Financial Services Report

What a week that that was.  Between the convergence of the end of the fundraising quarters, the House getting out until after the election and the Kavanaugh hearing, it was certainly one of the maddest weeks in Washington, DC in recent memory.   

However, there was also a lot going on in Congress in the Administration beyond those things.  So if you missed any of it, hopefully this newsletter will bring you up to speed. 

Looking Ahead

Near Term

  • The House is out until after the elections.
  • The Senate is taking up the FAA reauthorization bill while it waits for the FBI to finish its investigation of Judge Kavanaugh
  • The Senate Banking Committee will hold a hearing on Tuesday where it hears from banking regulators about implementing S. 2155, and then on Thursday on efforts to counter money laundering.
  • The Senate Judiciary Committee has two big hearings on Wednesday, first an examination of too big to fail in light of the 10th anniversary of the Lehman Bankruptcy, and then a critical hearing to on anti-trust and competition policy.

Further Out

  • The Senate is expected to stay in recess until October 18th or 19th.
  • Election Day is November 6th
  • The House will return on November 13th
  • The 2020 campaign starts on November 7th

The Past Week
Legislative Branch
House
House Passes Eight HFSC Bills
On Wednesday, the House passed eight bills reported by the House Financial Services Committee. Seven of the bills passed unanimously, including: (1) a bill (H.R. 4753) clarifying the requirements for the Federal Reserve semi-annual testimony to Congress in the event of a vacancy; (2) a bill (H.R. 5036) establishing an Independent Financial Technology Task Force to develop regulatory and legislative proposals to combat illicit use of fintech; (3) a bill (H.R. 6332) requiring the Financial Crimes Enforcement Network (FinCEN) to report on proliferation finance transactions; (4) a bill (H.R. 6737) providing a technical fix to the National Housing Act to ensure that Department of Veterans Affairs Home Loans remain eligible for Ginnie Mae Pooling; and (5) a bill (H.R. 6751) requiring the Secretary of the Treasury to issue a semi-annual report on financial services to state sponsors of terrorism and sanctioned persons. Additionally, a bill (H.R. 6729) establishing a mechanism for non-profit organizations to qualify for safe harbor when sharing information with financial institutions passed by a vote of 297-124.
 
Also on Wednesday, the House passed the three-bill appropriations minibus (H.R. 6157) combining the annual Defense, Labor-HHS, and Education appropriations bills with a continuing resolution keeping the rest of the government funded through December 7. After President Trump signed the $854 billion package on Friday, the House will be in recess until November 13th.
 
House Passes Tax Reform 2.0 Bills
On Thursday, the House passed the first two bills of Congressional Republicans’ “Tax Reform 2.0.” First, by a 260-156 vote, was the American Innovation Act (H.R. 6756Summary) which would aim to facilitate business startups, most notably by increasing their ability to deduct start-up costs. Then, by a 240-177 vote, came the Family Savings Act (H.R. 6757Summary) that would create a tax-free Universal Savings Account (USA) and loosen requirements around the offering of Multiple Employer Plans (MEP), among other provisions. Finally on Friday, on a 220 to 191 vote, the House passed The Protecting Families and Small Business Tax Cuts Act (H.R. 6760Summary) that would make permanent many of the individual tax provisions in the Tax Cuts and Jobs Act (TCJA). This third pillar of the 2.0 package was the most contentious, and while it passed on a near party line vote, several Republicans from high-tax states joined in opposition due to the legislation’s extension of the cap on the state and local tax deduction (SALT).  Despite passing the House, all three of these bills are DOA in the Senate and were purely messaging bills for Republican Congressman to go home and campaign on. 
 
HFSC Housing Subcommittee Holds Oversight Field Hearing
On Tuesday, members of the Housing and Insurance Subcommittee of the House Financial Services Committee heard from Rep. Mike Bost (R-IL), Sen. Tammy Duckworth (D-IL), and Department of Housing and Urban Development (HUD) Acting Deputy Inspector General Jeremy Kirkland regarding HUD’s oversight of the Alexander County Housing Authority (ACHA) in Cairo, Illinois. HUD had found that ACHA had grossly mismanaged funds, resulting in poor living conditions in two of its projects. HUD has since taken ownership of ACHA and referred the case to the Department of Justice. Noting that the Inspector General had found significant problems with HUD’s handling of the situation, Mr. Kirkland offered recommendations to improve the administration of public housing and noted that 50 other public housing authorities are designated as “troubled” and that HUD was working to improve their management and oversight. Committee Republicans questioned the efficacy of HUD’s policies and leadership in the incident, and Democrats similarly expressed dismay that the issues had not been referred for criminal prosecution sooner, especially given the disadvantaged population that ACHA serves.
 
HFSC Capital Markets Subcommittee Holds SEC Oversight Hearing
On Wednesday, the House Financial Services Subcommittee on Capital Markets, Securities, and Investment held an oversight hearing of the Securities and Exchange Commission’s (SEC) Division of Investment Management. The panel received testimony from the SEC’s Division of Investment Management Director Dalia Blass, who overviewed the commission’s work to date in modernizing the current regulatory framework. During the hearing, Ms. Blass indicated that the SEC is considering proposals for rule changes aimed at providing investors with more consumer-friendly disclosures about annuities and other variable interest products. Members on the Subcommittee held a wide-ranging discussion on issues pertaining to the Volcker Rule, cryptocurrencies, fiduciary issues, and the SEC’s acquired fund fee rule.
 
HFSC Monetary Policy Subcommittee Holds Hearing on Sanctions
On Wednesday, the House Financial Services Subcommittee on Monetary Policy and Trade held a hearing entitled “Administration Goals for Major Sanctions Programs” featuring Assistant Secretary of the Treasury for Terrorist Financing Marshall Billingslea. Assistant Secretary Billingslea discussed the Office of Terrorism and Financial Intelligence’s (TFI) efforts to enforce sanctions on Russia, Iran, and North Korea. During the question and answer period, Member support for or opposition to the Trump Administration’s implementation of sanctions largely stayed along partisan lines. On the other hand, Members from both parties expressed concern over sanctions evasion, including through Russian and Chinese financial institutions, illicit shipping, cryptocurrency, and avoiding the use of U.S. controlled payment structures.
 
HFSC Financial Institutions Subcommittee Holds Fintech Hearing
On Friday, the House Financial Services Subcommittee on Financial Institutions and Consumer Credit held a hearing entitled “Examining Opportunities for Financial Markets in the Digital Era” featuring stakeholders from the financial technology industry. Witnesses from the fintech industry urged Congress and regulators to encourage innovation through regulatory harmonization and the clarification of the “true lender” and “valid-when-made” legal questions. Scott Astrada, a consumer advocate, pushed back on these recommendations, while T. Michael Price, a community banker, called for non-bank fintech firms to face the same level of regulatory oversight as banks. During the question and answer period, Members clashed over the recommendations in the Treasury Department’s July fintech report—including regulatory sandboxes and bank charters for fintech firms—with Republicans generally favoring regulatory harmonization and flexibility and Democrats concerned that such measures undermine consumer protection.
 
Rep. Davidson Holds Cryptocurrency Roundtable
On Tuesday, Rep. Warren Davidson (R-OH) hosted a roundtable discussion on the regulatory environment surrounding the use of cryptocurrencies. The more than 50 industry attendees included established financial services figures from organizations such as Fidelity, Nasdaq, State Street, Andreessen Horowitz, and the U.S. Chamber of Commerce and largely excluded anti-establishment crypto groups and retail investors. During the event, participants called on Congress to create a clear regulatory framework around the use of cryptocurrency and indicated that they weren’t pleased with the SEC’s current framework – based on a nearly 75 year old legal text.  Rep. Davidson voiced support for legislation, saying: “legitimate players in the industry have a desire for some sort of certainty so we can prevent and prosecute fraud. I'm confident we can move forward and make this a flourishing market in the U.S. It's an imperative for us to do, we did it well with the internet."
 
29 House Republicans Call on Fed to Deregulate Smaller Banks
On Friday, 29 House Republicans sent a letter to Federal Reserve Vice Chairman for Supervision Randal Quarles urging the Fed to expedite the process of providing regulatory relief to banks with less than $250 billion in assets under Section 401 of the banking regulatory relief bill (S.2155) passed earlier this year. In the letter, the Members express concern that the Fed has expressed the intention to further review firms with between $100 billion and $250 billion in assets for the purposes of future regulation.  And so the letter calls on the Fed to remove all domestic and international firms with less than $250 billion in assets from all Systemically Important Financial Institution (SIFI)-related regulations.
 
Senate
Senate Passes National Retirement Security Week Resolution
On Wednesday, the Senate unanimously passed a resolution (S.Res.654) recognizing National Retirement Security Week. Sponsored by Sen. Mike Enzi (R-WY), the resolution supports the week's "goals and ideals," including "raising public awareness of the various tax-preferred retirement vehicles, increasing personal financial literacy, and engaging the people of the United States on the keys to success in achieving and maintaining retirement security throughout their lifetimes." Held annually during the third week in October, national retirement security week exists to raise awareness of savings and retirement planning. Wednesday's vote marks the fourth time in as many years that Enzi has successfully introduced a resolution commemorating National Retirement Security Week.
 
Senate Commerce Hears from Tech Execs on Data Privacy
On Wednesday, the Senate Committee on Commerce, Science, and Technology held a hearing entitled “Examining Safeguards for Consumer Data Privacy” featuring witnesses from a variety of nationally recognizable technology and telecommunications firms including Google, Amazon, Apple, Twitter AT&T, and Charter. Witnesses and several Members called for a federal data privacy standard preempting state regulations. On this point, witnesses supported several ideas that would disclose what type of data firms are tracking and allow individuals to control to what types of data generation they consent. However, they were hesitant to support an “opt-in” requirement or expanded Federal Trade Commission rulemaking authority without appropriate guardrails. Additionally, several attendees expressed concern that recently passed privacy legislation in Europe and California is overly restrictive and contributes to a patchwork regulatory environment. In other privacy-related news, the National Telecommunications and Information Administration (NTIA) released for comment the Trump Administration’s proposed approach to data privacy. Rather than outlining organizational practices, the proposed approach outlines desired results from such practices, including transparency, control, and “reasonably minimized” data collection.
 
Senate Finance Committee Hears From Automakers on Tariffs
On Wednesday, the Senate Finance Committee held a hearing entitled “Impact of Tariffs on the U.S. Automotive Industry.” In their opening statements, Chairman Orrin Hatch (R-UT) and Ranking Member Ron Wyden (D-OR) expressed concern that the Trump Administration’s Section 232 steel and aluminum tariffs have harmed U.S. automakers. Witnesses from the auto industry and industry-dependent communities gave testimony that tariffs are too blunt to avoid harming American industry and workers. They noted the supply chain intensive nature of automobile parts, which makes the industry especially sensitive to tariffs. Furthermore, the tariffs have already pushed domestic steel prices higher, witnesses argued, making production more expensive and American auto manufacturers less competitive. One witness argued that tariffs can be a tool in a broader trade strategy, but that they must be coupled with other tools and reforms to be effective.
 
Wyden, Tester Introduce CRA Resolution on IRS Donor Guidance
On Monday, Sens. Ron Wyden (D-OR) and Jon Tester (D-MT) introduced a Congressional Review Act (CRA) resolution that would overturn an Internal Revenue Service (IRS) guidance (text) reducing donor disclosure requirements for certain tax-exempt groups. Under Senate rules, sponsors of CRA resolutions—which allow Congress to overturn federal regulations published within the previous 60 business days—can force a vote on the matter with the support of 30 Senators. While the resolution is highly unlikely to gain Republican support or pass either House of Congress, it will likely force a vote on a contentious transparency issue weeks before election day.  Both Senators have been vocal critics of the July 16 guidance, which would end the requirement that certain tax-exempt organizations include personally-identifiable donor information on annual returns. While Congressional Republicans have praised the measure, saying that it would prevent IRS discrimination against conservative groups, Democratic critics have argued that it would decrease funding transparency for politically active groups and open the door for foreign election meddling.
 
Warren Introduces Affordable Housing Bill
On Tuesday, Sen. Elizabeth Warren (D-MA) introduced the American Housing and Economic Mobility Act that would use a half trillion dollars in federal funds to build 3.2 million new affordable residential housing units. The bill would provide roughly half a trillion dollars to various federal housing programs including: (1) $445 billion for the Housing Trust Fund; (2) $25 billion for the Capital Magnet Fund; (3) $2 billion for the Indian Housing Block Grant; (4) $523 million in rural housing programs; (5) $4 billion to a new "Middle-Class Housing Emergency Fund" for the construction of homes in real estate scarce areas; (6) and $2 billion for “families whose housing wealth was destroyed by the financial crisis.” Additionally, it would create a grant program to assist first-time homebuyers with mortgage down payments, expand the usage of housing vouchers in neighborhoods with high performing schools, and expand the scope of the Community investment act to include credit unions and non-bank mortgage originators, as opposed to exclusively banks. The bill, which is highly unlikely to become law, is the latest significant legislative proposal from Sen. Warren as she considers running in the 2020 presidential election.
 
Select Highlights from the Administration
Treasury Department
Treasury Department Releases Guidance on Paid Family/Medical Leave Tax Credit
On Monday, the Department of the Treasury released its guidance on the implementation of the paid family and medical leave tax credit introduced in last winter’s Tax Cuts and Jobs Act (TCJA). Under TCJA, firms with a paid leave program paying at least half-wage receive a tax credit equal to between 12.5% and 25% of paid-leave compensation depending on what percent of the employee’s full wage they pay. Monday’s guidance will allow employers to claim the credit on their 2018 tax returns and clarifies how employers offering paid leave should calculate the credit and apply situation-specific rules and limitations and stipulates. Eligible employers will also be able to claim the tax credit retroactively beginning at the start of this taxable year for qualifying leave already provided.
 
Federal Reserve
Powell Interested in CRA Reform
On Tuesday, at Federal Reserve Chairman Jerome Powell’s quarterly press conference, the Chairman indicated that the central bank is “very much interested” in moving forward with updated regulations to the Community Reinvestment Act (CRA). Chairman Powell expressed interest in a joint proposed rulemaking with the Office of the Comptroller of the Currency (OCC), emphasizing that the underlying purpose of the CRA must be protected. Chairman Powell’s comments come after OCC Comptroller Joseph Otting put out an advanced notice of proposed rulemaking last month that posed questions about possible changes to the CRA without similar requests from the central bank or the Federal Deposit Insurance Corporation (FDIC).
 
FOMC Raises Rates
On Wednesday, the Federal Reserve’s Federal Open Market Commission (FOMC) voted to raise the federal funds rate target—which serves as a baseline for interest rates across the economy—by one quarter of a percentage point to 2-2.25 percent. The announcement marks the third time this year that the Fed has raised rates—additional rate hikes are expected in December and into 2019. In an accompanying statement, the Commission noted a strong economy, low unemployment, and stable inflation as justification for the continued interest rate hikes. While the interest rate increase has taken place among a tightening labor market, some observers have voiced concern that the flattening yield curve—i.e. the decreasing difference in term premiums between short and long-term Treasury securities—indicates an impending economic downturn. Reacting to the announcement, President Trump criticized the move to raise rates, saying: “we’re doing great as a country. Unfortunately they just raised interest rates because we are doing so well. I’m not happy about that.”
 
Securities and Exchange Commission
Tesla's Musk Faces SEC Fraud Suit
On Thursday, the Securities and Exchange Commission filed suit against entrepreneur Elon Musk in U.S. District Court alleging that he made "false and misleading" statements about electric carmaker Tesla, of which Musk is CEO and chairman of the board. The charges were based on a tweet Musk wrote about his intention to take Tesla private and claimed that he had the "funding secured. Then on Saturday, a settlement was reached where Musk and Tesla would each pay $20 million in fines to the SEC and Musk would step down as the Chairman of Tesla’s Board for at least three years.  He can stay on as CEO though.   The settlement is still subject to Court approval.   
 
Federal Trade Commission
FTC Commissioner Ohlhausen Departs Agency
On Tuesday, Federal Trade Commission (FTC) Commissioner Maureen K. Ohlhausen left the FTC upon the expiration of her term that day. She is currently awaiting confirmation to a seat on the Court of Federal Claims, to which she was nominated earlier this year. A member of the Commission’s Republican majority, Commissioner Ohlhausen has served as an FTC Commissioner since 2012 and served as acting Chair for the first 15 months of the Trump Administration. Commissioner Ohlhausen’s departure will allow her successor, Christine Wilson, who was confirmed by the Senate in April to finally assume the seat.
 
Consumer Financial Protection Bureau
CFPB Issues Report, RFI on Bureau’s Sources of Data
On Tuesday, the Consumer Financial Protection Bureau (CFPB) issued a report on its data collection practices and will soon publish a request for information (RFI) on those practices in the Federal Register. The report describes what forms of data CFPB collects, where it comes from, as well as how it is accessed and reused within the Bureau. The accompanying RFI will provide the public with an opportunity to comment on the CFPB’s data collection practices, and the comment period will be open for 90 days once the RFI is published.
 
Revamped CFPB Advisory Boards Meet
On Thursday, the Consumer Financial Protection Bureau (CFPB) convened the first meetings of three of its advisory boards—the Consumer Advisory Board, the Community Bank Advisory Council, and the Credit Union Advisory Council—following CFPB Director Mick Mulvaney’s decision to reshuffle the Bureau’s advisory structure. According to CFPB, the new membership provides broader expertise than do the previous advisors, highlighting “experts in consumer protection, financial services, FinTech, community development, fair lending, civil rights, and consumer financial products and services as well as representatives of community banks and credit unions.” In June, Director Mulvaney fired the entire membership of the bodies in an effort to “bring in new perspectives and new dialogue.” The advisory boards and councils exist to explain the impact of emerging products, practices, and services on consumers and other market participants and to inform CFPB regulation.
 
Office of the Comptroller of the Currency
OCC Releases New Bank Supervision Operating Plan
On Tuesday, the Office of the Comptroller of the Currency (OCC) released its Bank Supervision Operating Plan for Fiscal Year 2019. Per OCC, “the plan provides the foundation for policy initiatives and for supervisory strategies as applied to individual national banks, federal savings associations, federal branches, federal agencies, and technology service providers. OCC staff members use this plan to guide their supervisory priorities, planning, and resource allocations.” Areas of focus for OCC in 2019 include: (1) cybersecurity and operational resiliency; (2) commercial and retail credit loan underwriting, concentration risk management, and the allowance for loan and lease losses; (3) Bank Secrecy Act/anti-money laundering (BSA/AML) compliance management; (4) compliance-related change management to address regulatory requirements; and (5) internal controls and end-to-end processes necessary for product and service delivery.
 
Next Week’s Schedule
Mon. (10/1)

  • No events scheduled.

 
Tues. (10/2)

  • Hearing: Senate Banking Committee on S.2155 – 10:00 AM – The Senate Committee on Banking, Housing, and Urban Affairs will hold a hearing on the implementation of the Economic Growth, Regulatory Relief and Consumer Protection Act, featuring testimony from OCC Comptroller Joseph Otting, Fed Vice Chair Randal Quarles, FDIC Chair Jelena McWilliams, and NCUA Chair J. Mark McWatters. Details here.
  • Confirmation Hearing: Senate Finance Committee – 10:30 AM – The Senate Finance Committee will hold a confirmation hearing to consider the nomination of Andrew Saul to be Commissioner of the Social Security Administration. Details here.
  • Chamber of Commerce Small Business Summit – 12:00 PM – The U.S. Chamber of Commerce will host its two-day 2018 Small Business Conference in Washington, D.C. Details here.
  • SEC Event on Retirement – 2:00 PM – The Securities and Exchange Commission (SEC) will host an event entitled "Your TSP Account: What to Think About When Nearing Retirement or Considering Leaving the Government. Details here.

 
Wed. (10/3)

  • CFTC Fintech Conference 8:00 AM – The U.S. Commodity Futures Trading Commission (CFTC) will host its first ever Fintech conference on Wednesday, October 3 and Thursday, October 4. Details here.
  • Hearing: Senate Judiciary Committee on the Financial Crisis 10:00 AM – The Senate Judiciary Committee will hold a hearing entitled "Big Bank Bankruptcy: 10 Years After Lehman Brothers." Details here.
  • Confirmation Hearing: Senate Homeland Security Committee – 10:00 AM – The Senate Committee on Homeland Security and Government Affairs will hold a confirmation hearing to consider the nominations of Steven Dillingham to be Director of the Census and Michael Kubayanda to be a Commissioner of the Postal Regulatory Commission. Details here.
  • Chamber of Commerce Small Business Summit – 12:00 PM – The U.S. Chamber of Commerce will host its two-day 2018 Small Business Conference in Washington, D.C. Details here.
  • Hearing: Senate Judiciary Sub on Antitrust Laws 2:30 PM – The Senate Judiciary Subcommittee on Antitrust, Competition Policy, and Consumer Rights will hold a hearing that examines oversight of the enforcement of antitrust laws. Details here.

 
Thurs. (10/4)

  • CFTC Fintech Conference 8:00 AM – The U.S. Commodity Futures Trading Commission (CFTC) will host its first ever Fintech conference on Wednesday, October 3 and Thursday, October 4. Details here.
  • Hearing: Senate Banking Committee on Countering Money Laundering – 10:00 AM – The Senate Committee on Banking, Housing, and Urban Affairs will hold a hearing entitled "Combating Money Laundering and Other Forms of Illicit Finance: Regulator and Law Enforcement Perspectives on Reform." Details here.
  • Hearing: Senate Commerce Committee on Rural Broadband – 10:00 AM – The Senate Committee on Commerce, Science, and Transportation will hold a hearing entitled "Broadband: Opportunities and Challenges in Rural America. " Details here.

 
Fri. (10/5)

  • No events scheduled.