Financial Services Report (7/22)

After three insanely busy weeks, this next week looks to be at a more humane pace with only a handful of hearings of relevance to the Financial Services industry.
 
On Tuesday the Senate Banking Committee will hold a hearing on Cannabis in the banking industry, as proponents of cannabis banking continue to advance their cause in Congress.
 
On Wednesday the House Financial Services Committee will hold a hearing examining the SunTrust / BBT merger, and then on Thursday the House FinTech Task Force will have a hearing to examine alternative underwriting.

 
As always, a comprehensive list of hearings, including a Senate Antitrust Subcommittee hearing that is likely to be worth watching, can be found at the end of this newsletter.
 
Assuming that Congress can pass the budget caps / debt ceiling bill and preserve the August recess, when they return in in September, the following is just a handful of the issues that ehy will have to deal that have a September 30th expiration deadline:
  • Flood Insurance
  • Ex-Im Bank
  • TANF Funding
  • Medicaid DHS payment cut delay
  • Community health center funding, other public health programs
In addition, there are a slew of items, including the Satellite Television Extension and Localism Act (STELA) and some tax credits with very strong constituencies that will expire at the end of the year.
 
Last Week in the House
The Floor
 
Things got ugly quickly last week, as the House dealt with a resolution condemning President Trump's comments towards the so-called squad of four Democratic congresswomen. In terms of substantive policy the chamber also passed legislation that would raise the minimum wage to $15 per hour, and a different bill to repeal of the Cadillac tax.
 
Hearings and Markups
 
HFSC Markup (7/16): On Tuesday the Financial Services Committee continued its markup from the prior week. This time, lawmakers advanced eight bills. While legislation dealing with credit scores, corporate disclosures, and civil penalties were approved on party-line votes, the Committee was able to move forward bills dealing with new whistle blower protections and disaster relief with bipartisan support. A summary of each bill considered follows:
  • Credit scoring: The Student Borrower Credit Improvement Act passed by a vote of 33-25. Sponsored by Rep. Ayanna Pressley (D-MA), the legislation would allow private student loan borrowers to remove adverse information from their credit reports when they demonstrate a history of timely repayment. Additionally, the Clarity in Credit Score Formation Act passed by a vote of 33-25. Sponsored by Rep. Stephen Lynch (D-MA), the legislation would instruct the Consumer Financial Protection Bureau to set standards for the development of credit score models.

  • Corporate disclosures. The Climate Risk Disclosure Act passed by a vote of 34-25. Sponsored by Rep. Sean Casten (D-IL), the legislation would require companies to annually disclose information on their exposure to climate change risk. Later, the Outsourcing Accountability Act passed by a vote of 33-25. Sponsored by Rep. Cindy Axne (D-IA), the legislation would require public companies to annually disclose the number of employees they employee in each state and foreign country, as well as the percentage change from the previous year.

  • Civil penalties. The Stronger Enforcement of Civil Penalties Act passed by a vote of 33-25. Sponsored by Rep. Katie Porter (D-CA), the legislation would increase the SEC's penalty authority and increase the link between penalties and harm. The Strengthening Fraud Protection Provisions for SEC Enforcement Act also passed by a vote of 33-25. Sponsored by Rep. Vicente Gonzalez (D-TX), the legislation would increase the SEC civil monetary penalty statute of limitations from 5 to 10 years.

  • Whistleblower Protections. The PCAOB Whistle Blower Protection Act passed by a voice vote. Sponsored by Rep. Sylvia Garcia (D-TX), the legislation establishes a PCAOB whistleblower program similar to that run by the SEC.

  • Disaster Relief. The Reforming Disaster Recovery Act passed unanimously. Sponsored by Reps. Al Green (D-TX) and Ann Wagner (R-MO), the legislation would permanently authorize the Community Development Block Grant-Disaster Relief program and reform its administration

E+C Marks Up Robocall bill (7/17): On Wednesday, the Energy and Commerce Committee marked up 27 pieces of legislation, including the Stopping Bad Robocalls Act. Sponsored by Committee Chairman Frank Pallone (D-NJ) and Ranking Member Greg Walden (R-OR), the legislation would: (1) instruct FCC to publish rules ensuring that robocalls only be made with consumers' consent, as well as rules preventing the "abuse" of provisions allowing companies such as financial services companies to make calls without consent; (2) require carriers to implement call authentication technology; (3) allow carriers to offer call blocking services at no additional charge; and (4) increase FCC enforcement authority against illegal calls. The legislation has raised concerns from stakeholders, including many in the financial services industry, that the bill could inadvertently impede businesses that rely on legal robocalls to contact consumers. The legislation is scheduled to come up before the full House on Wednesday this week.
 
Facebook's Libra Project Receives Bipartisan Skepticism (7/17): On Wednesday, lawmakers continued to express skepticism towards the proposed Libra digital currency during a Financial Services Committee hearing featuring Facebook's David Marcus. Keeping with trends from the previous day’s Senate hearing, Committee Democrats were broadly critical of Facebook and Libra (see below), with Committee Chairwoman Maxine Waters (D-CA) calling for a moratorium on Libra's development until the issue has been addressed by Congress. Committee Republicans were more divided on the matter, with some including Ranking Member McHenry (R-NC) calling for a wait-and-see approach and while others echoed Democratic skepticism towards Facebook. Appearing before the Committee, Facebook’s David Marcus attempted to defend Libra against legislative scrutiny, emphasizing that the Libra Association will not be directly controlled by the social media giant.
 
Ahead of the markup, HFSC Democrats unveiled the Keep Big Tech out of Finance Act, which would target projects like Libra by prohibiting "large platform utilities" from acting as a financial institution. Chairwoman Waters promoted that legislation during the hearing.
 
Bills Introduced
 
Credit Reporting Reform (McHenry): Includes a number of provisions aimed at addressing "glaring issues" with the credit reporting industry, including: (1) reforming the credit freeze process; (2) increasing the ability to consumers harmed by predatory products to have information removed from their credit reports; (3) removing all paid, non-elective medical debt from credit reports; (4) preventing credit bureaus from using Social Security numbers for verification purposes; and (5) granting CFPB authority to oversee reporting agencies cybersecurity practices. The legislation, which was first unvielled as an amendment during the markup, was offered as a stand-alone bill by the Ranking Member after it was voted down as an amendment.
 
Residential Recovery Zone Tax Credit (Dunn): Creates a tax credit for homebuyers in residential recovery zones.
 
Digital Mortgage Resolution (Duffy): Recognizes the benefits of digitization of the mortgage process.
 
Unlocking Capital for Small Business Act (Budd): Creates a regulatory safe harbor exempting finders (individuals who help entrepreneurs find potential investors) from having to register as broker-dealers. Rep. Budd previously introduced the legislation last Congress.
 
Justice for Student Borrowers Act (Scanlon): Prohibits forced arbitration clauses in student loans.
 
Legacy IRA Act (Beyer and Kelly): Expands the Charitable IRA Rollover to treat donations made by retirees to give annuity programs as pre-tax income.
 
Other Activity
 
Blue Dog Fiscal Reform Blueprint: On Thursday, the Blue Dog Coalition, a group of fiscally conservative Democrats, released its Blueprint for Fiscal Reform outlining steps to address the federal government's $22 trillion debt. The seven key priorities in the moderate Democrats' fiscal solvency outline include: (1) a balanced budget amendment; (2) returning to regular, on-time appropriations process; (3) adhering to the letter and spirit of PAYGO rules; (4) increasing oversight; (5) setting aside a "rainy day fund;" (6) requiring all legislation to have a non-partisan cost estimate and be properly reviewed; and (7) ending partisan, short-term tax policy.
 
Last Week in the Senate
The Floor

On Tuesday, the Senate voted 94-2 to approve a treaty revising the tax protocol between the United States and Spain, followed by the similarly overwhelming approval of agreements with Switzerland, Japan, and Luxembourg on Wednesday. Sen. Rand Paul (R-KY) had blocked the treaties—which clarify international tax obligations in order to avoid double taxation—for years over concerns that they would undermine taxpayer privacy.
 
Following passage of the tax protocols, the upper chamber spent the remainder of its week working through nominations.
 
Hearings and Markups
 
Libra (7/16): On Tuesday, Facebook's David Marcus appeared before the Banking Committee to discussed the proposed Libra digital currency. During the hearing, lawmakers on both sides of the aisle continued to direct criticism at Project Libra, with Democrats in particular targeting Facebook and questioning the company’s involvement in the project. Committee Republicans were more divided on the matter, with some joining in criticisms of Facebook and others calling for a wait-and-see approach to a potentially beneficial product. Appearing before the Committee, Facebook’s David Marcus attempted to defend Libra against legislative scrutiny, saying that the Libra Association will not be directly controlled by Facebook, and that Facebook would not attempt to monetize the data of the product’s users. 
 
Other issues receiving attention at the hearing included consumer data privacy, political bias, and numerous inquiries into how developers will prevent the product from being used by bad actors. 
 
Economic Mobility (7/17): On Wednesday, the Banking Subcommittee on Economic Policy held a hearing on the state of the American Dream, during which Members on both sides of the aisle raised concerns about the state of economic mobility, but attributed the crisis of the American dream to different causes. While Subcommittee Chairman Tom Cotton (R-AR) criticized economic competition from China, a lack of non-college job training, and the "the labyrinth of subsidies, regulations, and misguided priorities" hindering economic growth, Ranking Member Catherine Cortez Masto (D-NV) focused on a lack of access to affordable housing, student debt, and insufficient public sector investment in education and health.
 
Export Controls (7/18): On Thursday, the Banking Committee held a hearing examining the implementation of reforms to the US export controls regime, this time hearing outside perspectives from academia, the legal community, and former government officials. The hearing largely focused on the implementation of last Congress's Export Control Reform Act and Foreign Investment Risk Review Modernization Act, particularly as they relate to combating threats from China.
 
Judiciary Markup of AML Legislation (7/18): On Thursday, the Judiciary Committee held a mark up of pending legislation and nominees. Of note for the financial services industry, lawmakers advanced the Combating Money Laundering, Terrorist Financing, and Counterfeiting Act (S. 1883), bipartisan anti-money laundering legislation sponsored by Sens. Chuck Grassley (R-IA), Diane Feinstein (D-CA), John Cornyn (R-TX), Sheldon Whitehouse (D-RI), and Amy Klobuchar (D-MN). The bill, which is intended to modernize criminal money-laundering laws, prohibit state of the art counterfeiting methods, enhance enforcement tools, and increase transparency, advanced by a vote of 18-4.
 
Bills Introduced
 
ISA Student Protection Act (Young, Warner, Rubio, and Coons): Institutes a number of consumers protections for student borrowers with income share agreements (ISAs)—under which students pay a percentage of their income over a given time. The bill includes provisions exempting low-income individuals from payments, capping the percent of income a borrower can require, and making ISAs dischargeable in bankruptcy.
 
Stopping Corporate Inversions Act (Durbin and Reed): Attempts to prohibit corporate inversions by treating post-merger foreign corporations as domestic corporations in two circumstances: (1) if the shareholders of the former US corporation own more than 50 percent of the new combined foreign corporation; or (2) the affiliated group that includes the combined foreign corporation is managed and controlled in the United States and engages in significant business in the United States.
 
American Business for American Companies Act (Durbin and Reed): Makes permanent the annually renewed ban on federal contracts for inverted corporations.
 
National Flood Insurance Program Reauthorization and Reform Act (Menendez): Extends the National Flood Insurance Program (currently set to expire at the end of September) and institutes reforms to address waste, mitigation, and fiscal sustainability. Reps. Frank Pallone (D-NJ) and Clay Higgins (R-LA) introduced companion legislation in the House. The legislation's sponsors have been critical of the bipartisan flood insurance legislation put forth by House Financial Services Committee Chairwoman Maxine Waters (D-CA).
 
Stop Wall Street Looting Act (Warren, Baldwin, and Brown): Contains a number of provisions targeting the private equity industry, including how they use leverage, fee transparency, and imposes new regulations designed to "protect workers, customers, and communities". Companion legislation in the House is sponsored by Reps. Mark Pocan (D-WI) and Pramila Jayapal (D-WA).
 
Government Bailout Prevention Act (Young, Toomey, and Cotton): Prohibits any arm of the federal government from bailing out state or local governments in or facing bankruptcy.
 
Other Activity
 
Republican Letter to SEC: On Thursday, the Republican members of the Banking Committee sent a letter to SEC Chair Jay Clayton urging him to continue implementing policies that facilitate capital formation. Specifically, the letter: (1) describes the commission's recently adopted Regulation Best Interest as striking an "appropriate balance;" (2) urges Chairman Clayton to prioritize revising Regulation D to allow for general solicitation and advertising by sponsors like angel investor groups; (3) commends efforts to expand "test the waters" draft filings beyond emerging growth companies; and (4) calls for a re-examination of the inclusion of environmental, social, or political proposals on proxy ballots.
 
Brown-Murray on Student Lending MOU: On Thursday, Banking Committee Ranking Member Sherrod Brown (D-OH) and HELP Committee Ranking Member Patty Murray (D-WA) sent a letter to Education Secretary Betsy DeVos and CFPB Director Kathleen Kraninger calling on the agencies to promptly reestablish their memorandum of understanding on information sharing of complaints from student loan borrowers. The letter notes that the MOU, which was terminated in 2017, protects student borrowers and is required by law and raises concerns about conflicting explanations for its termination from the Department of Education and CFPB.
 
Last Week in the Administration
 
Budget Deal Reached in Principal; Negotiators Rush to Complete before Recess
On Thursday, Treasury Secretary Steven Mnuchin said that the White House and Congressional negotiators reached an agreement in principle on two-year budget deal that would lift the debt ceiling and set a $1.3 discretionary spending level months ahead of fall budgetary deadlines. However, talks are still ongoing over specific numbers, structural issues, and, importantly, offsets to get the budget to that number. Late Thursday, the White House gave House Democrats an extended list of $574 billion in offset options — including drug pricing provisions and proposed cuts found in the administration’s fiscal year (FY) 2020 budget — that was rebuffed by Speaker Nancy Pelosi (D-CA) Friday morning. Talks are expected to continue this week as negotiators look for a vote on a deal ahead of August recess.
 
Mnuchin Talks Libra, Crypto During Impromptu Press Conference
On Monday, Treasury Secretary Mnuchin held a press briefing on cryptocurrencies, during which he pointed to anti-money laundering compliance as Treasury’s primary concern with regards to virtual assets. To this end, he said that Treasury has “very serious concerns” that the proposed Libra cryptocurrency could be abused and added that Facebook or any other business will subject to the same FinCEN supervision as any other financial institution. When asked if he supported Facebook creating a cryptocurrency, he commented that to the extent the company can do so in compliance with BSA/AML regulations, “that’s fine [but] they have a lot of work to do to get to that place.” The Secretary declined to comment as to the timeline for Libra's regulatory approval.
 
NY Fed Walks Back Rate Cut Speculation
On Thursday, the New York Fed issued a statement attempting to rein in speculation of an impending interest rate cut after comments by FOMC Vice Chair John Williams were taken to signal a cut. During remarks at a conference in New York earlier that day, Mr. Williams said that central banks must "take swift action when faced with adverse economic conditions" and "keep interest rates lower for longer," comments which many observers took as confirmation that the Fed would cut rates at the July 30-31 FOMC meeting. However, following the remarks, a New York Fed spokesperson clarified that Mr. Williams comments were "academic" in nature and not intended to signal a monetary policy shift. Onlookers widely anticipate an interest rate cut at this month's FOMC meeting, especially after Fed Chairman Jerome Powell emphasized trade uncertainty and lagging inflation in his semi-annual testimony to Congress earlier this month.
 
CFPB Warns Against Elder Exploitation
On Wednesday, the Consumer Financial Protection Bureau issued an updated advisory urging financial institutions to report suspected instances of elder financial exploitation to appropriate authorities, including the filing of suspicious activity reports. The update builds on the Bureau's previous efforts on the subject and contains voluntary best practices to respond to elder financial exploitation. According to a 2019 CFPB report on the topic, victims over seventy of elder financial exploitation lose an average of $41,800, with seven percent of victims losing over $100,000 dollars.
 
CFPB Issues Debt Report
On Friday, the Consumer Financial Protection Bureau published a report finding that more than one in four consumers have a debt in collection by a third party debt collector. The report, "Market Snapshot: Third-Party Debt Collections Tradeline Reporting" indicated that 28 percent of surveyed consumers have at least one third-party collection trade line, and three quarters of such tradelines are for non-financial debt—including medical and telecommunications debt for which positive payment information is generally not furnished.
 
Tarbert Sworn in as CFTC Chair
On Monday, Heath Tarbert took office as the 14th Chairman of the Commodity Futures Trading Commission, replacing former Chairman Christopher Giancarlo. Confirmed in June, Mr. Tarbert previously served as Acting Under Secretary of the Treasury for International Affairs and takes the reins of CFTC as the commission tackles issues including digital currencies, international clearinghouse rules, and preventing speculation in commodities markets.
 
FASB Delays CECL for Private Banks, Credit Unions, and Small Lenders
On Wednesday, the Financial Accounting Standards Board (which is a private organization but recognized by the SEC as the standard setting organization for public company accounting) proposed delaying the required implementation of the maligned Current Expected Credit Loss (CECL) accounting standard for private companies, non-profits, and public lenders with annual revenue less than $100 million. Under the proposal, CECL won't take affect for affected institutions until 2023. The standard will still come into effect in 2020 for large public companies. CECL, which will require banks to immediately record expected losses when they make a loan, has sparked significant consternation from Members concerned that it would have a chilling effect on loan generation.
 
This Week's Schedule
Mon. (7/22)
  • No events scheduled.
Tues. (7/23)
  • Hearing: Senate Banking Committee on Cannabis Banking – 10:00 AM – The Senate Committee on Banking, Housing, and Urban Affairs will hold a hearing entitled "Challenges for Cannabis and Banking: Outside Perspectives." Details here.
  • Hearing: Senate Finance Committee on Elder Justice – 10:15 AM – The Senate Finance Committee will hold a hearing entitled "Promoting Elder Justice: A Call for Reform." Details here.
  • Hearing: Senate Judiciary Sub. on Oversight of Antitrust Agencies – 2:30 PM – 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.
Wed. (7/24)
  • Brookings Event on ICT – 10:00 AM – The Brookings Institute will host an event entitled "The future of ICT in the digital economy." Details here.
  • Hearing: House Budget Committee on Climate Change – 10:00 AM – The House Budget Committee will hold a hearing entitled "The Costs of Climate Change: From Coasts to Heartland, Health to Security." Details here.
  • Hearing: House Financial Services Committee on SunTrust/BB&T Merger – 10:00 AM – The House Financial Services Committee will hold a hearing entitled "The Next Megabank? Examining the Proposed Merger of SunTrust and BB&T." Details here.
  • Hearing: Senate Finance Committee on Nominations – 10:15 AM – The Senate Finance Committee will hold a nominations hearing to consider the nominations of Brent James McIntosh to be an Treasury undersecretary; Brian Callanan to be general counsel for the Treasury Department; Brian McGuire to be a deputy Treasury undersecretary; and Travis Greaves to be a judge of the U.S. Tax Court. Details here.
  • Hearing: House Small Business Committee on TCJA – 11:30 AM – The House Small Business Committee will hold a hearing entitled “Is the Tax Cuts and Jobs Act a Help or Hinderance to Main Street?” Details here.
Thurs. (7/25)
  • SEC Investor Advisory Committee Meeting – 9:00 AM – The Securities and Exchange Commission will hold a meeting of its Investor Advisory Committee. Details here.
  • Member Day Hearing: House Energy and Commerce Committee – 10:00 AM – The House Energy and Commerce Committee will hold its Member Day hearing for the 116th Congress. Details here.
  • Hearing: House Financial Services Task Force on Credit Scoring – 10:00 AM – 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.
  • Hearing: House Education and Labor Sub. on Labor Laws – 10:00 AM – The House Education and Labor Subcommittee on Health, Education, Labor, and Pensions will hold a hearing entitled "Protecting the Right to Organize Act: Modernizing America’s Labor Laws." Details here.
  • Hearing: House Ways and Means Committee on Social Security – 10:00 AM – The House Ways and Means Committee will hold a legislative hearing on The Social Security 2100 Act. Details here.
  • FDIC/CFPB Webinar on Elder Financial Abuse – 2:00 PM – 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.
Fri. (7/26)
  • No events scheduled.