Financial Services Report

October 5, 2015

Our Take
Looking Ahead
Near Term

  • Republican Conference elections on Thursday (though maybe just for Speaker)
  • House will take up a series of Financial Services related bills on the suspension calendar on Tuesday including:

    • H.R. 2091 – Child Support Assistance Act of 2015
    • H.R. 1553 – Small Bank Exam Cycle Reform Act of 2015
    • H.R. 1525 – Disclosure Modernization and Simplification Act of 2015
    • H.R. 3032 – Securities and Exchange Commission Reporting Modernization Act of 2015
    • H.R. 1839 – Reforming Access for Investments in Startup Enterprises Act of 2015
  • House will also consider the Homebuyers Assistance Act under a rule on Wednesday.  This bill would statutorily create a safe harbor during the implementation of the new TRID rules.
  • The Senate is scheduled to take up National Defense Authorization Act (NDAA) over vociferous Democratic objects potentially teeing up a Presidential veto of the NDAA.

Further Out

  • Debt Ceiling set to expire on November 5th
  • Transportation bill expires on October 30th
  • Funding for Federal Government expires on December 11th.

The Past Week

Legislative Branch
Congress Avoids Fall Shut Down – Pushes Most Fights till December
On Wednesday, by a vote of 277-151, the House agreed to the Senate’s spending measure to keep the Government’s doors open until December 11th.  With only 91 Republicans voting for the spending bill, it needed all of the 186 Democrats who voted yes.  The fact that 151 Republicans voted against the bill may not bode well for keeping the government open in December, though perhaps the Christmas spirit will prevail, though on Friday the President made it clear he would not sign another short term spending bill at the end of the year.  This may ultimately require Congress to pass a long-term CR, or another “Cromnibus.”
Cordray Offers Semi-Annual Testimony to HFSC
On Tuesday, Consumer Financial Protection Bureau (CFPB) Director Richard Cordray delivered the Bureau’s semi-annual report to Congress. During the hearing, members raised a variety of issues including, the CFPB’s continued “indirect” regulation of the auto lending industry, pre-dispute arbitration, and small-dollar lending.  The three hour hearing was, at times, as partisan as ever.  In his opening statement Cordray defended the Bureau and attempted to rebut Republican claims by using statistics that showed an improved economy and little impact from CFPB regulation.  For example, he noted that there has been a 45% increase in auto loans since 2011 and that community bank lending is up 8% from last year.   He also noted that the CFPB intends to further engage on medical debt and arbitration agreements in the coming year.  During the hearing, Cordray received questions from members on both sides of the aisle about the CFPB’s new TILA-RESPA rules, but did little to allay the concerns of lawmakers, saying that enforcement beginning October 3 would only be “diagnostic and corrective” in nature  for an unspecified initial period.  It was not surprising that the House scheduled a vote on a statutorily imposed safe harbor for the so-called “TRID” implementation following Corday’s appearance.   
Housing and Insurance Subcommittee Hears from Regulators
On Tuesday, f the House Financial Services Housing and Insurance Subcommittee held a hearing entitled, “The Impact of Domestic Regulatory Standards on the U.S. Market.”  The panel was comprised of all the major insurance regulators, including the Fed, FIO, FSOC and state insurance commissioners.  During the hearing, members discussed the setting of domestic and international capital standards, the designation of systemically-important financial institutions (SIFIs), the release of higher loss absorbency (HLA) requirements, and the impact of a covered agreement on reinsurance collateral with the European Union (EU). In addition, there appeared to be partisan agreement on the sequencing of domestic and international capital standards and the need for an “exit ramp” to SIFI designation.
Ways and Means Subcommittee Holds Hearing on Fiduciary – Members Pledge to Find Legislative Solution to DOLs Best Interest Standard
On Wednesday, the Oversight and Investigations subcommittee held a hearing on the Department of Labor’s fiduciary rule.  While the hearing provided a platform for those opposed to the rule to continue to espouse their beliefs, it was more noticeable for the fact of the genesis of a bipartisan agreement to legislate a best interest standard.  During the hearing Rep. Richard Neal (D-MA) shared his view of how it seemed that everyone was in agreement on the need to get the best interest standard correct and asked the subcommittee Chairman, Peter Roskam (R-IL) whether he would support working together to come up with legislation to that effect.  Roskam immediately agreed and based on media reports afterwards it appeared that the exchange was completely unscripted or pre-rehearsed and the two members are still working out what such a framework would look like. 
Warren Leads Attack Against Academics Opposed to Fiduciary Rule
Within the course of 48 hours the full political power of Senator Elizabeth Warren was felt amongst Washington’s intellectual circuit as one letter she sent to the Brookings Institute questioning the academic independence of a scholar with 40 years’ experience with that august institution was apparently enough to cause Brookings to cut ties with Dr. Robert Litan for research he conducted that ran contrary to the Department of Labor’s analysis supporting the fiduciary rule.  While some have questioned what the incident means for the future of think tank research, the more immediate lesson can be seen in how committed the Administration is to protecting the fiduciary rule.  While the Department of Labor continues to indicate the final rule will incorporate some changes suggested by the litany of public comments it has received, it is unclear how substantive those changes will be.  With litigation on the rule all but certain, Warren’s effort against Litan’s research could be viewed as a preemptive attack to discredit the analysis, which would have (and still may be) used by the plaintiffs.
Shelby Says No Fed Nominees Until WH Nominates Fed Supervision Position
On Tuesday, Banking Committee Chairman Shelby announced that he would not move any nominees for the Fed through his committee until the White House nominates someone for the Vice Chair of Supervision position.  The position has remained vacant, but has effectively been served by Fed Governor Tarullo.  There are currently two vacancies at the Fed that have been pending for almost six months. 
Shelby Asks Regulators to Shed Light on Financial Stability Board
On Wednesday, Sen. Richard Shelby (R-AL) sent a letter to the Treasury Department, Federal Reserve, and the Securities and Exchange Commission (SEC) asking the regulators to shed light on the process of designating institutions as systemically important financial institutions (SIFIs).  In his letter Shelby expressed concerns about the influence of the Financial Stability Board (FSB) in international regulatory discussions.  In the letter, Shelby poses questions about how the FSB, affecting U.S. companies, with his primary concern appearing to be how the FSB is reviewing and designating U.S. entities as systemically risky.
Finance Committee Examines Puerto Rican Financial Crisis
On Tuesday, the Senate Finance Committee held a hearing to examine the Puerto Rican bond crisis.  During the hearing, Finance Committee Chairman Charles Grassley expressed his support for putting a federal control board in place to oversee Puerto Rico’s finances as well as his belief that allowing municipal bankruptcy in Puerto Rico won’t solve all its problems.
Select Highlights from the Administration
Lew Advances Debt Ceiling Debate
On Thursday, Treasury Secretary Jack Lew notified Congress that the Federal Government would exhaust its reserves that have prevented it from defaulting on its loan obligations on or around November 5th.  The news accelerated the need to pass a debt ceiling relief measure, which until Lew’s announcement, had been believed by some to be able to be resolved as part of the end of the year spending bill.  Now it seems it will need to be part of whatever “going away” package Speaker Boehner is able to negotiate with the White House and the Senate, but which could include the transportation bill and a renewal of the Export-Import Bank.
FIO Issues Third Industry Report
On Monday, Treasury’s Federal Insurance Office (FIO) released its third annual report on the state of the Insurance industry in the United States.  Among other things, the report highlights regulatory developments that could impact the industry, including recent developments at the International Association of Insurance Supervisors (IAIS).  It also examined the growth of the cyber insurance market and encouraged underwriters to continue to improve on pooling data on the risks related to a cyber attack.
Consumer Financial Protection Bureau (CFPB)
CFPB Hits Another Auto Lender in Quest to Modify Dealer Compensation
On Monday, the CFPB announced another auto lender enforcement action, this time against Fifth Third.  The announcement came the day before CFPB Director Cordray testified before the House Financial Services Committee and took a lot of heat on the Bureau’s indirect effort to change the indirect lending model for the auto financing market.
CFPB leads Joint Agency Effort to Create Principles for Student Loan Servicing
On Tuesday, the CFPB, released a report outlining what they described as “outlining widespread servicing failures reported by both federal and private student loan borrowers.” At the same time the Bureau, along with the Department of Education and the Treasury released a joint framework of principles for servicers to abide by in order to improve the loan servicing process.  The framework is comprised of four principles: (1) Create consistent, industry-wide standards for the entire servicing market; (2) Hold servicers accountable; (3) Provide access to clear, timely information; and (4) Improve publicly available data.
Next Week’s Schedule
On Wednesday, October 7th at 10:00 AM in Room 1100 Longworth, the Ways and Means subcommittee on Oversight will hold a hearing entitled “The Rising Costs of Higher Education and Tax Policy.”
On Wednesday, October 7th at 11:00am in 2360 the House Committee on Small Businesses will hold a hearing entitled, “The EMV Deadline and What it Means for Small Businesses.”
On Thursday, October 8th at 9:00 AM in 2128 Rayburn, the House Financial Services is having a hearing entitled “The Future of Housing in America: 50 Years of HUD and its impact on Federal Housing Policy”