Financial Services Report

March 28, 2016

Looking Ahead

Near Term

  • House and Senate are out for the Easter Recess
  • On Tuesday Federal Reserve Chair Janet Yellen will deliver a speech on “Economic Outlook and Monetary Policy” at the Economic Club of New York.
  • On Thursday, Comptroller of the Currency Thomas J. Curry is scheduled to speak at Harvard where here will address his agency's work to support responsible innovation in the federal banking system and announce the OCC white paper on “FinTech.”

Further Out

  • Senate returns from its two-week recess on April 4th.  The Senate Banking Committee has two hearings and an executive session scheduled for that week.  Both hearings will focus on the CFPB, and likely the CFPB’s NPRM banning mandatory arbitration provisions in consumer financial contracts, that is expected to be released that same week.
  • The Department of Labor is rumored to be preparing the release of its conflict of interest (a/k/a fiduciary) rule, with the release potentially coming as soon as as the first week of April.

The Past Week

Legislative Branch
Lew Testifies Before the House Financial Services Committee
On Tuesday, in a prolonged and at times contentious hearing of the House Financial Services Committee, Treasury Secretary Jack Lew engaged in multiple heated exchanges about his compliance with Committee requests for information about the Department’s debt ceiling contingency planning. Other issues that came up included international capital standards for insurance companies, terrorist financing, and a potential addendum to the Trans-Pacific Partnership (TPP) on data localization.  However much of the hearing was spent on the debt ceiling issue, as Republicans, including the Chairman, continuously questioned Lew why he had failed to documents related to the prioritization of interest payments in the result of a U.S. default on its debt and suggesting that the Treasury may have withheld such planning in order to pressure Congress during debt ceiling negotiations.
McHenry Introduces Bill to Raise Cap on Equity Crowdfunding
On Thursday, Representative Patrick McHenry (R-N.C.) introduced a bill, H.R. 4855, that would increase the current cap on equity crowdfunding to $5 million dollars.   The current cap, set at $1 million dollars was established as part of the 2012 JOBS Act.   The SEC had just issued its first-ever rules for crowdfunding under the JOBS Act in October, setting May 16 as the launch date for the online “funding portals” established by the law and which crowdfunders need to use to raise funds.  Last week McHenry alluded to this legislation as part of a broader “innovative agenda” that he was working on with House Majority Leader Kevin McCarthy. 
Chair White Testifies Before Appropriations Subcommittee on SEC FY’17 Budget
On Tuesday, SEC Chair White appeared before the House Financial Services and General Government Appropriations Subcommittee to defend her agencies budget request.  During the hearing, Members questioned the Chair about the Commission’s agenda and among things highlighted how she intends to continue to focus on examining more Registered Investment Advisers (RIAs).   Chair White received multiple questions about whether the SEC should also move forward with a uniformed fiduciary standard, and while she indicated it was her own personal opinion that the SEC should indeed move forward she was explicit in her caveat that the SEC may choose not to do so.   In addition, the Chair made it clear that even if the SEC moved forward to harmonize the fiduciary rule, there was no guarantee that the SEC’s rule would be the same as the rule the Department of Labor is expected to release in the near future.
Waters leads Democrats in Calling on Appropriators to Forgive Federal Flood Programs Debt
On Wednesday, House Financial Services Ranking Member Maxine Waters, along with thirty-two of her Democratic colleagues sent a letter to House Appropriations Homeland Security Subcommittee urging the appropriators to forgive the $23 billion of debt that the National Flood Insurance Program is currently dealing with.  In the letter, the signatories argue that Congress is just spending money to cover the interest payments owed by the NFIP, and that due to structural flaws in the NFIP itself, it unlikely that the NFIP will ever repay its obligations in the near future. 
Brown Calls for Additional Scrutiny of Chinese Investments in U.S.
In a letter sent to Treasury Secretary Jack Lew last Wednesday, Sen. Sherrod Brown (D-OH) urged U.S. regulators to investigate any spike in Chinese takeovers of U.S. businesses as a result of the slowing Chinese economy. Brown warned that the Committee on Foreign Investment in the United States (CFIUS), a Treasury-led inter-agency committee tasked with reviewing foreign takeovers, “could be faced with a steep increase in reviews this year.” The letter also comes on the heels of a bidding war between US-based Marriott International and Chinese firm Anbang over the purchase of the Starwood hotel chain, with the latest offer from Marriott totaling $14.4 billion.  
Senate Dems Ask for Clarity on Regulation for Marijuana Businesses
On Thursday, several Senate Democrats – including Finance Committee ranking member Sen. Ron Wyden (D-OR) and Health, Education, Labor, and Pensions (HELP) Committee ranking member Sen. Patty Murray (D-WA), and Banking Committee member Jeff Merkley (D-OR)– sent a letter to federal financial regulatory agencies asking for further guidance on how marijuana-related businesses can use banking services in states where the recreational drug is legal. State banking associations have complained that the lack of regulatory clarity has forced them to turn away potential customers, even those that may only be a third-party to an actual marijuana retailer.
Select Highlights from the Administration
Consumer Financial Protection Bureau (CFPB)
CFPB Issues New Advisory and Report for Banks to Prevent Financial Abuse of Seniors
On Wednesday, the Consumer Financial Protection Bureau (CFPB) announced the release of an advisory and report making recommendations to banks and credit unions on preventing and reporting financial crime perpetrated against the elderly. The Bureau’s recommendations include conducting staff training, implementing advanced fraud detection technologies, offering dedicated services for seniors, and reporting suspicious activity to the appropriate authorities. The voluntary best practices are aimed to curb what is seen as a pervasive problem by the Bureau – financial exploitation, particularly of older Americans.
Supreme Court
Court Asks for Administration’s Views in Madden Case
On Monday, the Supreme Court announced that it had requested the Administration to share it’s views about the Midland Funding v. Madden case.  At issue in that case is whether the sale of debts made in one state can be transferred to a buyer in another state if that new state has a usury cap that is lower than the rate of the initial debt.  At the circuit level, the 2nd Circuit held that the transfer of the debt was illegal.  With the Court currently only seating 8 Justices there is a possibility that a split court would keep the 2nd Circuit’s decision in place, thus limiting the ability of online lenders from making loans in New York, Connecticut and Vermont. 
Next Week’s Schedule
The House and Senate are in Recess Next Week