The House and Senate are in Recess this week. Further out, the House Financial Services has released its busy June schedule, which will include at least twelve hearings and markups.
Looking away from the Hill, The SEC is expected to vote on its long awaited Best Interest standard, in many ways an alternative to the Obama era Department of Labor's Fiduciary Rule, on June 5th.
Last Week in the House
Consumers First Act. On Wednesday, lawmakers passed the Consumers First Act in a 231-191 party-line vote. The bill, a flagship priority of Financial Services Committee Chairwoman Maxine Waters, though dead-on-arrival in the Senate, aims to reverse a number of policy changes undertaken at the Consumer Financial Protection Bureau over the last 18 months. Among other provisions, the bill would: (1) restore the enforcement and supervisory powers of the Office of Fair Lending; (2) reinstate CFPB supervision of compliance with the Military Lending Act; (3) reestablish a dedicated student loan office; and (4) require adequate staffing and limit the number of political appointees at the Bureau.
In addition to the underlying bill, the House also passed 14 Democratic amendments dealing with mortgage disclosures, the reestablishment of an information sharing agreement between CFPB and the Department of Education, free credit scores, advisory committee membership, and reinstating the CFPB's prohibition on mandatory arbitration clauses in consumer credit contracts. Several rejected Republican amendments would have subjected the Bureau to the annual appropriations process, eliminated a provision requiring public disclosure of the consumer complaint database, and increased GAO scrutiny of CFPB.
SECURE Act. On Thursday, after some drama surrounding the removal of a 529 provision that drew Republican consternation, the House ultimately overwhelmingly voted 417-3 to pass the Setting Every Community Up for Retirement Enhancement (SECURE) Act. The legislation package contains a number of tweaks intended to enhance incentives for saving for retirement, including: (1) broadening participation in multiple employer plans (MEPs); (2) requiring that long-term, part-time workers be eligible for benefits; (3) repealing the maximum age (currently 70.5) for IRA contributions; (4) providing a safe harbor for plan fiduciaries offering lifetime income options; and (5) modifying nondiscrimination rules to protect older plan participants.
Following passage in the House, there were rumors that the legislation might move through the Senate via Unanimous Consent ("UC") before Senators left Thursday for the Memorial Day recess. This did not ultimately materialize, as Senator Cruz, a supporter of home schooling, objected to the removal of the expansion of 529 savings for students in home schools. However the fact that the SECURE Act was even considered for UC is a good indicator that the Senate will prioritize the swift passage of the proposal.
Hearings and Markups
HUD Oversight (5/21): On Tuesday, the Financial Services Committee held an oversight hearing of the Department of Housing and Urban Development featuring HUD Secretary Ben Carson. Chairwoman Maxine Waters (D-CA) and other Committee Democrats hammered Secretary Carson for what they described as a "long list of harmful housing proposals," including: (1) proposed rent increases for low-income households; (2) weakening fair housing protections; and (3) recently proposed rules that would terminate housing benefits for mixed-immigration status families. Committee Republicans, in contrast, praised Secretary Carson's leadership for "modernizing old programs, updating regulations, and knocking down barriers to individual and local investment.”
Mnuchin on International Financial System (Act Two) (5/22): On Wednesday, Treasury Secretary Mnuchin appeared before the Financial Services Committee to resume a hearing on the international financial system began last month. Continuing trends from last month's hearing, Several Republican Members raised concerns about the impact of international insurance capital standards on US insurance companies, while Ranking Member Patrick McHenry (R-NC) scrutinized the impact of the impending Brexit on US financial firms. Beyond the international financial system, other topics receiving attention included the Current Expected Credit Loss (CECL) accounting standard, beneficial ownership, and the debt ceiling. To the last point, Secretary Mnuchin commented that the federal government could run out of funding to pay its bills by late summer.
USMCA (5/22): On Wednesday, the Ways and Means Subcommittee on Trade held a hearing on enforcement provisions in the United States-Mexico-Canada Agreement. On the Democratic side of the dais, frequently cited concerns—most notably the NAFTA replacement's labor and enforcement provisions—continued to be presented as barriers to the deal's approval in the House.
Military Lending Act Supervision (Barr): Clarifies statutory authority of Consumer Financial Protection Bureau to supervise compliance with the the Military Lending Act—which Republicans and CFPB leadership say the Bureau currently lacks despite Democratic arguments to the contrary. Earlier, Rep. Barr offered the bill as an amendment to the Consumers First Act, although it was not made in order.
Another Deutsche Bank Ruling: On Wednesday, US District Court Judge Edgardo Ramos ruled that Deutsche Bank and Capital One can supply Trump-related financial records to the joint HFSC-Intelligence Committee probe into the President's financial records. The Obama appointee disagreed with the Trump family's argument that the probe lacks a "legitimate legislative purpose" other than politically damaging the President, saying that the investigations are "undeniably broad but clearly pertinent." President Trump and his children have appealed the decision.
New Dems Offer Housing Policy Objectives: On Wednesday, New Democrat Coalition Housing Task Force co-chairs Denny Heck (D-WA), Katie Hill (D-CA), and Ben McAdams (D-UT) released their goals for the 116th Congress. Per its co-chairs, "the Task Force will act to address the housing shortage and pursue solutions that address housing insecurity. These include investing in housing stock as well as addressing land use, inadequate construction financing, and the mismatch of labor supply for the demand."
Last Week in the Senate
Late Thursday, Senators broke a monthslong impasse on disaster relief aid by passing (85-8) a $19.1 billion measure prior to leaving Washington. The final package that would provide: (1) $3 billion for farm disaster assistance; (2) $2.4 billion for Community Block Development Grants; and (3) $3.25 billion for Army Corps of Engineers flood control and storm damage mitigation projects.
Included in the package is an extension of the National Flood Insurance Program through September 30. With the program set to expire on May 31, the Senate also passed a separate two week extension that the House is likely to pass in a pro forma session this week in order to prevent the program's lapse.
The bill does not include a deal on President Donald Trump’s border security request and also omits other rumored policy riders such as Harbor Maintenance Trust Fund reform and Violence Against Women Act reauthorization.
Following the Senate passage of the disaster relief package, House leadership attempted to pass the deal by unanimous consent Friday morning. That effort, however, failed over objections from House conservatives. The House is expected to attempt pass the package tomorrow during a pro forma session but ultimately may need to approve by a recorded vote when it returns from its recess.
Also last week, the Senate passed the TRACED Act anti-robocalling legislation—which would increase penalties for illegal robocalls and promote call authentication technologies— by a vote of 97-1.
Hearings and Markups
Beneficial Ownership (5/21): On Tuesday, the Banking Committee held a hearing on illicit financing where both Chairman Mike Crapo (R-ID) and Ranking Member Sherrod Brown (D-OH) agreed on the need to modernize beneficial ownership and Bank Secrecy Act/anti-money laundering (BSA/AML) regulations for the 21st Century. With this hearing focused on regulatory perspectives, Members heard perspectives on challenges facing financial transparency efforts from officials from FinCEN, the FBI, and OCC.
Inclusive Prosperity Act (Sanders and Gillibrand): Imposes a transaction tax of .5 percent on stock trades, .1 percent on bonds, and .005 percent on derivatives. Rep. Barbara Lee (D-CA) concurrently introduced companion legislation in the House with more than 35 Democratic cosponsors.
Ending the Carried Interest Loophole Act (Wyden): Requires that fund managers pay taxes on carried interest annually and at at the ordinary income rates, rather than deferring until an investment is realized and at the lower capital gains rate. Sen. Wyden's bill follows a recent Fox New interview in which President Trump reiterated a desire to see the carried interest loophole repealed.
Stop Overdraft Profiteering Act (Booker and Brown): Bans banks from imposing overdraft fees on debit card or ATM transactions, limits the number of overdraft fees on check-based transactions, and prohibits the sequencing of transactions to maximize fees charged.
Continued Encouragement for Consumer Lending Act (Tillis): Requires that the implementation of the Current Expected Credit Loss (CECL) accounting standard be delayed pending examination by the SEC and banking regulators.
Medical Debt Relief Act (Merkley, Blumenthal, Warren, Menendez, and Durbin): Prohibits the reporting of medical debt for one year and requires that paid-off or settled debts be removed from consumers' credit reports.
Disclosure of Tax Havens and Offshoring Act (Van Hollen, Klobuchar, Duckworth, Whitehouse): Requires corporations to disclose financial reporting on a country-by-country basis with the the intent of increasing transparency into tax havens and offshoring.
Removing Incentives for Outsourcing Act (Klobuchar, Van Hollen, and Duckworth): Modifies the global intangible low-taxed income tax by repealing the tax-free deemed return on investments and determining net CFC tested income on a per-country basis. The bill's sponsors argued that the change would "eliminate an unfair incentive that allows U.S. companies to use excess foreign tax credits (FTCs) to shelter profits in tax havens."
Lifetime Income Disclosure Act (Isakson and Murphy): Requires plan sponsors to inform participants of projected monthly retirement income based on account balance. Sens. Isakson and Murphy previously introduced the legislation in the last two Congresses and and a House companion bill is sponsored by Reps. Mark Pocan (D-WI) and Ted Budd (R-NC),
Deutsche Bank Trump Letter: On Monday, Banking Committee Ranking Member Sherrod Brown (D-OH) and Sen. Chris Van Hollen (D-MD) sent a letter to Deutsche Bank inquiring into a recent New York Times report that that senior bank staff suppressed the filing of prepared suspicious activity reports relating to the activity of Trump connected businesses. Suggesting that such a course of action would be "another especially alarming failure of the bank's risk management," the letter requests a response to several inquiries by May 30.
FINRA Letter: On Tuesday, Sens. Catherine Cortez Masto (D-NV), Mike Rounds (R-SD), Chris Van Hollen (D-MD), and Tina Smith (D-MN) sent a letter to the Financial Industry Regulatory Authority (FINRA) calling for measures to curb the ability of financial professional to inherit from their clients. While recognizing that many firms already prohibit their advisors from receiving client bequests, the letter notes that such conduct is not specifically prohibited under FINRA Rule 2010.
Mnuchin Sears Letter: On Thursday, Sen. Elizabeth Warren (D-MA) and Rep. Alexandria Ocasio Cortez (D-NY) sent a letter to Treasury Secretary Steven Mnuchin raising concerns about his tenure on the board of Sears. In the letter, the authors describe as concerning allegations that Sears board members, including Secretary Mnuchin, "stripp[ed] Sears of billions of dollars" leading up to the company's October bankruptcy. In addition to the Treasury Secretary's involvement in these "predatory practices," the letter also questions Secretary Mnuchin's recusal from any Pension Benefit Guaranty Corporation actions related to Sears, the status of which the letter alleges is currently unclear.
Intuit Letter: On Thursday, Sen. Elizabeth Warren (D-MA) led a half-dozen bicameral Democrats on a letter to Intuit regarding April reports that the company and other participants in the IRS's Free File Alliance concealed free services from eligible taxpayers in violation of their agreement with the federal government. Per the letter, the patterns of allegations against the company "indicates that Intuit views the Free File program as a way to steer lower-income taxpayers to their paying products, rather than a way to provide free tax filing services."
Last Week in the Administration
White House Steps Up Heat on USMCA
On Wednesday, President Trump urged Democratic leadership to approve the United States-Mexico-Canada Agreement prior to attempting to negotiate an infrastructure package. "Before we get to infrastructure, it is my strong view that Congress should first pass the important and popular trade deal," the President wrote in a letter to Speaker of the House Nancy Pelosi (D-CA) and Senate Minority Leader Chuck Schumer (D-NY). Following the lifting of steel and aluminum tariffs on Mexico and Canada earlier this month, Vice President Mike Pence last week called for a vote on USMCA this summer. The White House's push on USMCA continues despite persistent concerns from Congressional Democrats as to the deal's labor and enforcement provisions.
Fed Minutes Indicate Caution on Interest Rates
On Wednesday, the Federal Reserve released the minutes from its April 30-May 1 Board of Governors meeting, during which members of the Fed board expressed a reluctance to cut interest rates. While the minutes note that some board members raised concerns that inflation is lagging too far behind the Fed's two percent target, participants were optimistic that inflation would return to target ranges absent interest rate cuts and opted to take a "patient approach" amid continued economic growth. The discussions in the Fed's minutes run counter to President Trump's repeated calls for the central bank to cut interest rates, which would stimulate both inflation and economic growth.
CFPB Expands Financial Education Tool to Active Duty Servicemembers
On Thursday, the Consumer Financial Protection Bureau announced an expansion of its Misadventures in Money Management financial education tool to active servicemembers. Initially developed for enlisted but not-yet-shipped servicemembers, the MIMM program is intended to prove the financial readiness of servicemembers through informational materials on topics such as consumer financial decision-making, choosing a financial institution, the Servicemembers Civil Relief Act, and how debt can affect a military career.
SEC Guidance Calls for Greater Fee Transparency; To Initiate Transaction Fee "Pre-Pilot"
On Tuesday, the Securities and Exchange Commission released guidance instructing stock exchanges to publish disclosures each time they increase fees for premium market data. Per the guidance, disclosures will be required to justify and "fully and fairly describe" fee increases and demonstrate that they are reasonable, equitable, and not unfairly discriminatory or an undue burden on competition. The guidance is the latest action in the Commission's campaign to halt rising exchange fees—which critics have claimed unfairly disadvantage retail investors.
The same day, the Commission also announced its intention to begin the six month "pre-pilot" period for the Transaction Fee Pilot program on July 1. During the pre-pilot period, exchanges will be required to compile data on fee and rebate practices, but will not be required to send it to the SEC pending legal action. The pilot program—which will test the impact of banning or limiting maker-taker rebates—is currently pending amid litigation by exchanges.
OCC Final Rule Provides Flexibility for Federal Savings Associations
On Friday, the Office of the Comptroller of the Currency issued a final rule implementing section 206 of the Economic Growth, Regulatory Relief, and Consumer Protection Act and intended to provide more business flexibility to federal savings associations. Under the rule, federal savings associations with assets of $20 billion or less as of December 31, 2017 will be allowed to operate with the powers of national banks with the intention of providing such institutios with greater flexibility to adapt to new economic conditions without changing their charters.
This Week's Schedule
Both the House and Senate are in recess this week.