Financial Services Report

Near Term

• The House is scheduled to take up a bill, H.R. 3340 that would require the Financial Stability Oversight Council (FSOC) to be funded through the congressional appropriations process.  
• Speaking of spending issues, the House Financial Services Committee has a mark-up scheduled for its budget estimates.  If past precedence is prologue for future occurrences, then partisan fireworks should be expected as both sides retreat to well-worn positions on putting the CFPB into regular appropriations and repealing the orderly liquidation authority established in Dodd-Frank.
• The House Natural Resources Committee is expected to hold a hearing on its legislation to establish a control board to resolve the Puerto Rico debt crisis.
• The Senate Appropriations Financial Services Subcommittee will hear from the Chairs of the SEC and the CFTC as the subcommittee continues to advance its spending bills.
• Senate Banking Subcommittee on Securities will hold a hearing on the fixed-income markets.

Further Out

• House Financial Services Capital Markets Subcommittee is expected to hold a hearing on the SEC.
• The CFPB is expected to release its notice of proposed rulemaking on arbitration clauses sometime this spring. 

The Past Week

Legislative Branch
House
Democrats Urge Federal Probe of Anti-CFPB Group
On Thursday, the top Democrats of the Financial Services Oversight and Investigations Subcommittee Al Green, along with Ranking Members Waters and Keith Ellison wrote to the FTC urging the Commission to initiate and investigation into Protect America’s Consumers, a group that has been at the front of numerous advertisements attacking the CFPB.  In addition to requesting the FTC to determine whether the group had violated federal regulations by using their respective quotes to make it seem as if they were endorsing Protect America’s Consumers, as well as questioned the validity of the groups tax status. 
 
Senate
Senate Banking Hears Industry Perspective Ahead of Cordray Testimony
On Tuesday, the Senate Banking Committee discussed past rules and areas of possible future regulation made by the Consumer Financial Protection Bureau (CFPB) as a precursor to CFPB Director Cordray’s own appearance before the Committee two days later. While the hearing was sparsely attended, there was a wide divide between the Senators in attendance on the various issues under consideration – including CFPB rules on payday lending and mandatory arbitration clauses, as well as enforcement actions taken against auto lenders. Not surprisingly, those differences were repeated during Thursday’s hearing with CFPB Director Richard Cordray.
 
Cordray Defends CFPB Practices in Senate Banking Hearing
On Thursday, Consumer Financial Protection Bureau (CFPB) Director Richard Cordray delivered the agency’s semi-annual report to Congress and defended his agency from accusations of overreach. A wide range of topics were covered in the hearing, from mortgage rules to debt collection to prepaid cards, and Democrats and Republicans predictably split on most of these issues. Among his comments, Director Cordray offered a timeline on the agency’s arbitration rules – saying they would be proposed “sometime this spring.”  Cordray also indicated – though with a caveat – that FinTech could be a solution for some Republican concerns about how the CFPB payday lending rules would impact the availability of credit for certain segments of the population.
 
Banking Committee Delays Vote on Nominees
On Thursday, in a surprising move, the Senate Banking Committee postponed votes on several administration nominees, including the two women nominated for the vacant SEC Commissioner posts.  While some of the nominees would have moved on their own, it was clear that there was serious opposition to the two SEC nominees, with some Democrats expressing concerns about both the Democratic nominee Lisa Fairfax and Hester Pierce, and Republican Senator Tim Scott indicating his willingness to vote no on all nominees in order to prevent Fairfax’s nomination from moving forward.   After it was clear there weren’t enough votes to move the nominations to the floor, Chairman Shelby postponed the vote.
 
Senate Dems Introduce Bill to Curb Online Payday Lending Abuse
On Thursday, a group of Senate Democrats, led by Jeff Merkley (D-OR) but also including presidential candidate Sen. Bernie Sanders (I-VT) and Sen. Elizabeth Warren (D-MA), reintroduced legislation on Thursday targeting predatory payday lending practices, particularly those online. The bill, dubbed the Stopping Abuse and Fraud in Electronic Lending Act, would restrict access to customers’ bank accounts and allow borrowers to cancel automatic withdrawals to pay off loans. Lenders would also be required to register with the CFPB and would ban overdraft fees on the prepaid cards that are issued by some lenders. The bill comes as members of the Senate Banking Committee clashed over payday lending in a pair of hearings on consumer finance regulations this week.
 
Select Highlights from the Administration
Department of Labor
Fiduciary Rule Released
On Wednesday, at an event flanked by various Democratic members of Congress, Secretary of Labor Perez announced the final, and substantially revised, conflict of interest rule.  The immediate reaction from Republican was, as expected, in opposition and indicated that legislative efforts to undo the rule would continue.   The rule itself included several changes such as a clarification of what constitutes advice as opposed to education (with educational services not rising to the level of a fiduciary standard), a longer phase-in period, and streamlining of the disclosure process. 
 
Treasury
FSOC to Appeal MetLife Decision; Judge’s Decision Unsealed
On Thursday, the Treasury Department announced it would appeal a federal judge’s decision to rescind the Financial Stability Oversight Council's (FSOC) "systemically important" designation of insurance company MetLife. Treasury Secretary Jack Lew strongly opposed the court’s ruling, saying “If the Council only responds to risks after they are likely to threaten financial stability, we will pave the way for the next crisis.” The ruling of U.S. District Judge Rosemary Collyer was also unsealed on Thursday, with her primary reasoning being that FSOC focused “exclusively” on the benefits of designation while ignoring the costs.
 
Treasury Releases New Rules on Inversions
On Monday, the Treasury Department issued new rules on inversions and earning stripping that had an immediate effect on a pending Pfizer – Allegan merger.    Treasury’s announcement made two significant changes.  First, it went after what the White House called “serial inverters,” or companies that had engaged in multiple inversion transactions.   Under the new rules, Treasury will would disregard three years of past mergers with U.S. corporations in determining the size of the foreign company.  It also issued new regulations against what’s known as earnings stripping in an effort to capture more revenue from the process.
 
Federal Deposit Insurance Corporation (FDIC)
FDIC to Reduce Supervisory Monitoring for Startup Banks
In a speech on Wednesday, Federal Deposit Insurance Corporation (FDIC) Chairman Martin Gruenberg announced that the agency plans to reduce the period of heightened supervisory monitoring for so-called de novo institutions from seven years to three years. The move is intended to spur bank creation and Gruenberg pointed to stronger bank oversight and the current environment as the reasoning for the regulatory relief.
 
Next Week’s Schedule
Tuesday April 12^th

• Hearing: House Rules Committee on FSOC Reform Act – 5:00 PM – The House Rules Committee will hold a hearing on H.R. 3340, the Financial Stability Oversight Council Reform Act. Details here.
• Hearing: Senate Appropriations Subcommittee on SEC and CFTC Budgets – 10:30 AM – The Senate Appropriations Financial Services and General Government Subcommittee will hold a hearing on the proposed budget for the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC).

Wednesday April 13^th

• Hearing: House Natural Resources Committee on Puerto Rico Debt Crisis – 10:00 AM – The House Natural Resources Committee will hold a hearing entitled, “Puerto Rico Oversight, Management, and Economic Stability Act.” Details here.
• Markup: House Financial Services “Cost-Saving Measures” – 10:00 AM – The House Financial Services Committee is scheduled to hold a markup, the details of which have yet to be announced.
• Hearing: House Small Business with IRS Commissioner Koskinen – 2:30 PM – The House Small Business Committee will hold a hearing entitled, “Keep It Simple:  Small Business Tax Simplification and Reform, the Commissioner Responds,” with Internal Revenue Service (IRS) Commissioner John Koskinen. Details here.
• Hearing: House Ways and Means Member Day on Tax Reform – 3:30 PM – The House Ways and Means Committee will hold a “Member Day” hearing on tax reform proposals. Details here.
• Hearing: House Small Business Subcommittee on Small Business Taxes – 11:00 AM – The House Small Business Subcommittee on Economic Growth, Tax, and Capital Access will hold a hearing entitled “Keep It Simple: Small Business Tax Simplification and Reform, Main Street Speaks.” Details here.

Thursday April 14^th

• Hearing: House Financial Services on JOBS Act and Capital Formation – 10:00 AM – The House Financial Services Committee will hold a hearing entitled, “The JOBS Act at Four: Examining Its Impact and Proposals to Further Enhance Capital Formation.” Details here.
• Markup: Senate Agriculture Committee on CFTC Reauthorization – 10:00 AM – The Senate Agriculture, Nutrition, and Forestry will markup the reauthorization for the Commodity Futures Trading Commission (CFTC). Details here.  
• Hearing: Senate Banking Committee on Fixed-Income Markets – 10:00 AM – The Senate Banking Committee will hold a hearing entitled “Examining Current Trends and Changes in the Fixed-Income Markets.” Details here.