Insights

TRP Financial Services Report

June 8, 2015

June may be the month that the scales fell off the eyes of those who thought that previous success (i.e., SGR) would be indicative of smoother sailing in Congress in 2015.  While the reauthorization of the Patriot Act created a bumpy road for McConnell, it may have just been a precursor for the fall.  And, based on the attention the media paid to Senator Rand Paul for bucking Leader McConnell on the Patriot Act reauthorization, the other Republican Senators running for President might be licking their chops at the possibility of generating similar attention on their pet issues.   That is when Senator Cruz and others will seek to maximize their negotiations on renewing the debt ceiling (assuming that once again raising the debt limit and funding the government are conjoined legislatively.)  Complicating this is the fact that currently Democrats intend to block the Senate from considering all spending bills in an effort to increase domestic spending in the same way Republicans have attempted to get around the sequester caps on military spending.  With the far left and the far right starting to take names on Ex-IM and TPA, everything is pointing to significant turbulence as Congress tries to complete its business for the year. 

Looking Ahead
Near Term

  • The House is scheduled to finish consideration of the THUD spending bill and is expected to take up the defense appropriations bill.  In addition, The CFTC reauthorization will come up under the threat of Presidential veto.  And in what can only be viewed as a defeat for proponents of the internet sales tax legislation, the House is going to take up H.R. 235, a permanent extension of the Internet Tax Freedom Act that does not include the more controversial internet sales tax provision.
  • With supporters of the trade bill growing more bullish on their likelihood of passage, the House is expected to move on TPA before the end of the month.  While it was rumored that the House may take up the TPA bill this week, and that could happen once Leadership has the votes, there is a chance that vote could slip into next week.  
  • The Senate will continue to work through the Defense Authorization Bill, with votes on amendments to the package expected throughout the week.  

 
Further Out

  • Senator McConnell is talking about an aggressive calendar to deal with outstanding items, including many of the ones with must pass deadlines outlined below.
  • The House will continue to move its appropriations bills, but with Senate Democrats unified for the time being in opposing the motion to proceed to floor consideration of the Senate’s appropriations bills it is unclear how the Senate will pass its bills by the September 30th deadline. 
  • The remaining statutorily imposed deadlines for the year are:

    • June 30: Export-Import Bank
    • July 31st Surface Transportation
    • 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.

The Past Week
Legislative Branch
House

Hensarling Holds Ex-Im Hearing – And its Everything We Expected
On Wednesday, the House Financial Services Committee held a hearing entitled, “Examining the Export-Import Bank's Reauthorization Request and the Government's Role in Export Financing.”  There were two panels at the hearing.  The first had Ex-Im President Hochberg and the Bank’s Inspector General, while the second was comprised of various stakeholders.  As expected, opposition and support for the bank was basically drawn to party lines, with only Rep. Steve Fincher (R-AR) being the only Republican who expressed vocal support for the bank. 
 
Housing and Insurance Subcommittee Holds Hearing on Flood Insurance
On June 2nd the Housing and Insurance Subcommittee held a hearing entitled, “The National Flood Insurance Program: Oversight of Superstorm Sandy Claims” where Mr. Brad Kieserman, Deputy Associate Administrator, Insurance, Federal Insurance and Mitigation Administration, Federal Emergency Management Administration was the sole witness.  During the hearing Chairman Luetkemeyer (R-MO) pressed the witness about his concerns of fraudulent claims and negligence by FEMA and used that position as justification for further reform of FEMA and the National Flood Insurance Program.   Democrats, like Reps. Velasquez (D-NY) and Meeks (D-NY) used their time to question FEMA about the process for pending reviews of claims.
 
Hensarling Amendment to CJS Bill Prohibits DOJ From Bringing Certain Disparate Impact Cases
On Wednesday, by a vote of 232-196, the House approved an amendment by Rep. Scott Garrett (R-NJ) that would prohibit the Department of Justice from using any funds to bring Fair Housing Act enforcement actions that rely on an allegation of liability under the HUD Disparate Impact Rule.  The Supreme Court is expected to rule in the near future on Texas Department of Housing and Community Affairs v. The Inclusive Communities Project, Inc  a case that could also remove the Department of Justice’s ability to prosecute alleged violations of the Fair Housing Act under a disparate impact theory. 
 
Waters Urges President to Prevent Financial Reforms from Being Included in TPP
On June 4th, HFSC Ranking Member Maxine Waters (D-CA) sent a letter to President Obama, which among other things, requested the President ensure that “at a minimum, the TPP’s investment terms, including investor-state settlement dispute settlement, will not apply to financial measures.”  In addition, Water’s expresses her clear distrust of the ISDS process and a weariness that the “prudential exemption” traditional used to protect individual country’s financial regulation may hold up under TPP.
 
Ed and Workforce Continues to Press DOL for Evidence of Coordination with SEC
On June 2nd, Committee Chairman John Kline (R-MN) and Phil Roe (R-RN), the Chairman of the Subcommittee on Health Employment Labor and Pensions sent a letter to the Department of Labor where they reiterated their request to Secretary Perez to send “all documents and communications” made after September 19, 2011, including those that raise any concerns expressed by either DOL or the SEC, about the now pending fiduciary rule.  The letter requests all information by June 16th.
 
New Dems Send Letter to SEC on Market Structure
On Wednesday, eleven members of the House New Dems caucus sent a letter to SEC Chair White o highlight areas of equity market structure that would benefit from empirically-driven reforms to enhance transparency for investors and better facilitate capital formation.  The letter also addresses the need for heightened transparency for Alternative Trading Systems and improvements to the Securities Information Processors.  The effort was lead by Rep. Bill Foster (D-IL) and he was joined by John Carney, Denny Heck, Jim Himes, Gregory Meeks, Patrick Murphy, Ed Perlmutter, David Scott, Terri Sewell, Kyrsten Sinema, and Juan Vargas.
 
Senate
Banking Committee hears from all sides of Export-Import Debate
Last week the Senate Banking Committee held two long awaited hearings about renewing the Export-Import Bank’s charter.  Once again, there were few surprises during the hearing, as most participants positions have been well defined, though some observers were surprised by how Senator Warren, an announced supporter of the bank, attacked the bank’s commitment to financing small business during the first of the two hearings.   Also, during the second hearing on June 4th, Committee Chairman Richard Shelby (R-AL) made it clear that he did not support a long-term reauthorization of the Ex-Im Bank due to the bank’s failures in risk management.  While conventional wisdom that at this point it seems likely that the bank’s charter will, at least temporarily, expire before potentially being added to some other “must-pass” legislation the path towards a full reauthorization still appears murky.  
 
Democrats Unveil Alternative to Shelby Bill
On Wednesday, Ranking Members Waters and Sherrod Brown, along with Senator Heitkamp and Rep. John Carney introduced the “Community Lender Regulatory Relief and Consumer Protection Act of 2015.”  The legislation, which is essentially the same as the substitute amendment that Senator Brown offered during the mark-up,  has the full support of all Democrats, including the more moderate members of the Committee, who were represented by Heitkamp and Carney.  However, according to a BGOV report, there are still differences of opinion within the issue of reg reform as Senator Brown is in favor of raising the SIFI threshold for banks while Ranking Member Waters is content to leave it at $50 million.
 
Merkley Calls for Stricter Rules on Payday Lenders
On June 4th, Senator Jeff Merkley (D-OR) was joined by 31 of his Democratic colleagues in sending a letter to the CFPB urging “the strongest possible rules to end the damaging effects of predatory lending.”  The CFPB is in the process of a rulemaking on small dollar lending, which will encompass payday as well as other loans.  The full list of signers includes:  Sens. Dick Durbin (D-IL), Chris Coons (D-DE), Tammy Baldwin (D-WI), Richard Blumenthal (D-CT), Cory Booker (D-NJ), Barbara Boxer (D-CA), Sherrod Brown (D-OH), Maria Cantwell (D-WA), Ben Cardin (D-MD), Dianne Feinstein (D-CA), Al Franken (D-MN), Kirsten Gillibrand (D-NY), Martin Heinrich (D-NM), Mazie Hirono (D-HI), Tim Kaine (D-VA), Angus King (I-ME), Amy Klobuchar (D-MN), Patrick Leahy (D-VT), Edward J. Markey (D-MA), Chris Murphy (D-CT), Gary Peters (D-MI), Jack Reed (D-RI), Bernie Sanders (I-VT), Brian Schatz (D-HI), Chuck Schumer (D-NY), Jeanne Shaheen (D-NH), Debbie Stabenow (D-MI), Tom Udall (D-NM), Elizabeth Warren (D-MA), Sheldon Whitehouse (D-RI), and Ron Wyden (D-OR)
 
Warren Takes On Chair White
On Tuesday, Senator Elizabeth Warren (D-MA) sent a long letter to SEC Chair Mary Jo White criticizing the Chair personally for a lack of leadership and questioned her commitment to pursuing an effective and robust enforcement and regulatory agenda.  The SEC immediately pushed back on the Senator’s allegations; however, with two seats coming open in the next few months, some see Warren’s attack as the first salvo at attempting to shape a more aggressive Commission.
 
Select Highlights from the Administration
Consumer Financial Protection Bureau (CFPB)
CFPB Takes on the Fonz
On Thursday, the Consumer Financial Protection Bureau (CFPB) released a focus group study finding that reverse mortgage ads can create “false impressions.” According to the study, many viewers of reverse mortgage ads were confused about reverse mortgages being loans, and were left with incorrect view that they are a government benefit.  Further, CFPB concluded that many consumers were left with false impressions that reverse mortgages ensure they can stay in homes for rest of their lives.  In conjunction with the study, the Bureau also released a new advisory warning consumers that reverse mortgage ads do not tell the “full story.” CFPB Director Richard Cordray said in releasing the story that “it is important that advertisements do not downplay the terms and risks of reverse mortgages or confuse prospective borrowers.”
 
CFPB Denies Delay of TRID
Despite receiving a bipartisan letter signed by more than 250 members of Congress, last week the CFPB made it clear that it did not intend to implement a grace period for the TILA / RESPA Integrated Disclosure Rule (TRID) which will go into effect on August 1st.   However, the Bureau did attempt to calm industry concerns by noting that it would take into account “good faith” efforts made by lenders. 
 
Office of the Comptroller of the Currency (OCC)
OCC Issues Mid-Year Status Report
On Wednesday, the OCC issued its mid-year status report on its operating plan for FY15.  The report, which among things highlights the OCC’s supervisory efforts during the first half of the year, also makes clear that the OCC will continue to focus on leveraged loans and indirect auto lending among the specific supervisory initiatives it intends to undertake during the remainder of the fiscal year. 
 
Next Week’s Schedule
On Thursday, June 11th at 10:00am in 2128 Rayburn the House Financial Services Committee will hold a hearing entitled, “The Future of Housing in America: Oversight of the Department of Housing and Urban Development”.
 
On Thursday, June 11th at 2pm in 2128 Rayburn the Financial Institutions and Consumer Credit Subcommittee will hold a hearing entitled, “Examining Legislative Proposals to Preserve Consumer Choice and Financial Independence.”