Financial Services Report

November 9, 2015

Looking Ahead

Near Term

  • The Senate is in for an abbreviated session and will take up the revised NDAA as well as the Military Construction-Veterans Affairs spending bill. 
  • The House in Recess, returning for votes on the 17th

Further Out

  • House calendar for next year released.
  • Senate calendar for next year released.
  • Funding for the Federal government runs out December 11th
  • HFSC hearing on CFPB arbitration rulemaking when the House returns.
  • HFSC oversight hearing on FSOC in December.

The Past Week

Legislative Branch

House Passes Transportation Bill
On Thursday, the House voted overwhelmingly (363-64) to approve a six-year $325 billion highway bill, giving newly elected Speaker Paul D. Ryan his first legislative victory.  The bill, (H.R. 22), which only includes funding for the first three years of the authorization, includes a reauthorization of the controversial Export-Import Bank charter, as well as several other bank related amendments, including a provision to authorize the use of the Fed surplus as a pay-for, rather than the dividend payout.  During a marathon voting session, supporters of the bank were able to beat back ten different “poison pill” amendments.
A conference to reconcile the House and Senate differences, including how to pay for the massive bill, as many of the pay-fors included in the Senate passed version were effectively mooted by their inclusion in the Budget agreement, is the next step in the process.  Conferees have until November 20th to complete their work, though at least one short-term extension is likely. 
Financial Services Committee Marks-Up Series of Bills
On November 3rd the House Financial Services Committee debated ten bills before voting on them the following day.  They were: 

  • H.R. 1309, the “Systemic Risk Designation Improvement Act of 2015”, introduced by Representative Blaine Luetkemeyer (R-MO), to increase the SIFI designation threshold for bank holding companies was approved by a vote of 39 to 16.
  • H.R. 1478, the “Policyholder Protection Act of 2015,” introduced by Representative Bill Posey (R-FL), had an Amendment in the Nature of a Substitute offered and adopted, and the bill as amended, was accepted on a 57 to 0 vote.
  • H.R. 1550, the “Financial Stability Oversight Council Improvement Act of 2015”, introduced by Representatives Dennis Ross (R-FL) and John Delaney (D-MD), which would require the FSOC to annually reevaluate and provide written notice of nonbank financial company systemic risk determinations, to consider the appropriateness of other forms of regulation to mitigate identified systemic risks, and to require certain systemic risk designation process reforms, was approved by a recorded vote of 44 to 12.
  • H.R. 1660, the “Federal Savings Association Charter Flexibility Act of 2015”, introduced by Representative Keith Rothfus (R-PA), was approved by voice vote.
  • H.R. 2209, introduced by Representative Luke Messer (R-IN), was adopted by a recorded vote of 56 to 1 with Representative Stephen Lynch (D-MA) voting against.
  • H.R. 3340, the “Financial Stability Oversight Council Reform Act” introduced by Representative Tom Emmer (R-MN), would place the FSOC and the Office of Financial Research (OFR) under the regular appropriations process, and was passed on a straight party line vote of 33-24.
  • H.R. 3557, the “FSOC Transparency and Accountability Act”, introduced by Representative Scott Garrett (R-NJ), would, among other things apply the Federal Advisory Committee Act to the FSOC.  It was also passed on a straight party line vote of 33-24.
  • H.R. 3738, the “Office of Financial Research Accountability Act of 2015”, introduced by Representative Ed Royce (R-CA), would require the OFR to publish a detailed work plan for the upcoming year, and to develop a cybersecurity plan to protect the data collected by the OFR.  Two Democrats,  David Scott and Kyrsten Sinema joined all the Republicans to pass the measure  35-22.
  • H.R. 3868, the “Small Business Credit Availability Act”, introduced by Representative Mick Mulvaney (R-SC), would amend the Investment Company Act of 1940 to modernize business development company regulations relating to increased leverage, offering reform, the ownership of registered investment advisers, issuance of multiple classes of preferred stock, and increased flexibility to invest in certain financial companies.  The bill was passed by a vote of 53-4, with Representative Michael Capuano (D-MA), Representative Stephen Lynch (D-MA), Representative Keith Ellison (D-MN), and Representative James Himes (D-CT) voting on opposition.
  • H.R. 3857, introduced by Representative Luke Messer (R-IN), would prohibit the FSOC from making a systemic risk designation until 90 days after the Federal Reserve establishes prudential standards for nonbank financial companies. H.R. 3857 was adopted by a roll call vote 33-24, along party lines

Yellen Offers Perspective on Fed Regulatory Policy
On Thursday, Federal Reserve Chair Janet Yellen delivered the Fed’s Semi-Annual Report on regulatory matters to Congress. The hearing was intended to be geared towards a questioning of a Vice-Chair of Supervision, but because no nominee has yet to be selected, Yellen agreed to testify.   Most of the topics of the hearing were those that have received a great deal of attention from Members in the past, including the designation of Systemically-Important Financial Institutions (SIFIs), international influence on the regulation of insurers, the timing of an interest rate hike, and the Fed’s efforts for easing regulatory burdens.
While Yellen’s comments on a December rate rise being a “live possibility” seized headlines, and may have gained steam following Friday’s jobs report that the economy added 271,000 jobs in October, it may come contrary to the wisdom offered by Rep. Brad Sherman, who, perhaps channeling the divine, urged the Chair to delay to May.  Other highlights from the hearing, including Yellen’s defense of the Fed vis-à-vis leaks, as well as Fed officials sitting in on board meetings of designated firms.   The Chair also provided some information, albeit lacking in specific details, on the timing of regulation coming from the Fed related to the Dodd-Frank Act Section 13(3)—saying it’ll be out by the end of the month.
Bipartisan “Best Interest Standard” Legislative Proposal Released
On Thursday, Reps. Peter Roskam (R-IL), Richard Neal (D-MA), Phil Roe (R-TN), and Michelle Lujan Grisham (D-NM) released a set the following set of principles that could be incorporated into legislation to codify a best interest standard in lieu of the Department Labor’s current rulemaking effort.

  • Promoting families and individuals saving for a financially-secure retirement is an essential public policy good.
  • Retirement advisors must serve in their clients’ best interests and must be required to do so.
  • Retirement advisors must deliver clear, simple, and relevant disclosure of material conflicts, including compensation received and all investment fees to individuals saving for retirement.    
  • Public policies must protect access to investment advice and education for low- and middle-income workers and retirees.    
  • Public policies should never deny individuals the financial information they need to make informed decisions.
  • Investor choice and consumer access to all investment services–such as proprietary products, commission-based sales, and guaranteed lifetime income–should be preserved in a way that does not pick winners and losers.
  • Small business owners should have access to the financial advice and products they need to establish and maintain retirement plans and help workers save for retirement.

Brady Wins Coveted Ways & Means Gavel
On Wednesday, the House Republican Conference Steering Panel voted to recommend Kevin Brady (R-TX) to replace Speaker Paul D. Ryan as the next Chairman of the Ways and Means Committee.  Brady received the nod over Pat Tiberi (R-OH), a close ally of former Speaker Boehner, and a more moderate member of the Republican Conference. 
Cummings Keeps Pressure on Players in Secondary Market for Structured Settlements
On Monday, Rep. Elijah Cummings (D-MD), the top Democrat on the Oversight and Government Reform Committee, and a potential Senate candidate, sent a letter requesting additional information about how the secondary and tertiary market for structured settlements work.  According to the letter, Rep. Cummings’ interest in the issue was spurred by a story over the summer in the Washington Post.
Senators Press Treasury for More Information about Online Business Lending
On Tuesday, Senator Jeff Merkley (D-OR), Senator Sherrod Brown (D-OH) and Senator Jeanne Shaheen (D-NH) sent a letter to Treasury and the Small Business Administration requesting additional information from both agencies about the emerging financial technology market and specifically how it is serving small businesses and consumers as they attempt to access credit.  The letter builds on a request for information (RFI) about the burgeoning online lending market that Treasury put out of the summer. 
Brown and Menendez Ask for Answers from Rush Card
On Thursday, Senator Sherrod Brown and Robert Menendez (D-NJ) sent a letter to the CEO of the Rush Card for answers to a series of questions surrounding the recent issues customers had accessing their accounts.  In addition to wanting more information about the technical issues that preventing the funds from being accessed, the Senators also queried the CEO about the “reimbursement fund” it set up, as well as the company’s use of mandatory arbitration provisions.
Select Highlights from the Administration

White House
Text of Trans Pacific-Partnership Released
On Thursday, the USTR released the text of the Trans Pacific Partnership (TPP), signaling the green light for what could be the last big legislative battle of President Obama’s administration.  In releasing the language the President made clear his intention to sign the agreement in 90 days as allowed by law. Initial reactions appeared to be as expected, with people on both sides of the debate scrutinizing the provisions on the use of the Investor State Dispute Settlement (ISDS) regulations, as well as provisions related to data flows, intellectual property, and currency. 
FSOC Holds Monthly Meeting
On Monday, the Financial Stability Oversight Council held its November meeting.  During the meeting the Council discussed its “reevaluation” of a designated non-bank financial services company, though no votes were taken.  In addition, the Council “discussed its ongoing assessment of potential risks to U.S. financial stability from asset management products and activities.”  According to the read-out, during the meeting the FSOC received an update on the six caterogies of analysis it is using for designating asset management companies: liquidity and redemption risk; leverage; securities lending; data and disclosure; operational risks of service provider concentrations; and resolvability and transition planning.
Federal Trade Commission (FTC)
FTC Cracks Down on Rogue Debt Collectors
On Wednesday, the FTC, along with other state and federal regulators announced thirty new law enforcement actions to crack down on illegal practices related to debt collection, as part of a continued campaign known as Operation Collection Protection Initiative.   Included in the announcement was the news that the FTC had shut down four debt collection companies during the past month. 
Next Week’s Schedule
The House is in Recess For the Veterans Day Holiday
The Senate is in Session through Tuesday, but there are no relevant hearings scheduled.