Financial Services Report (2/15)

With all of the House Committees having finished their mark-up of their respective portions of the COVID-19 relief bill, the action will turn to the Budget committee which will compile all of these bills into one massive piece of legislation that the House will take up the week of the 22nd.

In notable committee activity next week, the House Financial Services Committee will hold a hearing on Thursday that focuses on the recent stock trading controversy on Wall Street. Also on Thursday, the Senate Banking Committee will convene a hearing to discuss COVID-19 recovery, and the Treasury Department is scheduled to hold its first 2021 meeting of its Federal Advisory Committee on Insurance. Elsewhere, the House Energy and Commerce Subcommittee on Communications and Technology will hold a hearing on Tuesday to examine broadband policy. 

Last Week in the House

The Floor

There was no floor activity last week as House lawmakers marked up reconciliation instructions for the $1.9 trillion COVID-19 relief package last week. Looking ahead to this week, Members on the House Budget Committee will meet to combine the reconciliation instructions into a final $1.9 trillion relief bill, with floor consideration likely to occur the week of February 22. 

Key details from the House package instructions include: 

  • Ways and Means — The draft text includes a provision that seeks to boost access to health insurance subsidies, as well as health care plans on the Affordable Care Act (ACA) exchanges. It would also provide $1,400 stimulus checks checks to individuals making up to $75,000.
  • Financial Services — The draft includes $25 billion for emergency rental insurance, as well as $15 billion in payroll support for the aviation industry. It also outlines $10 billion for Defense Production Act spending to boost supplies of personal protective equipment and increase capacity for vaccine production.
  • Education and Labor — Democratic lawmakers included a hotly-contested provision that would raise the minimum wage to $15 per hour by 2025 within the draft Education and Labor measure. It would also provide $170 billion for schools and universities, as well as funding to implement COVID-19 worker protection programs.
  • Small Business — Provisions from the draft Small Business title include $15 billion for the Economic Injury Disaster Loan (EIDL), as well as $25 billion in federal aid for the restaurant industry.
  • Transportation and Infrastructure — The draft text outlines $30 billion for public transit agencies that have been adversely impacted by the pandemic. It also includes pots of money for airports ($8 billion) and the travel and hospitality industry ($450 million).

Hearings, etc.

HFSC Budget Resolution Markup (2/11-2/12): On Wednesday and Thursday, the House Financial Services Committee marked up (markup; briefing memo) its budget resolution instructions on the budget for fiscal year (FY) 2021. The Committee heard 38 amendments in total, 37 of which were offered by Republicans. Of the total, only two amendments were agreed to. Chairwoman Waters passed an amendment by unanimous consent to alter the bill text to read “American Rescue Plan” throughout. The sole Republican amendment agreed to was offered by Rep. Gonzalez (R-OH), on behalf of Rep. Bill Huizenga (R-MI) and passed by a voice vote. The amendment ensures that “not less than $500 million” is set aside in the State Small Business Credit Initiative (SSBCI) program for the smallest businesses, independent contractors, and gig workers.

Republican amendments largely aimed to narrow the bill to measures only “temporary, targeted, and tied to COVID-19.” Such efforts included: (1) terminating programs upon, or shortly after, the end of the presidentially-recognized public health emergency; (2) enabling fintech companies to lend under the SSBCI program; (3) disallowing the expansion of ESG disclosure requirements through this bill; (4) limiting assistance eligibility of certain programs to those most financially in need; (5) targeting aid to rural communities; (6) creating set asides in the State Small Business Credit Initiative program for small businesses, veterans and women, restaurants and the service industry in general; (6) broadening eligibility of funds directed at addressing homelessness; and (7) mitigating fraud in federal pandemic programs. Democrats opposed efforts to further tailor the SSBCI program to groups already eligible, arguing that doing so would unnecessarily complicate and delay its roll out. The Majority also pushed back on the attempts were made to limit the allowed timeline to distribute allocated funds, maintaining that the economic recovery needs will far outlive the pandemic.

The markup concluded with the passage of a 29-24, party-line vote in favor of transmitting the amended committee print to the Budget Committee.

Judiciary Subcommittee Hearing on Arbitration (2/11): On Thursday, the House Judiciary Subcommittee on Antitrust, Commercial, and Administrative Law (ACAL) held a hearing to discuss ending forced arbitration. Lawmakers on the Subcommittee announced the reintroduction of the Forced Arbitration Injustice Repeal (FAIR) Act in the 117th Congress, sponsored by Rep. Hank Johnson (D-GA). The FAIR Act, which passed the House last Congress, would prohibit the use of “pre dispute” arbitration clauses in consumer contracts. While Republicans on the Committee supported the elimination of secrecy clauses in bad actor cases — such as workplace harassment — many defended the value of arbitration as a less costly, swifter means for plaintiffs to seek justice. Democrats, on the other hand, argued that mandatory arbitration benefits employers at the cost of consumers, workers, and small businesses who have less power and appeal options in an arbitration settlement. While the legislation will likely pass the House later this year, its future in the Senate remains cloudier.

Bills Introduced

H.R. 953 (Spanberger): To provide for the establishment of a COVID-19 containment and mitigation for essential workers program for assisting small businesses and employee representatives of essential workers to reopen or operate consistent with guidance and practices intended to prevent the spread of COVID-19, and for other purposes.

H.R. 946 (Pascrell): To amend the Internal Revenue Code of 1986 to repeal the dollar limitation on deduction of State and local taxes, and for other purposes.

H.R. 942 (McBath): To amend the Internal Revenue Code of 1986 to provide for the application of the premium tax credit in the case of certain individuals who are unemployed during 2021.

H.R. 935 (Huizenga): To amend the Securities Exchange Act of 1934 to exempt from registration brokers performing services in connection with the transfer of ownership of smaller privately held companies.

H.R. 934 (Horsford): To amend the CARES Act to extend Federal Pandemic Unemployment Compensation and increase the weekly amount, and for other purposes.

H.R. 928 (DeLauro): To amend the Internal Revenue Code of 1986 to make the child tax credit fully refundable, establish an increased child tax credit for young children, and for other purposes.

H.R. 927 (Davis): To amend the Internal Revenue Code of 1986 to enhance the Child and Dependent Care Tax Credit and make the credit fully refundable.

H.R. 919 (Casten): To amend title IX of the Social Security Act to extend and increase emergency unemployment relief for governmental entities and nonprofit organizations, and for other purposes.

Last Week in the Senate

The Floor

The Senate formally began the impeachment trial of former President Donald Trump on Tuesday, starting with debate and a vote on the constitutionality of the trial. After voting (56-44) to affirm the constitutionality of the impeachment trial, Senators began the next round of debate in the trial on Wednesday. This phase of the former President’s trial included up to 16 hours of debate per side. Ultimately, the trial wrapped up on Saturday, with seven Republicans breaking rank to total a 57-43 vote in favor of impeachment. Failing to meet the two-thirds majority needed for conviction, the former President was acquitted for the second time.

Bills Introduced

S. 299 (Warner): A bill to amend section 230 of the Communications Act of 1934 to reaffirm civil rights, victims’ rights, and consumer protections.

S. 279 (Markey): A bill to require the Federal Communications Commission to update the national broadband plan, and for other purposes.

S. 271 (Casey): A bill to amend the Internal Revenue Code of 1986 to enhance the Child and Dependent Care Tax Credit and make the credit fully refundable.

S. 269 (Portman): A bill to amend the Internal Revenue Code of 1986 to permanently extend the work opportunity credit.

Other Activity

Dems Call for Stricter Insider Trading Enforcement: On Wednesday, Sens. Elizabeth Warren (D-MA), Sherrod Brown (D-OH), and Chris Van Hollen (D-MD) sent a letter sent a letter to the Securities and Exchange Commission (SEC) Acting Director, Allison Herren Lee, calling for the agency to review and consider reforming policies regarding 10b5-1 plans, which are designed to prevent insider trading. Their letter raises new evidence indicating that executives, especially in the health care industry, are abusing these plans to obtain huge windfalls at the expense of ordinary investors. “In addition to harming ordinary investors, the abuse of 10b5-1 plans and the short-term, windfall profits obtained by insiders through abuses of these plans undermine public confidence in open, fair markets and the products they create,” the letter states.

Republicans Urge SEC to Reject Diversity Rule: On Friday, Senate Republicans sent a letter to SEC Acting Director Lee, urging the Securities and Exchange Commission to reject a proposed rule from Nasdaq Inc. that would require public companies to adopt new racial and gender diversity standards for their boards. The lawmakers say Nasdaq should not use its “quasi-regulatory authority to impose social policies” and that the proposal would cost companies money and discourage closely held firms from going public. The SEC has until this summer to make a preliminary, and possibly binding, decision. The Senators argue that “NASDAQ’s proposal is not consistent with a free market under Section 6(b)(5) of the Exchange Act because its arbitrary diversity requirement does not demonstrably improve corporate performance, and could sometimes harm it.”

Senators Call for Tubman on the $20 Bill: On Tuesday, Senators Jeanne Shaheen (D-NH) and Ben Sasse (R-NE) wrote to Treasury Secretary Janet Yellen, encouraging the Department to resume its 2016 plans to change a series of paper currency. In particular, the Senators expressed optimism that the Treasury Department will prioritize the placement of Ms. Harriet Tubman on the nation’s $20 bill. “Portraying a woman on one of the most important symbols of American society recognizes the contributions of the full diversity of significant American historical figures, including women,” the letter argues.

Last Week in the Administration

Treasury Hosts Financial Innovation Roundtable

On Tuesday and Wednesday, the Treasury Department hosted its inaugural U.S. Financial Sector Innovation Policy Roundtable. Policymakers and regulators, as well as members of the private sector, participated in the meeting to discuss policy issues surrounding Fintech and innovation “fostering economic recovery, competitiveness, and financial inclusion.” The press release highlighted a focus on “how innovations like interoperable, privacy-preserving digital identity solutions, and more effective anti-money laundering and anti-fraud mechanisms, can provide value to financial services companies and their customers by eliminating redundancies, reducing costs, combating illicit use, and promoting financial inclusion in an increasingly digital world.” Secretary Yellen raised concern about “an explosion of risk related to fraud, money laundering, terrorist financing, and data privacy,” in calls for technological innovation to be used to combat such abuses.

Powell Indicates Foot isn’t Coming off the Gas Anytime Soon

On Wednesday, while speaking virtually at meeting of the Economic Club of New York, Federal Reserve Chairman Jerome Powell committed to an aggressive approach to keeping interest rates low while also maintaining the Fed’s assets purchase program in effort to continue to bolster the economy. While clearing indicating that these programs would remain in place for the foreseeable future, Powell also defended Congressional efforts to use fiscal policy to help the economy and deflected Republican concerns that such spending was excessive, saying wasn’t the time to address the path of the federal debt and that he worries less about inflation than about economic pain inflicted by the pandemic.

Hypothetical Stress Tests Released

On Friday, the Federal Reserve Board released hypothetical scenarios for its 2021 bank stress tests. The announcement states that “the Board found that large banks were generally well capitalized under a range of hypothetical events but due to continuing economic uncertainty placed restrictions on bank payouts to preserve the strength of the banking sector.” Nineteen large banks will be subject to the Fed’s stress tests this year, with some tested against a global market shock component. The 28 variables considered in each scenario, along with a chart detailing the stress test requirements of 33 of the nation’s banks are included in the release.

SEC Expands Enforcement Staff’s Power

On Monday, Acting SEC Director Allison Herren Lee issued a public statement announcing a move to give more power to its enforcement staff to launch investigations, by authorizing senior officers in the division to approve the issuance of a Formal Order of Investigation. Her statement noted that “this delegation of authority will enable investigative staff to act more swiftly to detect and stop ongoing frauds, preserve assets, and protect vulnerable investors.” During the Trump administration, the agency withdrew that authority from supervisors, allowing only two officials to exercise such power. The move comes after significant criticism about the year-over-year decline in investigations during the entirety of the last administration.

DOL Moves Ahead on Investment Advice Exemption

On Friday, the U.S. Department of Labor’s (DOL) Employee Benefits Security Administration confirmed that an exemption for investment advice fiduciaries, the “Improving Investment Advice for Worker & Retirees,” will go into effect as scheduled on Feb. 16, 2021. “This exemption allows for important investor protections, including a stringent ‘best interest’ standard of care for fiduciary recommendations of rollovers from ERISA-protected retirement accounts,” said Deputy Assistant Secretary of Labor for the Employee Benefits Security Administration Ali Khawar. The Department committed to continuing stakeholder outreach in determining how the exemption and the definition of an investment advice fiduciary might be improved upon in the future. In the coming days, the agency will publish related guidance for retirement investors, employee benefit plans, and investment advice providers. The news was met with mixed reaction from industry. For example, the IRI issued a statement supporting the decision to allow the exemption to take effect, but disagreeing with the “expansive interpretation of the five-part test contained in the rule’s preamble.”

Treasury Considering Climate Hub

On Friday, the Wall Street Journal reported that the Treasury Department was considering creating a “hub” within the Treasury Department to focus on policies related to climate change. According to the article, this would include working to identify and mitigate risks to the financial system from climate change as well as working on tax incentives to reduce carbon emissions. Former, Treasury and Federal Reserve veteran Sarah Bloom Raskin is reportedly in the running to head the Hub.

This Week’s Schedule

Mon. (2/15)

  • Presidents Day — No events scheduled.

Tues. (2/16)

  • Free State Foundation Webinar with FCC Commissioner Simington – 11:00 AM – The Free State Foundation will host a webinar discussion with new Federal Communications Commission (FCC) Commissioner Nathan Simington. Details here.

Wed. (2/17)

  • Hearing: House Energy and Commerce Sub. on Broadband –11:00 AM – The House Energy and Commerce Subcommittee on Communications and Technology will hold a hearing entitled “Connecting America: Broadband Solutions to Pandemic Problems.” Details here.
  • Brookings Webinar on Economic Impact Payments – 3:00 PM – The Brookings Institution will host a webinar entitled “Economic Impact Payments: Uses, Payment Methods, and Costs to Recipients.” Details here.

Thu. (2/18)

  • Hearing: Senate Banking Committee on COVID-19 Recovery – 11:00 AM – The Senate Committee on Banking, Housing, and Urban Affairs will hold a hearing entitled “The Coronavirus Crisis: Paving the Way to An Equitable Recovery.” Details here.
  • Hearing: House Energy and Commerce Sub. on Clean Energy – 11:30 AM – The House Energy Commerce Subcommittee on Energy will hold a hearing entitled “A Smarter Investment: Pathways to a Clean Energy Future.”  Details here.
  • Hearing: House Financial Services Committee on the Stock Market – 12:00 PM – The House Financial Services Committee will hold a hearing entitled “Game Stopped? Who Wins and Loses When Short Sellers, Social Media, and Retail Investors Collide.” Details here.
  • Meeting: Federal Advisory Committee on Insurance – 12:30 PM – The Treasury Department will hold a meeting of its Federal Advisory Committee on Insurance. Details here.
  • Hearing: House Judiciary Sub. on The Supreme Court – 2:00 PM – The House Judiciary Subcommittee on Courts, Intellectual Property, and the Internet will hold a hearing entitled “The Supreme Court’s Shadow Docket.” Details here.
  • Hearing: House Ways and Means Sub. on Tax Preparation – 2:00 PM – The House Ways and Means Subcommittee on Oversight will hold a hearing entitled “Free Tax Preparation Services During the Pandemic.” Details here.

Fri. (2/19)

  • No events scheduled.

Further Out

  • Hearing: House Financial Services Sub. on Terrorist Financing – Feb. 23 – The House Financial Services Subcommittee on National Security, International Development, and Monetary Policy will hold a hearing entitled “Dollars against Democracy: Domestic Terrorist Financing in the Aftermath of Insurrection.” Details here.
  • Hearing: House Financial Services Sub. on Climate Change  Feb. 23 – The House Financial Services Subcommittee on Investor Protection, Entrepreneurship and Capital Markets will hold a hearing entitled “Climate Change and Social Responsibility.” Details here.
  • Hearing: House Financial Services Committee on State of the Economy – Feb. 24 – The House Financial Services Committee will hold a hearing with Federal Reserve Chairman Jerome Powell entitled “Monetary Policy and State of the Economy.” Details here.
  • Hearing: House Financial Services Sub. on Discrimination – Feb. 24 – The House Financial Services Subcommittee on Oversight and Investigations will hold a hearing entitled: “How Invidious Discrimination Works and Hurts: An Examination of Lending Discrimination and Its Long-term Economic Impacts on Borrowers of Color.” Details here.