Insights

Financial Services Report

February 8, 2016

Looking Ahead

Near Term

  • The President will release his budget to Congress on Tuesday and multiple hearings have already been scheduled to allow heads of Agencies and Departments to justify and defend their requests. 
  • Fed Chair Yellen will come back to the Hill for her Semi-annual testimony on monetary policy.  With Friday’s lower than expected jobs numbers still fresh in the minds of many members, she should expect questions on the state of the economy, wages, and future interest rate increases.
  • The Senate is expected to wrap up consideration of the Energy bill before turning to legislation to increase sanctions on individuals, foreign governments and financial institutions engaged in prohibited transactions with North Korea.  It is also possible that the Senate will vote on the customs conference report – though extraneous issues related to the inclusion of language making permanent the internet tax freedom act continues to complicate passage as supporters of a controversial measure to impose sales taxes on remote internet transactions continue to want to keep the two issues linked.

Further Out

  • Beyond Chair Yellen’s testimony, it appears that the next hearing in the Senate Banking Committee will take place following the March 1st primary when the Subcommittee on Securities, Insurance and Investment will examine “Regulatory Reforms to Improve Equity Market Structure” on March 3rd

The Past Week

Legislative Branch
House
House Approves Series of Financial Services Related Bills
This past week the House approved numerous bills of interest to the financial services industry, including H.R. 766, a bill that would prohibit banks from closing a customer’s account solely because of reputational risk.  This bill, which supporters described as a necessary response to “Operation Choke Point” passed 250-169, though only ten democrats voted for it.  Other legislation passed included; (1) Encouraging Employee Ownership Act; (2) the Housing Opportunity Through Modernization Act; (3)  the Fair Investment Opportunities for Professional Experts; (4) the Small Business Capital Formation Enhancement Act; and (5)  the SEC Small Business Advocate Act of 2015.
 
House Committees Advance Best Interest Standard Legislation
 
Over two days, first the Education and Workforce Committee and then the Ways and Means Committee marked up two bills, (H.R. 4293 and H.R. 4294) aiming to prevent the Department of Labor (DOL) from promulgating its rule on fiduciary status for financial advisors.  Both bills passed along near party lines, with the Ed and Workforce vote a straight party-line vote, and only three Democrats (Reps. Neal, Larson and Thompson) crossing over in the Ways and Means Committee.  Despite the partisan nature of the final tallies, there were Democratic Representatives in both Committees who expressed tentative support for the bills, but were content to wait until the Department issued its final rule before  voting in favor of the proposals. 
 
Joint Terrorism Task Force Examines Trade Based Money Laundering
On Wednesday, the House Financial Services Committee’s Task Force to Investigate Terrorism Financing held a hearing entitled “Trading with the Enemy: Trade-Based Money Laundering is the Growth Industry in Terror Finance.”  While initially perceived by some to be a hearing on marketplace lenders, the hearing ultimately was more focused on trade-based money laundering (TBML) and TBML’s role in funding terrorist organizations.   During the hearing, members of the task force focused their discussion on the use of trade transparency units (TTUs), an enforcement unit within the U.S. Customs and Border Protection (CBP) Service.  Other questions were on the disclosure of beneficial ownership information and how Trans-Pacific Partnership agreement influences this policy area.  
 
Republicans Accuse Obama Administration of Misleading Congress on Debt LimitAlthough there is no need for debt ceiling theatrics this year, on Monday, the Financial Services Oversight and Investigations Subcommittee released a report accusing the Obama Administration, and the New York Fed of misleading Congress and the American public on the ability of the Government to prioritize principle and interest payments on debt to maximize their political advantages for extending the debt limit.  In addition, the report alleges that the Treasury was “actively” obstructing “the Committee’s investigation of this matter by directing the New York Fed to withhold information from the Committee for approximately two years.”
 
Senate
First Senate Bills Related to Fiduciary Rule Introduced
On Thursday, three different bills to stop the Department of Labor’s pending Fiduciary Rule were introduced in the Senate marking the upper Chamber’s first legislative involvement in the issue.  One of the bills, the Affordable Retirement Advice Protection Act was authored by Senator Johnny Isakson and it would require Congress to approve the DOL rule before it goes into effect, and assuming that the rule is not approved it would be replaced by a best-interests standard outlined in the legislation. 
 
A similar bill, Strengthening Access to Valuable Education and Retirement Support Act, was also introduced by Senator Mark Kirk.  A third bill authored by Senator Roy Blunt is similar to legislation introduced by another Missouri lawmaker, Ann Wagner, that would prohibit the DOL from issuing its rule until the SEC finalizes its uniform fiduciary standard for investment advice rule. 
 
Senators Query HUD on Sale of Loans to Hedge Funds
On Monday, two leading Democrats, Sen. Sherrod Brown (D-OH) and Rep. Elijah Cummings (D-MD), wrote a letter to the Department of Housing and Urban Development (HUD) about foreclosure-prevention options available through the Distressed Asset Stabilization Program.   In the letter, the lawmakers questioned whether HUD’s Federal Housing Authority has been selling loans for properties in poor communities to hedge funds and private equity firms who are then foreclosing on the loans to resell at a profit before all applicable loan modification options have been exhausted.    The letter seeks information on a series of questions about HUDs Distressed Asset Stabilization Program. 
 
Select Highlights from the Administration
Consumer Financial Protection Bureau (CFPB)
Bureau Reaches Agreement with Toyota on Dealer Discretion
On Tuesday, Toyota Motor Credit became the latest captive auto finance company to reach a settlement with the CFPB and the DOJ regarding its policies for its dealer arranged financing.   Once again, using potentially flawed analyses, the Bureau alleged that African-Americans and Asian Americans were unintentionally discriminated against under Toyota’s Dealer participation policies.  As a result of the order, Toyota will pay $21.9 million towards restitution while limiting its future dealer participation to 1.5% above the buy rate.  Interestingly, the CFPB’s resolution for Toyota doesn’t eliminate the possibility of continued discrimination but rather simply reduces the possible difference in rates customers could be charged. 
 
CFPB Encourages Banks and Credit Unions to Expand Checking Options
On Wednesday, the CFPB sent a letter to the 25 largest retail banks urging the institutions to make lower-risk deposit accounts (including prepaid card options) available to help consumers avoid overdrafts.  The letter came on the heels of a CFPB field hearing in Louisville that was expected to be largely an announcement on the Bureau’s pending overdraft rule.  However, the lack of a concrete statement regarding overdraft and instead its focus on publicly pressuring banks to cut overdrafts lead some analysts to conclude that the overdraft rule will not be released in 2016.
 
Federal Reserve
Fed Releases Progress Report on its Efforts to Improve Payment Speeds
On Tuesday the Fed released a report describing both progress made and outlined anticipated steps for moving forward with its initiative to enhance payment system speed, efficiency, and security.  The report came nearly one year to the day that the Fed initiated its multi-year payments efforts.  Included among the reports highlights was a section on the consensus for the ISO 20022 standard for international payments as well as a hint about future improvements to the FedACH to support universal same day-ACH for faster clearing, settlement and fund availability. 
 
Next Week’s Schedule
Wed. (2/10)

  • Hearing: House Financial Services Committee Hears Yellen Testimony – 10:00 AM – Federal Reserve Chair Janet Yellen will deliver the Federal Reserve’s Semiannual Monetary Policy Report to Congress. Details here.
  • Hearing: Senate Finance Committee on President’s FY 2017 Budget: IRS – 2:00 PM – The Senate Finance Committee will hold a hearing on the President’s FY 2017 Budget featuring IRS Commissioner John Koskinen. Details here.
  • Hearing: House Appropriations Committee on CFTC Budget – 2:30 PM – The House Appropriations Committee will hold a hearing on the budget of the Commodity Futures Trading Commission (CFTC). Details here.

Thurs. (2/11)

  • Hearing: Senate Banking Committee Hears Yellen Testimony – 10:00 AM – Federal Reserve Chair Janet Yellen will deliver the Fed’s Semiannual Monetary Policy Report to Congress. Details here.
  • Hearing: House Financial Services Subcommittee on CFPB, Small Dollar Lending – 1:00 PM – The House Financial Services Subcommittee on Financial Institutions and Consumer Credit will hold a hearing entitled, “Short-term, Small Dollar Lending: The CFPB’s Assault on Access to Credit and Trampling of State and Tribal Sovereignty.” Details here.
  • Hearing: House Ways and Means Committee on the President’s FY 2017 Budget: Treasury – 10:00 AM – The House Ways and Means Committee will hold a hearing on the President’s FY 2017 Budget featuring Treasury Secretary Jacob Lew. Details here.
  • Hearing: Senate Finance Committee on the President’s FY 2017 Budget: HHS – 10:00 AM – The Senate Finance Committee will hold a hearing on the President’s FY 2017 Budget featuring the Department of Health and Human Services Secretary Sylvia Mathews Burwell. Details here.
  • Hearing: House Appropriations Committee on IRS Budget – 10:00 AM – The House Appropriations Committee will hold a hearing on the budget of the Internal Revenue Service (IRS). Details here.
  • Hearing: House Oversight and Government Reform Committee on IRS Practices – 1:00 PM – The House Oversight and Government Reform Committee will hold a hearing entitled “IRS: Reviewing its Legal Obligations, Document Preservation, and Data Security.” Details here.
  • ·    Hearing: Senate HSGAC Subcommittee on Regulatory Fines and Penalties – 9:30 AM – The Senate Homeland Security and Governmental Affairs Subcommittee on Regulatory Affairs and Federal Management will hold a hearing entitled “Examining Agency Discretion in Setting and Enforcing Regulatory Fines and Penalties.” Details here.