Financial Services Report (11/18)

The current continuing resolution (CR) funding the government is set to expire on Thursday. While it is widely expected that Congress will once again extend the CR – most likely for another month, in order to give itself time to pass some of the spending bills – we all recognize that we live in unique times and anything is possible. That said, we don't expect the government to shut down this week.

 

Also this week the Senate Banking Committee is set to shake off the rust and hold its first mark-up of legislation this year, when it considers a bill to extend the Terrorism Risk Insurance Act (TRIA). The full House will also pass a TRIA extension – on the suspension calendar – this week, which bodes well for the law to be renewed well in advance of its end of 2020 expiration.

 

The House Financial Services Committee will hold a hearing on Private Equity, a hearing tailor-made for the "Squad", while the FinTech Task Force will also hold a critical hearing on "Big Data in Financial Services" which will likely touch on many of the the technology and ILC-related issues that the Committee is grappling.

 

From the Campaign Trail

 

On Thursday, former Massachusetts Governor Deval Patrick entered the race for the 2020 Democratic presidential nomination. While staging a primary campaign will be a challenge at this late point, Gov. Patrick's decision to jump into the race – along with the potential entrance of former New York City Mayor Michael Bloomberg – adds another moderate to the field of candidates at a time when the "chattering class" continues to express concerns about the viability of the current moderate hopefuls. As many pundits have expressed, the path for the former Governor is complicated.

 

Polls for the Democratic nomination held largely steady over the previous week. The RealClearPolitics average of polls for 10/30-11/12 has Vice President Joe Biden at 26 percent, Sen. Warren at 21 percent, Sen. Bernie Sanders (I-VT) at 18 percent, South Bend Mayor Pete Buttigieg at 8 percent, and Sen. Kamala Harris (D-CA) at 5 percent. Though, at least for one poll, Iowa has a new front runner.

 

Last Week in the House

The Floor

 

On Friday, the House passed the United States Export Finance Agency Act (HR 3407) in a near-party line vote. Although just 13 Republicans joined Democrats in supporting the legislation, which was fewer than had been hoped originally, it was interesting to see Rep. Leuketemyer be the sole member of the Financial Services Committee to vote "aye". The bill was was also opposed by a handful of progressives who had pushed for, but failed to be able to include, more stringent environmental language.

 

In addition to reauthorizing the Ex-Im Bank for 10 years, the bill would increase the bank's lending authority, rename it the United States Export Finance Agency, and make a number of tweaks to the its operations. Republican opposition appears to stem from the bill's omission of provisions restricting financing of projects related to Chinese state-owned enterprises, which had been part of earlier discussions, but was removed after committee Democrats concluded that it would impede US companies from doing business in strategically important areas of the world and neutering the banks impact.

 

As the House was debating the bill, the White House issued a veto threat and Sen. Majority Leader Mitch McConnell (R-KY) said that Ex-Im would instead receive another short-term extension in the upcoming continuing resolution, creating significant roadblocks for the House bill to become law.

 

Hearings and Markups

 

Multilateral Development Institutions (11/13): On Wednesday, the Financial Services Subcommittee on International Development held a hearing to examine multilateral development institutions. Chairman Emmanuel Cleaver (D-MO) expressed concern regarding the current trade dispute with China while highlighting the importance of the World Bank, an institution that has relieved pressure on the U.S. to individually address the concerning, economic actions taken by adversaries such as China. Ranking Member French Hill (R-AR) supported increasing capital sent to these institutions, with the condition that the U.S. examine the lending policies of multinational banks to ensure high-income countries are not the beneficiaries of U.S. investment. In particular, Rep. Hill commended the World Bank for their efforts in developing countries, but criticized the institution for their continued lending to China.    

 

HFSC Markup (11/13-11/14): On Wednesday, the Financial Services Committee began a two-day markup of nine bills which mostly dealt with debt collection. Several Democratic bills on this topic passed on party-line votes that would: (1) prohibit debt collectors from contacting consumers electronically without consent; (2) expand the Fair Debt Collection Practices Act's protections to cover small business loans; and (3) clarify that FDCPA applies to the collection of municipal debts, such as traffic tickets. Two Bipartisan bills prohibiting debt collectors from threatening servicemembers with rank reduction and extending FDCPA protections to debt owed to federal agencies passed unanimously, and stand a much better chance for passage in the full House.

 

In addition to the debt collection bills, the committee also advanced bills prohibiting the inclusion of "confessions of judgement" clauses in small business loan contracts and expanding the HUD-VASH program to homeless veterans with other-than honorable discharges. A complete list of considered bills can be found here.

 

State of the Economy (11/14): On Thursday, the Budget Committee held a hearing with Federal Reserve Chairman Jerome Powell to discuss the current economic outlook. Mr. Powell offered an identical testimony to his Joint Economic Committee testimony the previous day (see Senate hearings), forecasting sustained economic expansion along with a strong labor market. Democrats on the committee blamed the 2017 tax bill for exacerbating the federal deficit. Additionally, Democrats criticized the administration’s actions regarding the trade dispute with China while GOP members touted the economic benefits that could result from the passage and enactment of USMCA. 

 

Bills Introduced

 

Veterans and Consumers Fair Credit Act (Garcia and Grothman): Establishes a national 36 percent rate cap for consumer loans – an extension of the same rate cap that the Military Lending Act already imposes on loans to servicemembers. Sen. Jeff Merkley (D-OR) led several several Senate Democrats in introducing the bill in the upper chamber.

 

Accountability for World Bank Loans to China Act (Anthony Gonzalez): Aims to curb World Bank funding to China by graduating the country from the International Bank for Reconstruction and Development program.

 

Gun Violence Prevention Through Financial Intelligence Act (Wexton): Instructs FinCEN to assist financial institutions in identifying and reporting illegal financial activity related to firearms.

 

Other Activity

 

USMCA Submission Timing: On Thursday, Speaker Nancy Pelosi indicated that the White House's formal submission of the United States-Mexico-Canada Agreement is "imminent," perpetuating speculation that the White House and House Democrats could announce a deal to move the agreement within the next couple weeks. “I do believe that if we can get this to the place it needs to be — which is imminent — that this can be a template for future trade agreements,” the Speaker said at her weekly press briefing. While both sides have been optimistic of passing the deal by the end of the year, the White House has held off on formally submitting USMCA (a move which would trigger a timeline for an up or down vote) pending discussions with a House Democratic working group that have largely focused on concerns with the enforcement of the deal's labor provisions.

 

Last Week in the Senate

The Floor

 

The Senate spent its week on Judicial and Executive Branch nominations and did not consider any matters directly relevant to financial services.

 

Hearings and Markups

 

Jerome Powell Economic Outlook(11/13): On Wednesday, the Joint Economic Committee held a hearing with Federal Reserve Chairman Jerome Powell to discuss the current economic outlook. During his testimony, Mr. Powell reported that the U.S. economy was in good standing, citing moderate GDP growth along with low unemployment. Throughout the hearing, Committee members expressed concerns regarding the current trade dispute with China and the growing federal debt. Furthermore, members on both sides of the dais sought to identify policies that could improve the outlook of the growing national debt. Mr. Powell indicated that the Fed will continue to monitor key economic indicators as they consider monetary policy actions. 

 

Bills Introduced

 

TRIA Reauthorization (Tillis and Smith): Reauthorizes the Terrorism Risk Insurance Act (currently set to expire at the end of next year) for seven years. The legislation was quickly scheduled for a markup in the Banking committee this week and is substantially similar to the bipartisan reauthorization that cleared the House Financial Services Committee last month.

 

Tax Excessive CEO Pay Act (Sanders): Imposes an escalating surtax between .5 and 5 percent on companies that pay their CEO more than 50 times their median worker. Reps. Barbara Lee (D-CA) and Rashida Tlaib (D-MI) introduced the bill in the House.

 

Green New Deal for Public Housing Act (Sanders): Provides up to $180 billion over a decade to improve and eliminate carbon emissions from federal public housing. Rep. Alexandria Ocasio Cortez (D-NY) sponsored the bill in the House.

 

Eliminating Corporate Shadow Banking Act (Kennedy): Bans non-financial firms from controlling Industrial Loan Companies (ILCs).

 

Access to Affordable Housing for Veterans Act (Rosen and Roberts): Requires VA home loan disclosures to provide side-by-side information with conventional loan options with the intention helping veterans understand if a VA-provided option is in fact cheaper.

 

Other Activity

 

Warren/Brown Free File Letter: On Wednesday, Sen. Elizabeth Warren (D-MA) and Banking Committee Chairman Sherrod Brown (D-OH) sent a letter to Commissioner Charles Rettig raising concerns about the IRS's Free File program, which provides free tax preparation services to eligible taxpayers but has come under fire amid allegations that participating companies have misdirected consumers to paid services. The letter sites numerous recent reports on misconduct by participants including Turbo Tax and questions "IRS's inability or unwillingness to fix the structural flaws in the Free File program."

 

US-China Economic Security Recommendations: On Thursday, the US-China Economic and Security Review Commission issued its 2019 annual report to Congress. The bipartisan advisory body tasked with advising Congress on the US-China relationship made a number of recommendations to counter Chinese influence, including: (1) limiting Hong Kong's favorable trading status if China engages in "armed intervention" in the island; (2) restricting Chinese firms with questionable disclosure practices from US exchanges; and (3) reducing US dependence on Chinese pharmaceutical products.

 

Last Week in the Administration

 

Agriculture Sticking Point in China Talks

On Wednesday, the Wall Street Journal reported that efforts to negotiate a trade deal ending the US-China trade dispute have hit friction over Chinese negotiators' apprehension towards making a formal numerical commitment to purchasing US agricultural goods. While China is pushing hard for an agreement lifting President Trump's tariffs on $360 billion in Chinese goods, they are hesitant to make a formal numerical commitment that could compromise their negotiating stance or take away flexibility should relations deteriorate in the future. President Trump, in contrast, has indicated that China had agreed to purchase of to $50 billion of US agricultural products. Other outstanding barriers to a deal include enforcement and forced technology transfers.

 

Fed Issues Report on Financial Stability

On Friday, Federal Reserve published its November 2019 Financial Stability Report outlining risks to the US financial system. While the report emphasizes that "the core of the financial sector appears resilient," it outlines several potential threats to the past decade of stability including: (1) overvalued assets; (2) high levels of borrowing and debt; (3) increasing leverage in the financial sector; and (4) international stressors such as the impending Brexit.

 

Team USA Registers Formal Objection Against Insurance Capital Standard

On Thursday, "Team USA" – the Triumvirate of the Treasury Department, the Federal Reserve, and the National Association of Insurance Commissioners responsible for representing the United States at international insurance forums – registered an official objection to advancing the Insurance Capital Standard (ICS) at the annual meeting of the International Association of Insurance Supervisors (IAIS) in Abu Dhabi. However, Team USA still received an explicit procedural concession providing a path to comparability for US insurance companies as the standard heads into its five-year monitoring period.

 

Critics of ICS have long raised concerns that the project aimed at implementing a single capital framework for internationally active insurance firms insufficiently accounts for the US system of state-based insurance regulation, among other issues. Ahead of the vote, Sen. Tim Scott (R-SC) led 30 bipartisan Senators on a letter calling US negotiators to oppose the adoption of any reference ICS that does not provide a path to comparability for the US insurance system. He and others issued favorable comments of Team USA's opposition following the vote.

 

This Week's Schedule

Mon. (11/18)

Tues. (11/19)

Wed. (11/20)

Thu. (11/21)

Fri. (11/22)