Financial Services Report (3/18)

After a slow start in January and February, caused in part by the shutdown, the pace has really quickened up. Next week may hold the first mark-up under Chair Waters tenure, with a series of bills potentially on the slate.

 

Looking Ahead 

  • The House and Senate are Recess this week.
  • Next week the House Financial Services Committee has two hearings on the schedule and a rumored mark-up.

Last Week in the House 

The Floor

On Monday, the House passed the following four bills out of the Financial Services Committee:

  • The Housing Choice Voucher Mobility Demonstration Act (HR 1122) passed by a vote of 387-22. Sponsored by Reps. Emanuel Cleaver (D-MO) and Sean Duffy (R-WI), the bill would establish a mobility demonstration program exploring the use of rental-assistance vouchers to help families move to lower-poverty areas.
  • The Federal Reserve Supervision Testimony Clarification Act (HR 974) passed by a voice vote. Sponsored by Reps. Josh Gottheimer (D-NJ) and Frank Lucas (R-OK), the bill specifies that the the Federal Reserve Vice Chair for Supervision, or a designee if that position is vacant, must provide verbal and written testimony to Congress on the Fed's supervisory activities. 
  • The FinCEN Improvement Act (HR 1414) passed by a voice vote. Sponsored by Reps. Jennifer Wexton (D-VA) and Denver Riggleman (R-VA), the legislation amends the Financial Crimes Enforcement Network's FinCEN's authorizing statute to allow it to work with tribal law enforcement agencies, protect against all types of terrorism, and expand its focus on emerging trends in illicit finance such as cryptocurrencies.
  • The Cooperate with Law Enforcement Agencies and Watch Act (HR 758) passed by a vote of 404-7. Sponsored by Reps. French Hill (R-AR) and Bill Foster (D-IL), the legislation limits a financial institutions' liability for maintaining a customer relationship in compliance with a "keep open" letter from law enforcement authorities.

Additionally, on Wednesday, the House passed a resolution (H.Res. 206) "acknowledging that the lack of sunlight and transparency in financial transactions poses a threat to our national security and our economy's security and supporting efforts to close related loopholes." Sponsored by Financial Services Committee Chairwoman Maxine Waters, the resolution passed by a voice vote.

Hearings and Markups

Wells Fargo (3/12): On Tuesday, Wells Fargo CEO Tim Sloan appeared before the the Financial Services Committee to discuss numerous allegations of misconduct against his bank. Throughout the hearing, Committee Members on both sides of the aisle criticized Wells Fargo for the unauthorized opening of millions of accounts, charging illegal fees, and charging customers for auto insurance they do not need, among other misdeeds. With Committee Democrats particularly harsh in their criticism, Chairwoman Maxine Waters (D-CA) called Wells Fargo a "recidivist financial institution" and expressed the belief that the bank—which holds $1.9 trillion in assets—is "too big to manage."

Financial Crime (3/12): On Tuesday, Under Secretary of the Treasury for Terrorism and Financial Intelligence Sigal Mandelker appeared before the House Appropriations Subcommittee on Financial Services and General Government. Thanking the Subcommittee for increasing support for the Office of Terrorism and Financial Intelligence in each of the past two years, Under Secretary Mandelker reviewed an active year for TFI, including the re-imposition of nuclear sanctions on Iran, escalating sanctions on Russian oligarchs, "unprecedented action to hold human rights abusers' accountable, and a variety of guidance intended to enhance TFI's cooperation with the private sector.

Temporary Tax Policy (3/12): On Tuesday, the House Ways and Means Tax Subcommittee held a hearing on "temporary tax policy" where Members discussed the 29 currently expired tax provisions, as well as the 80 set to expire between now and 2027. Witnesses and Members on both sides of the aisle recognized the lack of certainty that temporary tax writing provides taxpayers and promoted specific provisions for individuals, business investment, and energy efficiency. However, the Subcommittee did not move towards any consensus on the long-term future or retroactive renewal of expired tax provisions.

Flood Insurance (3/13): On Wednesday, the Financial Services Committee discussed proposals to reform and reauthorize the National Flood Insurance Program (NFIP)—currently set to expire on May 31. Amid broad bipartisan support for long term NFIP reauthorization, Members recognized the importance of improving flood maps and flood mitigation. On the Republican side of the dais in particular, Members questioned NFIP's persistent insolvency and emphasized the importance of private flood insurance markets and reinsurance. Other issues receiving attention included special rates for grandfathered policies, rebuilding restrictions on repetitive loss properties, and means-tested premium assistance. Many of these topics are addressed in discussion draft reauthorization legislation recently circulated by Rep. Velazquez.

Corporate Transparency (3/13): On Wednesday, the Financial Services Subcommittee on National Security held a hearing where members discussed legislative proposals to detect and deter financial crime. Specifically, the Subcommittee considered three pieces of proposed legislation: (1) a discussion draft (text) that would broadly reform Bank Secrecy Act/anti-money laundering (BSA/AML) regulations through strengthening the Treasury Department, improving oversight, and modernizing BSA; (2) Rep. Carolyn Maloney's (D-NY) Corporate Transparency Act (text) that would require corporations to disclose beneficial ownership information; and (3) the bipartisan Kleptocracy Asset Recovery Rewards Act (HR 389) that would establish a rewards program for information on assets held in US financial institutions linked to foreign bribes.

President's Budget (3/14): On Thursday, Treasury Secretary Steven Mnuchin appeared before the Ways and Means Committee to discuss the President's FY20 budget. While much of the hearing was dedicated to continuing partisan debates on tax reform, the President's tax returns, and entitlement cuts, a number of exchanges focused on topics relevant to the financial services industry, including: (1) transparency for Opportunity Zone participants and the timeline for further rulemaking; (2) multiple employer pension fund solvency; and (3) clarity of international tax regulations promulgated in the wake of tax reform.

Best Interest Rule (3/14): On Thursday, the Financial Services Subcommittee on Investor Protection held a hearing on the SEC's proposed best interest rule. During the hearing, which was poorly attended due to the fact it was a "fly-out day", several of the Committee Democrats criticized the SEC's proposal, with Subcommittee Chairwoman Carolyn Maloney (D-NY) arguing that the rule does not subject broker dealers to full fiduciary standards, fails to define "best interest," and too heavily relies on disclosures rather than resolving conflicts of interest. Committee Republicans, in contrast, spoke more favorably of the rule, which Ranking Member Bill Huizenga (R-MI) said would increase transparency and flexibility for investors. Interestingly, Rep. Sherman questioned the witness panel to ascertain whether they thought the status quo was better than the SEC's rule, with all of the Democratic witnesses indicating that was a better outcome.

Bills Introduced

HR 1756 (Tlaib): Prohibits insurance companies from using consumer credit data to set auto insurance rates.

HR 1731 (Himes, Heck, and Meeks): Requires publicly traded companies to have a cybersecurity expert on their board of directors or explain why they do not. The bill is companion legislation to an existing Senate bill led by Sen. Jack Reed (D-RI).

Carried Interest Fairness Act (Pascrell): Closes the carried interest loophole by taxing carried interest as ordinary income rather than at the 23.8% capital gains tax rate. Companion legislation in the Senate was introduced by Sen. Tammy Baldwin (D-WI).

HR 1666 (Castor and Luetkemeyer): Clarifies that private flood insurance fulfills National Flood Insurance Program (NFIP) continuous coverage requirements, allowing policyholders to return to NFIP after switching to private flood insurance.

No Tax Breaks for Outsourcing Act (Doggett): Taxes income of overseas subsidiaries at the same rate as domestic income, maintains US tax treatment of inverted companies that retain majority US ownership, and prevents multinational companies from saddling US subsidiaries with debt to reduce their tax burden. Sen. Sheldon White House (D-RI) introduced companion legislation in the Senate.

Stop Tax Haven Abuse Act (Doggett): Prohibits companies managed and controlled in the US from being treated as foreign, accelerates the repatriation of foreign earnings, and creates new beneficial ownership requirements. Companion legislation in the Senate is led by Sen. Sheldon Whitehouse (D-RI)

Other Activity

Lighthizer Hits Hill on USMCA: On Wednesday, United States Trade Representative Robert Lighthizer met with the House Democratic Caucus as the Administration attempts to drum up Democratic for the United States-Mexico-Canada Agreement (USMCA). With the enforceability of labor provisions a key sticking point, Ambassador Lighthizer stressed that Mexico would pass legislation implementing labor concessions and that enforceability provisions would be added through implementing legislation. Democrats gave the suggestion a lukewarm response. Ahead of the meeting, Congressional Progressive Caucus (CPC) co-chair Mark Pocan (D-WI) said that CPC would oppose the agreement as currently written.

Waters Calls for Tim Sloan Removal: On Thursday, following HFSC's hearing on Wells Fargo and on the heels of reports that CEO Tim Sloan received $2 million in performance-based compensation last year, Financial Services Committee Chairwoman Maxine Waters called on the Office of the Comptroller of the Currency (OCC) to remove Mr. Sloan from his position. In a press release, Chairwoman Waters commented: "Mr. Sloan shouldn't be getting a bonus, he should be shown the door"

Waters to Target For-Profit Colleges: On Thursday, Financial Services Committee Chairwoman Maxine Waters (D-CA) said at a Member day before the Education and Labor Committee that she intends to introduce legislation toughening for-profit college revenue rules. The forthcoming legislation would lower the maximum percentage of for-profit college revenue that can come from student aid from 90 to 85, as well as require that veteran education benefits are counted as federal student aid for the purposes of the rule.

Last Week in the Senate

 

The Floor

On Thursday, the Senate voted 59-41 in favor of a resolution (H.J.Res 46) terminating President Trump's border wall emergency declaration. A dozen Republicans joined Senate Democrats in sending the resolution of disapproval —which the House passed earlier this month—to the President's desk. On Friday, however, President Trump for the first time in his Presidency vetoed the resolution—likely killing the measure given that neither chamber appears to have the votes to override the veto, though the House may still take up the vote in order to put political pressure on the Republicans.

While the resolution of disapproval headlined the Senate's week, the Upper Chamber also cleared a number of Presidential nominees, including Todd Harper and Rodney Hood to serve on the board of the National Credit Union Administration (NCUA). Both nominees passed by a voice vote, bringing the NCUA board to full membership for the first time in nearly three years.

Hearings and Markups

Banking Committee Nominations (3/12): On Tuesday, the Banking Committee held an executive session where it voted to advance the following nominations: (1) Claudia Slacik to be a Member of the Board of Directors of the Export-Import Bank; (2) Jeffrey Nadaner to be Assistant Secretary of Commerce for Export Enforcement; and (3) Thelma Drake to be Federal Transit Administrator.

CFPB Oversight (3/12): On Tuesday, Consumer Financial Protection Bureau (CFPB) Director Kathleen Kraninger appeared before the Banking Committee. Similarly to her appearance the previous week in the House, Committee Democrats criticized a number of developments at CFPB, including the Bureau's review of the payday lending rule's ability to repay requirements, ceasing of supervision for Military Lending Act compliance, and an allegedly lax oversight of student lending. Meanwhile, Republicans spoke more favorably of Director Kraninger's agenda and encouraged her to prioritize transparency and data collection under her leadership.

Postal Reform (3/12): On Tuesday, the Homeland Security and Government Affairs Committee held a hearing on the President's Postal Task Force and reforms to the US Postal Service (USPS). During the hearing, witnesses and Members on the both sides of the aisle agreed that the Administration, in conjunction with Congress, should more clearly define what the universal service obligation to deliver to all addresses means in the 21st century and better explain what services would qualify as essential. Additionally, several members of the Committee expressed concern that deferentially pricing essential and non-essential mail would limit postal access in rural areas.

Data Privacy (3/12): On Tuesday, the Senate Judiciary Committee held a hearing during which Chairman Lindsey Graham acknowledged the Judiciary Committee’s limited jurisdiction over privacy issues but expressed interest in working with the Commerce Committee on specific legislative topics. During the hearing, Members on both sides of the dais expressed concern about the scope and transparency of tech companies’ data collection practices. Additionally, Ranking Member Feinstein and others spoke favorably of privacy frameworks based around opt-in—rather than opt-out—consent and Democrats and Republicans remained split on the need for a federal preemption of state privacy regulations. 

FSOC Designations (3/14): On Thursday, the Banking Committee held a hearing on Financial Stability Oversight Council (FSOC) non-bank designations. During the hearing. GOP Senators — as well as Sen. Doug Jones (D-AL) — voiced support for proposals to shift FSOC designations to an activities-based approach. Conversely, most Democrats were less supportive of the change, arguing that it would create unnecessary layers of burden for companies and regulators and potentially overlook risks to the financial system.

President's Budget (3/14): On Thursday following his testimony that morning before the Ways and Means Committee (see above), Treasury Secretary Steven Mnuchin appeared before the Finance Committee to discuss the President's FY20 budget. While much of the hearing was dedicated to continuing partisan debates on tax reform, the President's tax returns, and entitlement cuts, several Members asked about financial services-relevant topics such as the timeline for Opportunity Zone rulemaking, frozen defined benefit plans, the Treasury Department's Community Development Financial Institutions fund, and beneficial ownership reform.

Bills Introduced

Securities Fraud Enforcement and Investor Compensation Act (Warner and Kennedy): Extends the statute of limitations within which the SEC is allowed to seek restitution for securities fraud from 5 years to 10. Additionally, with the SEC currently limited to filing disgorgement claims that recoup ill-gotten profits, the legislation would allow SEC to file restitution claims, which would increase the amount of compensation available to harmed investors.

Bank on Students Emergency Loan Refinancing Act (Warren): Allows existing student loan borrowers to refinance at a 3.76 percent annual interest rate. Graduate school loans could be refinanced at 5.41 percent, and parent loans for a child’s education at 6.41 percent. Companion legislation in the House is sponsored by Rep. Joe Courtney (D-CT).

American Housing and Economic Mobility Act (Warren): Contains a variety provisiosn intended to expand access to housing, including leveraging federal funding to build up to 3.2 million new housing units, creating incentives for local governments to eliminate land use restrictions, extending Community Reinvestment Act obligations to provide credit to low- and moderate-income communities, and expanding housing voucher programs. Sen. Warren initially introduced the bill last Congress and Rep. Cedric Richmond (D-LA) has introduced companion legislation in the House.

Last Week in the Administration 

 

White House Unveils $4.7 Trillion Budget Request

On Monday, the White House unveiled its fiscal year (FY) 2020 budget request (text) calling for $4.7 trillion in federal spending. With $2.7 trillion in spending cuts over the next decade, the White House has claimed that the budget is the largest spending cut ever requested by a Presidential Administration. While the budget particularly targets entitlement programs such as Medicare, Medicaid, and food stamps, it increases defense spending and would provide funding for immigration priorities including $8.6 billion for the President's border wall priority. As expected, the proposed spending cuts have been harshly criticized by Congressional Democrats.

In its Treasury Department section, the proposed budget would provide nearly $300 million annually for IRS modernization, prioritize FinCEN and the Office of Financial Intelligence, and propose subjecting the Financial Stability Oversight Council (FSOC) and Office of Financial Research (OFR) to the annual appropriations process. Given that the proposal does not address independent financial regulators, its direct discussion of financial services is otherwise limited.

Trump Potentially Weeks From China Decision

On Thursday, President Trump said that the Administration is "three to four weeks" from knowing if it will reach a trade deal with China, pumping the breaks on expectations that the two countries may resolve their trade conflict in the coming days. The same day, Bloomberg reported that a planned meeting between President Trump and Chinese President Xi Jinping has been pushed back to April at the at the earliest, following speculation that the two leaders could meet in person as soon as the end of this month.

Agencies Clear Swap Transfer Rules Ahead of Brexit

On Friday, five federal agencies adopted an interim final rule facilitating transfers of legacy swaps in the event of a non-negotiated withdrawal of the United Kingdom from the European Union. The interim final rule would ensure that any legacy swap currently exempt from the agencies' rule on margin for non-cleared swaps would not become subject to the rule if such swap is amended solely for the purpose of transferring it to an affiliate as a result of a non-negotiated UK withdrawal from the EU.

OCC Piles on Wells Fargo Rebukes

On Thursday, the Office of the Comptroller of the Currency (OCC) criticized Wells Fargo's compliance with OCC consent orders on the heels a House Financial Services Committee hearing on misconduct by the bank (see above). “We continue to be disappointed with Wells Fargo Bank N.A.’s performance under our consent orders and its inability to execute effective corporate governance and a successful risk-management program,” said and OCC spokesperson. Sources from within OCC have indicated that the agency is considering using its authority to remove certain senior executives—a move that was last week requested by House Financial Services Committee Chairwoman Maxine Waters (D-CA).

CFPB Releases Latest Edition of Supervisory Highlights

On Tuesday, the Consumer Financial Protection Bureau (CFPB) released the 18th edition of its Supervisory Highlights (text). The 21-page report details Bureau supervision activities generally completed between June 2018 and November 2018, and includes examination findings in the areas of automobile loan servicing, deposits, mortgage servicing, and remittances.