Insights

Financial Services Report

May 14, 2018

Looking Ahead

Near Term

  • The House and Senate are in session this week.  The House is taking up a series of bills related to law enforcement and is expected to take up the Agriculture Bill (H.R. 2), which includes controversial provisions dealing with food assistance – a/k/a SNAP.
  • At the House Financial Services Committee, it looks like a busy week with four different subcommittees holding hearings.
  • Over at the House Education and Workforce Committee there will be a hearing on retirement policy, including the RESA bill.   We hope that at least some of the focus will be on the proper pronunciation of the acronym. 
  • The Senate will continue its nominations routine with a series of judicial nominations scheduled.
  • The Senate Banking Committee will focus on nominations of its own, with a vote on pending nominations, and a hearing on the President’s nominees to serve on the Federal Reserve Board. 
  • According to Speaker Paul Ryan, Thursday is the deadline for the Administration to announce to Congress that it has reached a new NAFTA deal if it wants the 115th Congress to be able to vote on that agreement.  

Further Out

  • Speaker Ryan and Leader McCarthy have hinted that the House will vote on the Senate’s Banking Regulatory Relief Act before Memorial day.
  • The House will take up the National Defense Authorization Act (NDAA), one of the only surefire “must pass” pieces of legislation every year.   

The Past Week

Legislative Branch
House
House Approves CRA Resolution Repealing CFPB Auto Lending Guidance
On Tuesday, the House approved a Senate-passed resolution (S.J. Res. 57) that would nullify guidance on auto lending issued by the Consumer Financial Protection Bureau (CFPB) per the provisions of the Congressional Review Act (CRA). The most consequential element of the measure is that it will repeal agency guidance, as opposed to a rule, which sets a new precedent for congressional oversight of regulations. This specific guidance was targeted by Republicans due to their concerns that it was based upon faulty analysis and inaccurate assumptions of discrimination during the “dealer markup” phase of an auto loan. The resolution passed in the lower chamber 234-175 — with 11 Democrats voting in favor — and will now head to the president’s desk to be enacted into law.
 
McCarthy Signals Reg Relief Bill On Near-Term House Docket
In a colloquy on Thursday, House Majority Leader Kevin McCarthy (R-CA) listed the Senate-passed financial regulatory relief bill in a series of measures — also including a VA reform bill and the President’s recent rescissions request — that he wants to bring to the floor during this work period., meaning before the Memorial Day recess. Giving a nod to the demands of House Financial Services Chair Jeb Hensarling (R-TX), Leader McCarthy said that he looked forward to “both chambers taking additional policy actions in this space in the coming weeks as we continue to improve access to capital for American families and businesses.”
 
Tri-Caucus Announces Opposition to Reg Relief Bill Unless Changes to HMDA Provision Made
On Monday, the chairs of the Congressional Black, Hispanic and Asian Pacific Caucuses, collectively known as the Tri-Caucus, wrote to Speaker Paul Ryan (R-WI) and House Minority Leader Nancy Pelosi (D-CA) to voice their “substantive concerns” on Sec. 104 of the Senate-passed financial regulatory relief bill (S. 2155). Their concerns with the bill — which is expected to be taken up by the lower chamber in the coming weeks, center on the repeal of reporting requirements related to the Home Mortgage Disclosure Act (HMDA), which would be rolled back by Sec. 104 of the legislation. The Tri-Caucus Chairs said that the bill as written “eliminates critical consumer protections and empowers bad actors to prey on minority and low-to-moderate income families.”   While the opposition of these Caucuses will have little impact on Republican politics, it could create issues for Democrats who are considering voting for the legislation.  Regardless, the measure is expected to pass the House whenever it comes for a vote. 
 
Ryan Sets May 17 Deadline on NAFTA Negotiation
House Speaker Paul Ryan said last week that he will need to see a renegotiated deal on the North American Free Trade Agreement (NAFTA) by May 17 in order to get it through Congress before new lawmakers take their seats in January 2019. This is because, Congress’s Trade Promotion Authority agreements put limits on the timeline for Congress to approve the deal, and requires the Trump Administration sending a letter to Congress providing 90 days notice of its intent to sign a deal and the text of a deal must be published 30 days after that. It is worth noting that that following reports of the speech, Speaker Ryan’s spokesperson Ashlee Strong clarified later that it is “not a statutory deadline, but a timeline and calendar deadline.”  
 
Senate
Senate Dems Ask Mulvaney for Schedule in Lobbyist Comment Dispute
On Thursday, Senate Banking Committee Ranking Member Sherrod Brown (D-OH) led 21 other Democrats in sending a letter to the White House asking for details on Consumer Financial Protection Bureau Acting Director Mick Mulvaney’s schedule following comments he made that he would only give time to lobbyists who donated to his campaign. The letter says that “selling access to a Congressional office is unconscionable,” and demands that the White House turn over related documents by May 18. The Democrats’ letter marks another salvo in the fight between Mulvaney and Democrats since the Office of Management and Budget Director took charge of the consumer watchdog late last year.
 
Schumer Recommends Current FDIC Chairman Gruenberg for FDIC Vice-Chair
On Friday, Senate Minority Leader Chuck Schumer (D-NY) recommended that the White House nominate current Federal Deposit Insurance Corporation (FDIC) Chair Martin Gruenberg to be vice-chair for the agency. While his official chairmanship ended last year, Gruneberg has continued to lead the banking regulator while President Trump’s nominee for the slot, Jelena McWilliams, awaits confirmation in the Senate. McWilliams’ vote was initially delayed by Vice Chairman Hoenig’s presence on the Fed Board – its rules require a 3-2 bipartisan split and Hoenig was identified as a Republican – Hoeing stepped down at the beginning of the month.   Interestingly, it is rumored that Schumer has been holding up the vote, and perhaps having the White House nominate Gruenberg to the position of Vice Chair, would accelerate McWilliams vote.   Even if he is not in the position, Gruenberg can stay on the FDIC as an independent board member until his term expires at the end of this year. 
 
Banking Committee Leaders Release CFIUS Bill Changes
Last week, the two leaders of the Senate Banking Committee – Chair Mike Crapo (R-ID) and Ranking Member Sherrod Brown (D-OH) – circulated a discussion draft of the changes they aim to make to a bill (S. 2098) proposed by Sens. John Cornyn (R-TX) and Dianne Feinstein (D-CA) that would reform the Committee on Foreign Investment in the United States. Among the amendments to be considered are eliminating a provision that would subject joint domestic-foreign ventures to CFIUS review and replacing that process with new rules to be set by the Department of Commerce. The legislation is expected to be marked up in the coming weeks, while a companion bill is also likely to be marked up by the House Financial Services Committee in that same timeframe.
 
Select Highlights from the Administration
The White House
White House Submits $15 Billion Rescission Package to Congress, Including CDFI Cut
On Tuesday, the White House submitted its rescission package to Congress, calling for $15.4 billion in cuts to unspent federal funding as a small effort to reduce the budget deficit. While a much more comprehensive package had been considered, the White House trimmed down their request and mostly targeted unobligated funds, meaning they are left over from programs that no longer exist or have not been reauthorized. Nevertheless, if enacted, the cuts could cause headaches by taking away a small pay-for lawmakers could use during appropriations season. Among the White House’s proposed claw backs is $174 million from the Community Development Financial Institutions (CDFI) Fund, including $23 million from the Bank Enterprise Award Program and $151 million from the Capital Magnet Fund. House Majority Leader Kevin McCarthy signaled that the rescissions package could be considered by the House this month, although it would face a much stiffer challenge in getting through the Senate.
 
Consumer Financial Protection Bureau (CFPB)
Mulvaney Aims to Reorganize CFPB Operational Structure
In an email to staff last week, CFPB Acting Director Mick Mulvaney said that he aims to reorganize the Bureau’s operational structure in an effort to make the consumer watchdog “more efficient, effective and accountable.” Among the specific changes is relocating the Office of Students and Young Consumers into the Office of Financial Education and the creation of an Office of Cost Benefit Analysis. House Financial Services Committee Ranking Member Maxine Waters (D-CA) immediately criticized the moves, saying that creation of a cost-benefit office would be “nothing more than a way to internally block regulations that may benefit consumers under the guise of cost-benefit analysis.”
 
CFPB Releases Latest Edition of Rulemaking Schedule
Last week, the CFPB released the Spring Edition of its schedule for rulemakings, both immediate and long term.  Among other things, the announcement touched on the following:

  • Debt Collection:  Last weeks announcement made clear that the CFPB was still working on a rulemaking for debt collection, albeit at a slower pace, as the proposed rule will be released in the first quarter of 2019.
  • Small Dollar Lending:  The announcement also confirmed that the CFPB was working to re-open its small dollar lending rule, but that the proposed rule also wouldn’t be expected until at least the first quarter of 2019.  In addition, the CFPB seemed to indicate that it would not be taking on any “larger participants” rulemakings for installment lenders in either the short term or long term.
  • Small Business Data Collection:  The Bureau announced that its effort to implement Section 1071 of the Dodd Frank would also slip, with any pre-rule activities not being announced until 2019.
  • Payments:  Added to the long-term agenda, the Bureau expects to conduct work into a modernization of Reg E, based it seems on technological advances to the payment system.

 CFPB Issues 2017 Mortgage Market Research
On Monday, the CFPB issued its raw research on data points describing mortgage market activity over time based on last year’s reports under the Home Mortgage Disclosure Act. The first in what is to-be an annual report, the research aims to describe recent trends in mortgage and housing marks.
 
Securities and Exchange Commission (SEC)
SEC Publishes Conflict of Interest Rule in Federal Register
On Tuesday, the Securities and Exchange Commission officially published their proposal to create a best interest standard in the Federal Register, triggering the 90-day comment window. The proposal is considered to be more acceptable to industry stakeholders than its Department of Labor counterpart, which is currently being blocked by a federal court ruling.
 
SEC Republican Piwowar to Retire in July
On Monday, SEC Commissioner Michael Piwowar announced that he aims to step down from the agency on July 7. The departure of Piwowar — the longest tenured Republican on the Commission — could create a stalemate on SEC actions given that the partisan divide will become 2-2.  In addition, Commissioner Stein’s term expired last year though she has till the end of the year before she is forced to vacate her seat.   Piwowar’s Announcement adds yet another name to the backlog of financial regulators needing attention, which includes a nominee to lead the Consumer Financial Protection Bureau, the Vice-Chair of the Federal Deposit Insurance Corporation (FDIC), and a president of the Export-Import Bank.
 
Department of Labor (DOL)
DOL Provides Enforcement Relief in Fiduciary Uncertainty
On Monday, the Department of Labor announced that it would not enforce possible violations of retirement savings laws as the industry grapples with the court-ordered collapse of the 2016 fiduciary rule. The 5th Circuit Court of Appeals ruled in March that the rule had to be scrapped, leaving brokers worried that they would no longer be able to collect commissions on retirement savings recommendations. The DOL decision clears the way for brokers acting as fiduciaries to collect commissions, and the Department is reportedly evaluating whether other prohibited transaction relief is needed.