TRP Financial Services Report

The Book of Job tells us that the “Lord Giveth and the Lord Taketh away.”  While far be it from us to compare the current occupant of the White House with Almighty, this past week offered a classic example of how the White House, and therefore to some extent the Democratic party, is trying to balance the politics of its relationship with the far left.  On Tuesday the White House gave its left wing a huge victory with a far reaching Fiduciary Standard proposal from the Department of Labor that appears like it will be anathema to many in the retirement and broker-dealer industries.  Then on Thursday leaders of the Senate Finance and House Ways and Means Committee announced that they had reached a deal to move Trade Promotion Authority (TPA) forward.  Although the announcement came from Congress, no agreement could have been reached without the White House’s blessing and so only two days after giving its allies in Labor and the far left a huge win, the White House took out those same allies on one of their most important issues.

While neither of these issues are finalized and the legislative process creates opportunities for changes (either on the margins or more substantive edits) the juxtaposition of the two announcements shows how cutthroat the business of politics can be. 

Near Term:

• House will take up a CFPB reform bill (H.R. 1195, the CFPB Advisory Boards Act) that was reported out of the Committee on a strong bipartisan vote of 53-5, but which will fail to garner significant, if any Democratic support on the floor because of a change made in the Rules Committee that would prevent the CFPB from receiving funds from the Federal Reserve, as well as some tax related provisions that were added as well.  Later in the week the House will take up a couple of cyber security related bills. 
• The Financial Services Committee has two hearings scheduled for this week, one from the Task Force to Investigate Terrorist Financing and the other by the Financial Institutions Subcommittee on Regulatory Burdens from the Regulators Perspective.
• Senate Banking Committee holds two hearings focusing on the Transportation Reauthorization and the Committee’s areas of jurisdiction.  

 
Further Out:

• During the week of April 27^th the Senate Banking will hold two hearings focused on Insurance Issues (4/28 and 4/30) while HFSC is also expected to hold a hearing on the issue too.
• Senate Banking Committee intends to meet on May 14^th to consider legislation that would provide regulatory relief to regional banks as well as impose changes on FSOC.
• Senate Banking will hold two hearings (6/2 and 6/4)  on Ex-Im – though it is unclear whether these hearings will occur after the House holds a secret vote of the Republican Conference to determine
  • The remaining statutorily imposed deadlines for the year are:
    • May 31: Surface Transportation
    • June 1: USA PATRIOT Act
    • June 30: Export-Import Bank
    • Sept. 30: CHIP Funding
    • Sept. 30: Child Nutrition & WIC
    • Sept. 30: FAA Authorization
    • Sept. 30: End of the Federal Fiscal Year
    • End of September or October: Extraordinary Measures for dealing the Debt Ceiling run out and default becomes possible.

House
House Passes Series of Dodd-Frank Reforms
On Tuesday the House of Representatives passed a series of Dodd-Frank reforms and financial services related legislation, though none of the more controversial measures passed with a veto-proof majority.  These bills included H.R. 650, the Preserving Access to Manufactured Homes Act that would modify the definition of a high-cost mortgage and mortgage originator for manufactured homes and which passed 263-162.  As well as H.R. 685, the Mortgage Choice Act, which passed 286-140, five votes shy of the 2/3rds of the House necessary to sustain a Presidential veto.
 
Ex-Im Bank Hearing
On April 15, the House Financial Services Committee's Subcommittee on Monetary Policy and Trade held a joint hearing with the Committee on Oversight and Government Reform's Subcommittee on Health Care, Benefits and Administrative Rules entitled, “Oversight of Efforts to Reform the Export-Import Bank of the United States.  Witnesses including Ex-IM President Fred Hochberg, as well as the bank’s IG office and the GAO.  The hearing did not appear to  provide any substantial evidence to suggest that proponents of renewing the Bank’s charter had generated any traction toward generating more support in the House.  During the hearing, Rep. Denny Heck, a leading proponent for renewing Ex-Im noted that there were only 32 more legislative days until the charter expired, in an effort to highlight the urgency.  Ranking Member Waters used her opening statement to complain that Chairman Hensarling had not yet scheduled a hearing on the Bank, though shortly after the hearing, it was announced that the full committee would hear from Hochberg on the Bank next week.
 
Financial Institutions Subcommittee Hears from Non-Depository Institutions about CFPB
On Wednesday, the House Financial Services Committee Subcommittee on Financial Institutions and Consumer Credit held a hearing to examine non-depository financial institutions, where the Consumer Financial Protection Bureau (CFPB) came under fire from Republicans over the regulatory burden shouldered by nonbanks such as payday lenders.  Rep. Randy Neugebauer (R-TX), who chairs the Subcommittee, said the hearing was intended to forge a better understanding of what the effects of federal regulation and supervision mean for industries historically regulated at the state level.  Neugebauer was joined by some Democrats—including Reps. David Scott (D-GA) and Brad Sherman (D-CA)—in exploring his bill to replace the agency’s director position with a five-person commission.  Other issues that came up during the hearing were small dollar lending, TRID implementation and the CFPB’s continued efforts to alter the indirect auto lending industry via guidance and enforcement. 
 
On the issue of auto lending, significant attention was given to the Charles River Associates study that questioned the underlying methodology the CFPB was using to base its allegations of disparate impact in the industry.  Justin Friedman of the American Financial Services Association noted that Charles River study concluded that the Bureau’s proxy for race is off “two out of five times” – double the rate acknowledged by the CFPB itself, and that applying basic statistical controls, the disparity alleged by CFPB between the amount of dealer reserve charged to minorities and non-minorities is actually not supported by data.   
 
House and Insurance Subcommittee Holds Hearing on Future of Housing
On April 16, the House Financial Services Committee's Subcommittee on Housing and Insurance held a hearing on the “The Future of Housing in America: Increasing Private Sector Participation in Affordable Housing.” The hearing focused on the need for affordable housing, the Moving to Work (MTW) program, whether public/private partnerships are important in affordable housing, and whether there should be a consolidation of federal housing programs.   Witnesses for the hearing were: Ms. Adrianne Todman, Executive Director, District of Columbia Housing Authority;  Mr. Brad Fennell, Senior Vice President, WC Smith; Mr. James M. Evans, Director, Quadel Consulting and Ms. Sheila Crowley, President and Chief Executive Officer, National Low-Income Housing Coalition.
 
Chair White Testifies Before Appropriations Subcommittee
On Wednesday April 15^th SEC Chair Mary Jo White testified before the House Appropriations Financial Services Subcommittee.  As expected, she received some questions about the SEC’s intentions to move forward on its own Fiduciary Standard for broker-dealers under Section 913 of Dodd Frank and how that effort dovetails with the DOL Rule that was released the day before.  [For more on the DOL Rule see below]  In addition, Chair White and Rep. Kevin Yoder engaged in a lengthy exchange about ECPA reform and how the SEC and other agencies subpoena ISPs when seeking evidence contained in emails.
 
Financial Services Committee Keeps Pressure on the Fed
According to Bloomberg, on Wednesday, House Financial Services Chairman Jeb Hensarling and Oversight and Investigations Subcommittee Chairman Sean Duffy sent a letter to Fed Chair Janet Yellen demanding more information about how the FOMC deliberations were published in a research report a day before the Fed publicly released the minutes of the meeting.  This letter follows up on previous efforts by both Duffy and Hensarling on this issue and specifically asks the Fed to provide the Committee with the names of the “small few” employees who the Fed found had prior contact with Medley, as well as the names of all officials who attended the September 2012 FOMC meeting at issue.
 

Banking Committee hears from Industry on Regulatory Burdens limiting Mortgage Credit
On Thursday, April 16^th the Senate Banking Committee held a hearing entitled, “Regulatory Burdens to Obtaining Mortgage Credit.”  Witnesses included: Mr. Tom Woods, President, Custom Woods Homes; Mr. Chris Polychron, Executive Broker, First Choice Realty; Mr. J. David Motley, President, Colonial Savings;  and Ms. Julia Gordon, Director of Housing Finance and Policy, Center for American Progress.  The hearing continued to highlight how Democrats and Republicans generally view the success of Dodd-Frank, as Chairman Shelby expressed his concerns that the regulatory burdens created by Dodd-Frank were impeding consumers access to credit while Ranking Member Brown praised the law for doing away with much of the subprime predatory lending that ultimately created the financial crisis and cautioned against changes to the law that would weaken consumer protections. 
 
Banking Committee Sets up Investigation Subcommittee
On Tuesday, Reuters reported that the Senate Banking Committee Shelby had set up an investigative team, comprised of three-staff members and that Ranking Member Brown had also hired the former chief investigator of the Permanent Subcommittee on Investigations.  The article implied that the Republican team was likely to focus its attention on the Federal Stability Oversight Council (FSOC) as well as reports of fraud with Hurricane Sandy related insurance payments.  Regardless of the agenda, the announcement is a clear sign that Chairman Shelby intends to conduct more investigations than previous Chairmen.
 

Administration Releases Long-Awaited Fiduciary Standard Rule
On Tuesday, just over a month after the President announced that the Department had sent the rule to OMB, the Department announced its long-awaited rule to change how the legal standard that governs how people receive retirement advice.  This rule is separate from the SEC’s effort to impose a fiduciary standard across the entire broker-dealer industry under section 913 of the Dodd Frank, but if implemented as proposed, it would still have a tremendous impact on various segments of the retirement industry.   While the rule was announced to much fanfare, and initial comments were reserved, the breadth of the rule, which itself comes in at over one hundred pages, not including several proposed “best in class” models for exemptions that industry could use which total a couple hundred of additional pages combined with the fact that ERISA law is exceptionally dry, has resulted in a growing sense of the negative impact that the rule, if adopted per se, will have on the industry (or perhaps not).  What is clear is that this issue will be at the forefront of the retirement industry for the next 75 days and then perhaps into the fall.
 

On Tuesday, April 21^st at 10:00am in 538 Dirksen the Senate Banking Committee will hold a hearing entitled, “Surface Transportation Reauthorization: Building on the Successes of MAP-21 to Deliver Safe, Efficient and Effective Public Transportation Services and Projects.”
 
On Wednesday, April 22^nd at 10:00am in HVC-210, the House Financial Services Committee Task Force to Investigate Terrorism Financing will hold a hearing entitled, “A Survey of Global Terrorism and Terrorist Financing.”
 
On Wednesday, April 22^nd at 11:00am in 2360 Rayburn the Committee on Small Business will hold a hearing entitled, “Small Business, Big Threat: Protecting Small Businesses from Cyber Attacks.”
 
On Thursday, April 23^rd at 9:15am in HVC-210, the Financial Institutions and Consumer Credit Subcommittee will hold a hearing entitled, “Examining Regulatory Burdens –Regulator Perspective.”
 
On Thursday,   April 23^rd at 10:00 am in 538 Dirksen the Senate Banking Committee will hold a hearing entitled, “Surface Transportation Reauthorization: Building on the Successes of MAP-21 to Deliver Safe, Efficient and Effective Public Transportation Services and Projects.”