Financial Services Report (10/28)

The House of Representatives is set to take up a couple of bills under the Suspension Calendar this week – including the COUNTER Act, which was also included in the Beneficial Ownership Bill taken up last week (see more on that below) as well as a bill sponsored by McHenry and Waters on Crowdfunding.

 

The House Financial Services Committee is scheduled to meet for two days to mark-up a series of bills, including an extension of TRIA and the Export Import Bank. Additionally, the committee will hold a hearing on the history of discrimination against the LBGTQ+ community in terms of access to financial services.

 

The Senate is expected to continue to work through its first mini-bus, containing spending bills for Agriculture, Commerce-Justice-Science, Interior-Environment, and Transportation-HUD.

From the Campaign Trail

 

Another candidate called it quits last week when Rep. Tim Ryan (D-OH) dropped out of the race on Thursday. The Rustbelt Congressman's departure was not surprising given stagnant polling and recently failure to qualify for the debates. Congressman Ryan's will likely be the first of many as the field is expected to thin more after the Democratic National Committee announced increased participation thresholds for the next debate.

 

Now candidates having to reach 4-percent support in at least four DNC-approved polls nationally or in early-voting states or receive 6-percent support in two qualifying early state polls, as well as receive contributions from 200,000 unique donors. This is a significant increase from previous thresholds and will likely ensure that only the top-five candidates will be eligible to participate.

 

The RealClearPolitics average of polls for 10/16-10/22 was steady over the previous week and show the race for the Democratic nomination largely a three-horse race. Vice President Joe Biden is at 27 percent, Sen. Elizabeth Warren (D-MA) is at 22 percent, Sen. Bernie Sanders (I-VT) is at 17 percent, South Bend Mayor Pete Buttigieg is at 7 percent, and Sen. Kamala Harris (D-CA) is at 5 percent.

 

Last Week in the House

The Floor

 

The House had an abbreviated work week last week to accommodate services commemorating the late House Oversight Chairman Elijah Cummings (D-MD).

 

On Tuesday, the House passed the Corporate Transparency Act (H.R.2513), which would require companies to disclose their true, beneficial owners to the U.S. Treasury. Introduced by Rep. Carolyn Maloney (D-NY), the bill aims to prevent anonymous “shell companies” from facilitating money laundering and other criminal activities.

 

The legislation also incorporates Reps. Emanuel Cleaver's (D-MO) and Steve Stivers' (R-OH) COUNTER Act (HR 2514), which contains a host of provisions intended to modernize and close loopholes in the US anti-money laundering regime and passed the Financial Services Committee unanimously in May.

 

However, the bill split industry, with the banking lobby supporting while others, such as NFIB were opposed. Ultimately, 25 Republicans joined nearly all Democrats in passing the legislation on a 249-173 vote. While the Trump administration issued a statement offering qualified support to the legislation and Banking Committee Chairman Mike Crapo (R-ID) has signaled openness to anti-shell company legislation, the bill's outlook in the Republican-controlled Senate remains unclear.

 

Also last week, the House passed the The Stopping Harmful Interference in Elections for a Lasting Democracy (SHIELD) Act, legislation intended to secure our nation’s elections and protect American democracy from foreign influences. Despite that loft goal the bill became marred in partisan jockeying and passed on a near party-line vote, 227-181 vote.

 

Hearings and Markups

 

Housing Finance (10/22): On Tuesday, the Financial Services Committee held a hearing on housing finance reform featuring Treasury Secretary Steven Mnuchin, HUD Secretary Ben Carson, and FHFA Director Mark Calabria. Democrats during the hearing were broadly critical of housing reform plans proposed by HUD and Treasury, which while distinct, would both aim to end government conservatorship of Fannie Mae and Freddie Mac and scale back government involvement in housing markets.

 

Chairwoman Maxine Waters (D-CA) called the Administration's housing finance proposal"disastrous" for housing markets and warned that ending conservatorship without legislative action to provide an explicit federal guarantee would block access to affordable mortgages for many Americans. She added that the proposals fail to meet Democratic housing priorities including maintaining access to the 30-year fixed-rate mortgage, ensuring sufficient capitalization to protect taxpayers and financial stability, and improving access to affordable housing.

 

Minority Depository Institutions (10/22): On Tuesday, the Financial Service Subcommittee on Consumer Protection held a hearing examining the challenges facing minority depository institutions. Chairing the hearing, Rep. Greg Meeks (D-NY) noted the importance of MDI's in providing services to underserved areas and promoted his Ensuring Diversity in Community Banking Act (discussion draft) as a means to improving MDI access to capital.

 

Facebook (10/23): On Wednesday, Facebook CEO Mark Zuckerberg appeared before the Financial Services Committee at a hearing examining the proposed Libra digital currency and other questions that Facebook poses to the US financial system. Committee Democrats during the hearing were broadly skeptical of a Facebook-led financial product, raising concerns with Libra and Facebook ranging from privacy and security to racial discrimination and content moderation. Committee Republicans, in contrast, were careful to note Facebook’s financial success and the importance of technical innovation prior to diving into what were generally diplomatic lines of inquiry. Following numerous lawmaker inquiries on the subject, Mr. Zuckerberg repeatedly pledged that Libra will not launch until it has approval from the necessary regulatory agencies. 

 

Bills Introduced

 

Financial Services Innovation Act (McHenry): Requires federal financial regulators to create Financial Services Innovation Offices (FSIO). The FSIOs would would work with innovative companies to develop "enforceable compliance plans" that would allow the company to develop innovative products under a lighter-touch regulatory regime.

 

Keep Big Tech Out of Finance Act (Chuy Garcia): Prohibits "large platform utilities," such as Facebook, from being affiliated with a financial institution. The bill's introduction coincided with Facebook CEO Mark Zuckerberg's appearance before the Financial Services Committee (see above).

 

Regulatory Oversight (Phillips, Loudermilk, and Beatty): Requires federal banking regulators to provide annual testimony to Congress on their supervisory and regulatory activities. This bill is scheduled to be marked up at Committee this week.

 

Limited English Proficiency Data Acquisition in Mortgage Lending Act (Green, Chu, Garcia, and Clay): Overturns a recent FHFA decision delaying the planned inclusion of the language preference question from the Universal Residential Loan Application. The bill's sponsors and other critics have raised concerns that the move would enable discrimination against borrowers with limited English proficiency.

 

Other Activity

 

Waters-Brown Volcker Letter: On Monday, Financial Services Committee Chairwoman Maxine Waters (D-CA) and Senate Banking Committee Ranking Member Sherrod Brown (D-OH) sent letters to the five regulators of jurisdiction criticizing the agencies' recent revisions to the Volcker rule. The letter raised specific concerns about that several changes that the authors said would undermine the rule's intended purpose of curbing speculative investment by banks, including: (1) narrowing the rule's definition of "trading account;" (2) eliminating metrics reporting; (3) loosening activity restrictions on non-US banks; and (4) expanding the scope of permitted activity related to covered funds. "In short, the [regulators] 2019 rule[making] [sic] is simply a giveaway to Wall Street Banks," the two Democrats warn in the letter.

 

CFTC Reauthorization: On Thursday, Agriculture Committee Democrats released a discussion draft reauthorizing the Commodity Futures Trading Commission. The legislation reauthorizes the derivatives watchdog through 2025 and provides for a number of amendments to CFTC authority, including measures relating to digital commodities, foreign futures authority, and oversight of swap execution facilities. Last reauthorized under the 2008 farm bill, CFTC has operated without authorization for the last six years.

 

New Dems Endorse Privacy Legislation: Last week the New Dems, the pro-growth caucus of Democrats in the House announced they were endorsing, H.R. 2013, the Information Transparency and Personal Data Control Act. This legislation, introduced by Rep. Delbene (D-WA) would impose new restrictions on how companies can use their customers data. 

 

Last Week in the Senate

The Floor



On Tuesday, the Senate voted 92-2 to proceed to a vote on a legislative vehicle (HR 3055) containing four non-controversial appropriations bills for Agriculture, Commerce-Justice-Science, Interior-Environment, and Transportation-HUD. While Senate leadership had initially planned to bring their first spending package to a final vote last week, that vote is now expected to happen this week. Additionally, a planned second minibus containing funding for defense and the opioid crisis was derailed by partisan disagreements over border security.

 

With government spending set to lapse in less than a month, it is increasingly clear that lawmakers will not find solutions to outstanding spending sticking points prior to their November 21 deadline. Lawmakers in recent weeks have become increasingly frank as to the likelihood of needing to pass another CR before then, which Appropriations Committee Chairman Richard Shelby (R-AL) suggested on Thursday could fund the government through February or March. As the timeline for the impeachment vote in the house, and therefore the attendant trial in the Senate, continues to slip, questions about Congress' ability to conduct a trial and pass legislation to keep the government open continue to swirl.

 

Also of note for financial services, the Senate on Thursday passed a resolution (S. Res. 380) sponsored by Sen. Mike Enzi (R-WY) recognizing National Retirement Security Week.

 

Hearings and Markups

 

Consolidated Audit Trail (10/22): On Tuesday, the Banking Committee held an oversight hearing of the SEC-overseen Consolidated Audit Trail (CAT), a single tracking system for all securities trades across the United States. During the hearing, Members on both sides of the aisle raised concerns about the long delayed rollout of the project, which began in 2012 in response to the 2010 "Flash Crash" but has face a series of delays. Additionally, Chairman Mike Crapo (R-ID) raised concerns about the system's potential impact on investor privacy and voiced support for excluding the collection of personally identifiable information including dates of birth, social security numbers, taxpayer identification numbers, and account numbers.

 

Data Ownership (10/24): On Thursday, the Banking Committee held a hearing examining the ownership and valuation of consumer information. Both members and witnesses were divided on the merits of ascribing a property right to personally identifiable information, access to which could then be valued and sold. Sen. Mark Warner (D-VA) for instance spoke favorably of conducting valuations of consumer data while Sen. John Kennedy (R-LA) spoke in favor of allowing consumers to own and license their personal information. Ranking Member Sherrod Brown (D-OH), in contrast, criticized a property-based approach to privacy, which he said would legitimize status quo privacy violations and create a “pay for privacy” system. 

 

The Banking Committee is one of several Congressional committees to have staked a claim in the ongoing debate over establishing a federal data privacy framework. 

 

Bills Introduced

 

Consumer Credit Control Act (Reed and Van Hollen): Requires consumer reporting agencies to first obtain affirmative consent from consumers prior to selling their reports to lenders, employers, landlords, and others. The legislation also requires bureaus to take steps to prevent unauthorized access to consumer reports.

 

HOME Act (Booker): Aims to address the affordable housing crisis through two avenues: (1) providing monthly tax credits to rent-burdened individuals; and (2) making surface transportation and community development grants contingent on the adoption of inclusive zoning policies. House Majority Whip Jim Clyburn (D-SC) introduced companion legislation in the House.

 

Other Activity

 

Warner Human Capital Letter: On Tuesday, Sen. Mark Warner (D-VA) sent a letter to the Securities and Exchange Commission praising recent efforts to increase public companies' disclosures of their human capital practices. In August, the SEC proposed a modernization to its Regulation S-K disclosure requirements which included the addition of human capital resources as a disclosure topic.

 

Sen. Warner's letter described the commission's proposed rule as "encouraging" for recognizing the importance of human capital management to a company's success and shareholder performance. However, he argued that the Commission's proposed principles-based approach allowing companies latitude in how they disclose their human capital situation could be supplemented by mandating standardized metrics.

 

Wyden-Warren Letter to FTC About Amazon's Role in Capital One Hack: On Thursday, Senator Ron Wyden (D-OR) and Elizabeth Warren (D-MA) wrote to the FTC asking whether Amazon's failure to correct a security flaw that resulted in the breach of over 106 million account constituted an "unfair business practice." While Amazon called the letter “baseless and a publicity attempt from opportunistic politicians," were the FTC to agree with the Senator's assessment it would represent a massive increase of the Commission's jurisdiction in this area.

 

GAO Finding on Guidance Documents: On Tuesday, the Government Accountability Office found that three pieces of large bank supervision guidance issued by the Federal Reserve count as rules and can be reviewed by Congress under the Congressional Review Act. The guidance under scrutiny includes three Supervision and Regulation Letters issued between 2012 and 2014 that outlined safety and soundness expectations in the early years following the financial crisis. GAO's decision opens a 60 legislative day window in which Congress can vote to overturn the guidance.

 

While this review window is likely moot given that the guidance has largely been superseded by formal rulemaking, it presents another win for Senate Republicans who have attempted to reign in the use of guidance by financial regulators. Sen. Thom Tillis (R-NC), who led calls for the GAO review of the guidance documents earlier this year, praised the decision for "holding the Federal Reserve to the same standard as all government agencies.

 

Last Week in the Administration

 

OCC Loses on FinTech Charter – Expected to Appeal

On Monday, District Court Judge Victor Marrero ruled that the Office of the Comptroller of the Currency lacks the authority to grant national bank charters to fintech companies. Judge Marrero in the ruling agreed with the New York State Department of Financial Services' argument that OCC cannot issue charters to to non-depository institutions and that doing so would improperly circumvent the authority of state banking regulators. OCC has signaled that it will appeal the ruling.

 

Since being announced last summer, OCC's special purpose bank charters for financial technology companies have been met tepidly by fintech firms wary of the uncertainty posed by legal challenges from state banking regulators. The charters had been intended to provide flexibility for fintech firms by allowing them to report to a single primary federal regulator.

 

Budget Deficit Closes in on $1 Trillion

On Friday, the Treasury Department reported that the budget deficit was $984 billion in FY 2019—the highest level since 2012. Driven partially by the 2017 tax reform push, the deficit increased by 26 percent last year and is expected to easily top $1 trillion in 2020.

 

Agencies Join Financial Innovation Network

On Thursday, four federal financial regulators—CFTC, FDIC, OCC, and SEC—announced that they were joining the Global Financial Innovation Network (GFIN). The agencies join 46 other financial authorities, central banks, and international organizations as members of GFIN, which aims to foster greater cooperation among financial authorities on a variety of innovation topics, regulatory approaches, and lessons learned. Announcing the move, the agencies commented: "By promoting knowledge-sharing on innovation in financial services, U.S. members of GFIN will seek to advance financial and market integrity, consumer and investor protection, financial inclusion, competition, and financial stability."

 

Labor Department Issues Proposal to Encourage Electronic Plan Disclosures

On Tuesday, the Department of Labor's Employee Benefits Security Administration issued a proposed rule allowing for online retirement plan disclosures. Intended to reduce printing and mail expenses and increase disclosure accessibility, the proposed rule provides a save harbor for employers who chose to make disclosures accessible on a website rather than sending paper documents through the mail. The rulemaking follows President Trump's August 2018 Executive Order on Strengthening Retirement Security in America, which calls for the review of policies to make disclosures more useful to workers and reduce their burden on employers.

 

This Week's Schedule

Mon. (10/28)

Tues. (10/29)

Wed. (10/30)

Thu. (10/31)

Fri. (11/1)