretary Mnuchin attempted to clarify recent statements by the Administration that it supported a modernization of the Glass-Steagall Act, by saying that such modernization would not include a return to the separation of commercial and investment banks or a breaking up of larger banks.  During an exchange with Senator Warren (D-MA), the liberal icon seems flabbergasted by the Secretary’s explanation.
 
Democratic Senators Request GAO to Monitor CFIUS Over National Security Fears
On Tuesday, Senate Democratic Sens. Ron Wyden (D-OR), Sherrod Brown (D-OH), and Claire McCaskill (D-MO) wrote to the Government Accountability Office (GAO) requesting a review of the processes and real estate transactions completed by the Committee on Foreign Investment in the United States (CFIUS). The letter cites national security concerns over the purchase of American real estate by Chinese investors, and also expresses concerns that White House officials could own holdings that are “the subject of foreign acquisitions in the future.” The review is aimed at ensuring that CFIUS is “equipped to analyze the full range of national security threats posed by foreign acquisitions of U.S. real estate.”
 
Booker Introduces Bill to Eliminate Congressional Review Act
Sen. Cory Booker (D-NJ) introduced a bill last week that would kill the Congressional Review Act (CRA), which has been used frequently this year by congressional Republicans to undo rules finalized in the waning days of the Obama Administration. Current law allows Congress to rescind any administrative rules finalized in the last 60 days of the previous Congress, and prevents agencies from promulgating similar rules in the future, but the statute had only been used once prior to 2017. In a separate development,
 
Tester, Moran Introduce Legislation to Ease Fed Stress Test Rules
On Wednesday, the bipartisan pair of Sens. Jon Tester (D-MT) and Jerry Moran (R-KS) introduced a bill to exempt banks with assets between $10 billion and $50 billion from the stress tests administered by the Federal Reserve. The stress tests, which most banking institutions assert are overly burdensome, currently apply to any bank with more than $10 billion in assets per the provisions of the 2010 Dodd-Frank financial reform law. The new legislation would require only banks with $50 billion in assets or more to undergo the stress test process, and would give banks more flexibility in how often they would need to complete them.
 
Senate Dems, Consumer Advocates Urge Acosta to Forgo Further Delay of Fiduciary Rule
Last week, Senators Patty Murray (D-WA), Elizabeth Warren (D-MA), and Cory Booker (D-NJ) sent a letter to Secretary of Labor Alexander Acosta, urging the new Secretary to prevent a further delay of the Department’s fiduciary rule – set to go into effect on June 9.  In their letter the Senators criticized the Secretary for saying that stopping the fiduciary rule was one of his top priorities, while also hinting that his actions, as well as statements apparently leaked to the press, could lead to litigation to stay any decision to delay the rule. 
 
Select Highlights from the Administration
The White House
Trump Signs Final CRA Resolution Killing DOL Rule on State Auto-IRAs
On Thursday, President Trump wrapped up the repeals of rules through the Congressional Review Act (CRA) by signing a final resolution (H.J. Res. 66) undoing a Department of Labor (DOL) rule allowing states to create auto-enrollment individual retirement accounts (IRAs) for individuals without access to a retirement plan through their employer.  In a hearing in the House Education and Workforce Subcommittee that, Democrats lamented the killing of the rule, saying that it would limit access to retirement plans for workers.   In addition, Sen. Patty Murray (D-WA) introduced legislation to restore these Labor Department rules (as well as another rule on workplace injuries that had also been overturned through the CRA process.)   Despite the rule being overturned, five states have indicated that they will continue to develop an auto-enrollment program, but it is unclear how that will go forward in light of the President’s action. 
 
Commodity Futures Trading Commission (CFTC)
Giancarlo Announces New Fintech Initiative Following White House EO
CFTC acting Chairman Chris Giancarlo announced the Commission’s new fintech initiative last week, dubbed LabCFTC, to “promote FinTech innovation and fair competition for the benefit of the American public.” The new tool is designed to foster cooperation between private industry and government regulators, particularly through a dedicated tool called “GuidePoint” that will allow for companies to communicate directly with the agency. Giancarlo noted that the initiative was in part due to the White House’s recent executive order creating the American Technology Council and that the CFTC will include funding for the new program in their proposed FY 2018 budget request.
 
Department of Treasury
Donovan Withdraws from Consideration for Deputy Treasury Secretary
On Friday, just three days after it was formally submitted, Jim Donovan withdrew his name from consideration for Deputy Secretary of Treasury in order to spend more time with his family. Donovan, a Goldman Sachs partner and managing director, was expected to play a leading role in crafting the White House’s plan to reform the American tax code.