Financial Services Report (7/15)

The House Financial Services Committee is set to resume its mark-up of a series of bills — including those reforming the credit reporting industry – on Tuesday. If past is prologue then be prepared for another marathon mark-up that may last the whole day.
 
Also this week the House Financial Services Committee and the Senate Banking Committee will hold a hearing on Facebook's Project Libra, which as described below, came under repeated fire during Fed Chair Powell's appearance before both committees. We anticipate that this draft bill may be part of this week's hearings.
 
Looking ahead to next week, the Senate Banking Committee is expected to hold a hearing on cannabis banking, while in the House the FinTech task force will hold its second hearing examining how alternative data in underwriting might expand access to credit.

 
Last Week in the House
The Floor
 
On Tuesday, the House passed seven bills that had been reported out of the Financial services Committee:
 
  • The Protecting Affordable Mortgages for Veterans Act, which would clarify that certain refinanced VA mortgages can be securitized by Ginnie Mae. Sponsored by Reps. David Scott (D-GA) and Lee Zeldin (R-NY), the legislation passed by a voice vote. The Senate passed companion legislation to the bill last month.
 
  • The Whistleblower Protection Reform Act, which would expand Dodd-Frank whistleblower protections to employees who report misconduct directly to their employer rather than to the SEC. Sponsored by Reps. Al Green (D-TX) and Bill Huizenga (R-MI), the legislation passed by a vote of 410-12.
 
  • The Housing Financial Literacy Act, which would provide a 25-basis point discount in upfront FHA premiums for first-time home buyers who complete a housing counseling program. Sponsored by Reps. Joyce Beatty (D-OH) and Steve Stivers (R-OH), the legislation passed by a voice vote.
 
  • A resolution sponsored by Reps. Ayanna Pressley (D-MA) and Bill Huizenga (R-MI) emphasizing the importance of SEC collaborations with state securities regulators passed by a voice vote.
 
 
  • The Expanding Investment in Small Business Capital Act, which would instruct the SEC to report on the limitation on shares of an individual company that a diversified investment company may own and that limitation's impact on capital formation. Sponsored by Rep. Bryan Steil (R-WI), the legislation passed by a vote of 417-2.
 
  • The Expanding Access to Capital for Rural Job Creators Act, which would instruct the SEC to identify the challenges facing rural small businesses in securing capital in its annual report to Congress. Sponsored by Reps. Cindy Axne (D-IA) and Alex Mooney (R-WV), the legislation passed by a vote of 413-7.
 
Following Tuesday's suspension votes, the House spent the remainder of its week working through the more than 400 amendments to the FY20 National Defense Authorization Act (NDAA) before passing the $733 defense package by a vote 220-197 without a single Republican voting in favor. With the Senate having passed its NDAA bill last month, the two chambers will attempt to reconcile their bills via conference committee by September 30.
 
Hearings and Markups
 
Fed Chair Semi-Annual Testimony (7/10): On Wednesday, Federal Reserve Chairman Jerome Powell presented his semi-annual monetary policy report to the Financial Services Committee. During which he raised concerns about potential economic headwinds, including trade tensions, slowing global growth, and lagging inflation, all of which was read by observers to potentially foreshadow a future interest rate cut. During the hearing, Committee Democrats frequently criticized the Administration’s alleged attacks on the Fed’s independence, while several Republicans used their time to press Powell to continue to implement the Economic Growth, Regulatory Relief, and Consumer Protection Act. 
 
Additionally, several Members on both sides of the aisle used the hearing to publicize their criticism of Project Libra and its cryptocurrency. In response, Powell repeatedly stressed that he, and other regulators would carefully review the product prior to its public use. Other topics receiving attention include the Fed’s participation in the development of a real-time payment system, the perceived weakening of the relationship between inflation and unemployment, and international insurance capital standards. 
 
ESG Disclosures (7/10): On Wednesday, the Financial Services Investor Protection Subcommittee held a hearing examining proposals to improve Environmental, Social and Governance (ESG) disclosures. Throughout the hearing, Committee Democrats expressed interest in legislative proposals to increase transparency and accountability among companies and investors regarding this information —including mandating certain ESG disclosures and adopting common standards in order to ensure consistency and allow shareholders to compare the disclosures of different companies. For their part, a significant number of Committee Republicans expressed concern regarding the burden these required disclosures place on companies, which they warmed could result in fewer US companies going public, hindering investment opportunities and overall economic growth.
 
HFSC Markup (7/11): On Thursday, the House Financial Services Committee marked up ten bills. Those relating to housing and diversity passed by voice votes or with little opposition, while the measures related to reforming the credit reporting industry faced a more partisan showing. Though Republicans generally agreed that more needs to be done to protect consumer data and promote credit availability, they expressed their concerns that the legislation these specific bills added unnecessary bureaucratic red tape to the credit reporting and scoring process, while simultaneously increasing consumer and business costs. Conversely, Democrats underscored the need for a credit reporting and scoring reform, stressing the need for “fair, accurate, and accessible” credit reporting policies that promote the best interests for vulnerable consumers.
 
The credit scoring bills cleared at the markup include:
 
 
  • The Free Credit Scores for Consumers Act. Sponsored by Rep. Joyce Beatty (D-OH), the legislation would require credit bureaus to include credit scores in their annual free credit reports to consumers. It passed by a vote of 32-26.
 
 
  • The Improving Credit Reporting for All Consumers Act. Sponsored by Rep. Alma Adams (D-NC), the legislation would reform the credit score correction process, including by creating a right to appeal credit reporting decisions and instructing CFPB to develop minimum standards for reporting agencies. It passed by a vote of 32-26.
 
The diversity bills cleared at the markup include:
 
 
  • The Diversity in Corporate Leadership Act. Sponsored by Rep. Carolyn Maloney (D-NY), the legislation would similarly require companies to disclose the gender, racial, and ethnic composition of their corporate boards. It passed by a vote of 52-6.
 
  • The Ensuring Diverse Leadership Act. Sponsored by Rep. Joyce Beatty (D-OH), the legislation would require the Federal Reserve to interview at least one candidate reflective of gender diversity and one reflective of ethnic diversity in selecting regional bank presidents. It passed by a vote of 52-6.
 
The housing bills cleared at the markup include:
 
  • The Homebuyer Assistance Act. Sponsored by Rep. Brad Sherman (D-CA), the legislation would allow licensed appraisers, rather than only certified appraisers, to conduct appraisals in connection with FHA-backed mortgages with the intention of increasing the pool of eligible appraisers and harmonizing FHA appraisal requirements with those of Fannie Mae and Freddie Mac. It passed by a voice vote.
 
  • The Appraisal Free Transparency Act. Sponsored by Rep. Lacy Clay (D-MO), the legislation would provide the Appraisal Subcommittee (ASC) with greater flexibility to structure fees charged to appraisal management companies and to ensure compliance with federal appraisal standards, as well as create a national registry of appraisers in training and attempt to increase transparency into appraisal fees. It passed by a voice vote.
 
  • The Strategy and Investment in Rural Housing Preservation Act. Sponsored by Rep. Lacy Clay (D-MO), the legislation would permanently authorize USDA's multifamily housing preservation and revitalization program, require USDA to develop a plan for the preservation of rural multifamily housing backed by USDA loans, and establish an advisory committee to assist in the implementation of such a plan. It passed by a vote of 57-0.
 
Despite the marathon markup Thursday, lawmakers failed to reach seven other bills relating to credit scores, civil penalties, and outsourcing. Those bills, and potentially others that could be added to the list, are expected to be taken up when the markup resumes on Tuesday.
 
Bills Introduced
 
Prohibit Auto Insurance Discrimination Act (Watson Coleman and Tlaib): Prohibits the use of characteristics including employment status, education, and zip code in the calculation of auto insurance rates or eligibility.
 
Safe Harbor for Taxpayers with Forked Assets (Emmer): Provides safe harbor for the tax treatment of "forked" digital currencies (ie the currencies that result when a blockchain splits into two different chains) until IRS issues guidance on how to report gains or losses on such assets. Rep. Emmer originally introduced the legislation last Congress.
 
Last Week in the Senate
The Floor

With most of the Senate's week spent clearing the nominations queue, the upper chamber did not consider any legislation directly pertinent to financial services this week.
 
Hearings and Markups
 
Commerce Committee Markup (7/10): On Wednesday, the Commerce Committee held an executive session where lawmakers advanced legislation on a variety of topics. Of note for the financial services industry, the Committee advanced Sens. Todd Young's (R-IN) and Ed Markey's (D-MA) Blockchain Promotion Act (S. 553), which would convene a Department of Commerce working group to establish a common definition of blockchain.
 
Fed Chair Semi-Annual Update (7/11): On Thursday, Federal Reserve Chairman Jerome Powell presented his semi-annual monetary policy report to the Banking Committee. Echoing his House testimony the previous day, Chairman Powell noted the reoccurrence of economic headwinds including trade tensions, slowing global growth, and lagging inflation, potentially foreshadowing an interest rate cut by the Fed later this month. Similarly to House's hearing, Committee Democrats frequently criticized the Administration’s alleged attacks on the Fed’s independence, while several Republicans called for swift implementation of provisions in last year’s Economic Growth, Regulatory Relief, and Consumer Protection Act. Also of note, numerous Members on both sides of the aisle directed criticism at the proposed Libra cryptocurrency, which Chairman Powell stressed would be carefully reviewed by regulators.
 
Bills Introduced
 
Fair Chance at House Act (Harris): Contains a host of provisions intended to remove barriers to federally assisted housing for individuals with criminal records, including: (1) banning blanket "1-strike" policies; (2) banning "no-fault" policies allowing the eviction of an entire family based on unknown criminal activity of a guest; (3) increasing due process protection for tenants; (4) prohibiting the use of suspicion-less drug and alcohol testing by property owners and public housing authorities (PHAs); and (5) providing PHAs with additional funding to house ex-offenders through the Section 8 Housing Choice Voucher program. Rep. Alexandria Ocasio Cortez (D-NY) jointly introduced companion legislation in the House.
 
Repeatedly Flooded Communities Preparation Act (Scott and Schatz): Requires FEMA and local governments to proactively assess and move to reduce flood risk in flood-prone areas. The legislation, which was previously introduced last Congress, would also set deadlines for FEMA to develop criteria to govern these repeat loss plans and determine any appropriate sanctions for failure to act, require FEMA to report to Congress every two years on implementation progress, and authorize FEMA to target special assistance to communities working to address these repeatedly flooded areas.
 
HOUSE Act (Tester, Young, and Murphy): Allows veterans with Other-Than-Honorable discharges to participate in the Department of Housing and Urban Development-VA Supportive Housing (HUD-VASH) program.
 
Climate Risk Disclosure Act (Warren): Requires publicly traded companies to disclose information about their exposure to climate risk. First introduced last year, the legislation was also reintroduced earlier this month in the House by Rep. Sean Casten (D-IL).
 
Accountability for Wall Street Executives Act (Harris): Allows state law enforcement officials to issue subpoenas to investigate suspected violations of state laws by national banks. The legislation was previously introduced last Congress and Rep. Katie Porter (D-CA) jointly introduced the legislation in the House.
 
Other Activity
 
Facebook Libra Response: On Monday, Banking Committee Chairman Mike Crapo (R-ID) and Ranking Member Sherrod Brown (D-OH) published a letter from David Marcus, head of Facebook's Calibra payment service (which will be built upon the Libra cryptocurrency), in which Facebook pledged to work with regulators to address concerns surrounding the development of Libra. A response to a previous inquiry from Banking Committee leadership on the matter, the letter also provides an overview of the project's development in a number of areas, including: (1) regulatory engagement; (2) privacy; and (3) the use of consumer data for assessments of creditworthiness.
 
Another Libra Letter from Senator Brown: On Wednesday, Banking Committee Ranking Member Sherrod Brown (D-OH) sent a letter to the Federal Reserve Chair Jerome Powell asking about the Fed’s plans to regulate new digital currency networks and urging the central bank to “take a proactive role to ensure that the payments system remains accountable to the public." The letter takes particular aim at the Facebook-led Project Libra, noting criticisms by Facebook co-founder Chris Hughes that Libra would “hand over much of the control of monetary policy from central banks to these private companies” and raising concerns that Libra could raise “data privacy, system risk, and anti-competitive concerns” for “billions of individual consumers and the broader financial system.”
 
Brown Writes Powell on Deutsche Bank: On Wednesday, Committee on Banking Committee Ranking Member Sherrod Brown (D-OH) sent a letter to Federal Reserve Chairman Jerome Powell demanding the central bank take immediate action against Deutsche Bank, which made headlines this week after laying off thousands amid the German mega-bank’s massive restructuring. Specifically, the letter criticizes the bank’s risk management practices, role in the 2008 financial crisis, and reports that senior bank officials quashed a specific activities report relating to Trump Organization accounts. Ranking Member Brown also accused the Fed of “rewarding mismanagement” and allowing the bank to “sail through” stress testing and argued that the bank’s situation reflects the need for regulators to consider the divestiture of assets following repeated violations.

Last Week in the Administration
 
Kudlow Says Powell Safe—For Now
On Tuesday, National Economic Council Director Larry Kudlow said that the White House was making "no effort" to remove Fed chair Jerome Powell from the central bank's chairmanship. "I would say that unqequivocally, at the present time, yes, he is safe," Mr. Kudlow said at a CNBC capital exchange event. Mr. Kudlow's comments push back on rumors that the White House is examining ways to remove or demote Chairman Powell amid the President's ongoing feud with the Fed chair and came shortly before the Chairman delivered his semi-annual testimony to Congress. Despite hinting at an interest rate cut in his Hill appearance (see recaps above), the Chairman repeatedly reasserted his independence from the White House during his testimony, as well as his intention to stay on the job for his entire term.
 
USMCA Unlikely to be Submitted this Summer
On Tuesday, at the same CNBC event, White House economic advisor Larry Kudlow also commented that the White House is waiting until House Speaker Nancy Pelosi (D-CA) "gives the green light" to send the United States-Mexico Canada Agreement (USMCA) to Congress. Although he also expressed hope that this would occur at some point in the summer, media reports later in the week indicated that it is likely to happen after September 1, providing more time to address House Democrat concerns about the deal, but also worrying some USMCA proponents wary of attempting to approve one of the President Trump's signature legislative priorities so close to a presidential election. The formal submission of USMCA will start a 90-day "fast track" timeline for an up or down vote in Congress, setting the stage for a vote by the end of the year if the agreement is submitted in early fall.
 
President Becomes Latest Official to Take Aim at Project Libra
On Thursday, President Trump tweeted that he is "not a fan" of cryptocurrencies, including the controversial Project Libra. "Unregulated Crypto Assets can facilitate unlawful behavior, including drug trade and other illegal activity," the President said in a tweet, adding that "Facebook Libra’s 'virtual currency' will have little standing or dependability." Capping off another week of political pushback against the proposed payment system, he additionally suggested that Project Libra's backers would have to obtain a banking charter, "if Facebook and other companies want to become a bank."
 
Agencies Finalize Community Bank Volcker Exemption
On Tuesday, the five federal regulators of jurisdiction finalized rulemaking implementing the Economic Growth, Regulatory Relief, and Consumer Protection Act provision exempting community banks from compliance with the Volcker Rule. Under the final rule, which is unchanged from the proposed rule, community banks with less than $10 billion in total consolidated assets and total trading assets and liabilities of 5 percent or less of total consolidated assets will be excluded from the notoriously complex restriction on proprietary trading.
 
Banking Regulators Finalize Capital Rule Simplification
On Friday, the Office of the Comptroller of the Currency, the Federal Reserve, and the Federal Deposit Insurance Corporation issued a final rule simplifying capital requirements for banking organizations that do not use the "advanced approaches" capital framework, which are generally firms with less than $250 billion in total consolidated assets and less than $10 billion in total foreign assets. Specifically, it simplifies the capital treatment for mortgage servicing assets, certain deferred tax assets, investments in the capital instruments of unconsolidated financial institutions, and minority interest. The final rule also would allow bank holding companies and savings and loan holding companies to redeem common stock without prior approval unless otherwise required. 
 
CFPB Settles Debt Settlement Lawsuit
On Tuesday, the Consumer Financial Protection Bureau settled a lawsuit with Freedom Debt Relief, the nation's largest debt services provider. CFPB had alleged that the company illegally charged advanced fees, misled consumers, and charged for services they failed to provide. Under the terms of the settlement, Freedom Debt Relief agreed to pay $20 million in restitution and a $5 million civil monetary penalty and is prohibited from engaging in such conduct in the future.
 
SEC, CFTC Advance Securities Futures Alignment Proposal
On Tuesday, the Securities and Exchange Commission and Commodity Futures Trading Commission jointly approved a proposed rule lowering the minimum margin requirements on securities futures at 15 percent of current market value, down from the current 20 percent. The proposal is an attempt to align the margin requirements for securities futures with those of similar financial products.
 
CFTC Proposes Relief to Foreign Clearinghouses in Last Giancarlo Vote
On Thursday, the Commodity Futures Trading Commission approved two proposed rules easing regulations on certain foreign derivatives clearinghouses. Approved unanimously, one proposed rule would allow foreign clearinghouses to satisfy some CFTC requirements by complying with home-country regulations. The Commission also approved a second proposal by a vote of 3-2 allowing foreign clearing house to seek an exemption from CFTC registration requirements. To be eligible for relief, foreign firms will have to demonstrate they do not pose a threat to the US financial system. The vote was among the last for outgoing CFTC Chairman Chrisopher Giancarlo, who will be succeeded by Heath Tarbert today.
 
This Week's Schedule
Mon. (7/15)
  • No events scheduled.
Tues. (7/16)
  • Chamber Event on Corporate Governance – 8:30 AM – The U.S. Chamber of Commerce will host an event entitled "Corporate Governance: Making the Case for Reform." Details here.
  • Hearing: Senate Aging Committee on Robocalls – 9:30 AM – The Senate Special Committee on Aging will hold a hearing entitled “Combatting Robocall Fraud: Using Telecom Advances and Law Enforcement to Stop Scammers and Protect Seniors." Details here.
  • Hearing: Senate Banking Committee on Libra – 10:00 AM – The Senate Committee on Banking, Housing, and Urban Affairs will hold a hearing entitled "Examining Facebook’s Proposed Digital Currency and Data Privacy Considerations." Details here.
  • Markup: House Financial Services Committee – 10:00 AM – The House Financial Services Committee will resume its markup to consider several pending legislative measures. Details not yet available.
  • Hearing: House Small Business Sub. on Federal Procurement Policy – 10:00 AM – The House Small Business Subcommittee on Contracting and Infrastructure will hold a hearing entitled “Helping Small Businesses Compete: Challenges and Opportunities in the Federal Procurement Marketplace.” Details here.
  • Hearing: House Energy and Commerce Sub. on Spectrum Policy – 10:30 AM – The House Energy and Commerce Subcommittee on Communications and Technology will hold a hearing entitled “Our Wireless Future: Building A Comprehensive Approach to Spectrum Policy.” Details here.
  • Hearing: House Judiciary Sub. on Online Platforms – 2:00 PM – The House Judiciary Subcommittee on Antitrust, Commercial, and Administrative Law will hold a hearing entitled "Online Platforms and Market Power, Part 2: Innovation and Entrepreneurship." Details here.
  • Hearing: Senate Judiciary Sub. on Censorship – 2:30 PM – The Senate Judiciary Subcommittee on The Constitution will hold a hearing entitled "Google and Censorship through Search Engines." Details here.
Wed. (7/17)
  • Hearing: Senate Banking Sub. on Economic Mobility– 9:30 AM – The Senate Banking Subcommittee on Economic Policy will hold a hearing entitled Economic "Mobility: Is the American Dream in Crisis?" Details here.
  • Hearing: House Financial Services Committee on Libra – 10:00 AM – The House Financial Services Committee will hold a hearing entitled "Examining Facebook’s Proposed Cryptocurrency and Its Impact on Consumers, Investors, and the American Financial System." Details here.
  • Hearing: Senate Judiciary Sub. on Oversight of U.S. Copyright Office – 2:30 PM –The Senate Judiciary Subcommittee on Intellectual Property will hold an oversight hearing of the U.S. Copyright Office. Details here.
  • Hearing: Senate Homeland Security Sub. on Cost of Regulatory Changes – 2:30 PM – The Senate Homeland Security and Governmental Affairs Subcommittee on Federal Spending Oversight and Emergency Management will hold a hearing entitled "Federally Incurred Cost of Regulatory Changes and How Such Changes Are Made." Details here.
Thurs. (7/18)
  • Hearing: Senate Banking Committee on Export Control Reform – 10:00 AM – The Senate Committee on Banking, Housing, and Urban Affairs on Economic Policy will hold a hearing entitled Economic "Export Control Reform Implementation: Outside Perspectives." Details here.
  • Markup: Senate Judiciary Committee – 10:00 AM – The Senate Judiciary Committee will hold a markup to consider legislation aimed at combating money laundering, terrorist financing, and counterfeiting. Details here.
  • SEC Roundtable on Management of Public Companies, Periodic Reporting System– 12:30 PM – The Securities and Exchange Commission (SEC) will host a roundtable discussion on short/long-term management of public companies, as well as the Commission's periodic reporting system and regulatory requirements. Details here.
Fri. (7/19)
  • Hearing: House Small Business Committee on Disaster Loans – 10:30 AM – The House Small Business Committee will hold a hearing entitled “Flooded Out: Vanishing Environmental Reviews and the SBA’s Disaster Loan Program.” Details here.
Further Out
  • Hearing: Senate Judiciary Sub. on Oversight of Antitrust Agencies – July 23 – The Senate Judiciary Subcommittee on Antitrust, Competition Policy, and Consumer Rights will hold an oversight hearing on the enforcement of antitrust laws, featuring testimony from Federal Trade Commission (FTC) Chairman Joseph Simons, and Assistant Attorney General Makan Delrahim. Details here.
  • Hearing: House Financial Services Task Force on Credit Scoring – July 25 – The House Financial Services Task Force on Financial Technology will hold a hearing entitled "Examining the Use of Alternative Data in Underwriting and Credit Scoring to Expand Access to Credit." Details here.
  • FDIC/CFPB Webinar on Elder Financial Abuse – July 25 – The Federal Deposit Insurance Corporation (FDIC) and Consumer Financial Protection Bureau (CFPB) will cohost a webinar entitled "Building Collaboration between Financial Institutions and Law Enforcement to Prevent and Address Elder Financial Abuse." Details here.