Contact
Insights

Financial Services Report

June 22, 2015

Looking Ahead

Near Term

  • The House and Senate are in session before heading out of town for the July 4th recess but the legislative news of the week is what’s not on the agenda (hint it rhymes with Smex-Im).
  • The House is set to take up another appropriations bill (Interior) as well as the Ratepayer Protection Act.
  • The Senate will deal with getting TPA to the President’s desk and trying to find a way forward to move its own appropriations measures.
  • The Supreme Court is set to announce major decisions on Obamacare and Marriage Equality. 

Further Out

  • The remaining statutorily imposed deadlines for the year are:

    • June 30: Export-Import Bank
    • July 31st Surface Transportation
    • Sept. 30: Child Nutrition & WIC
    • Sept. 30: FAA Authorization
    • Sept. 30: End of the Federal Fiscal Year
    • End of September or October: Extraordinary Measures for dealing the Debt Ceiling run out and default becomes possible.

The Past Week

Legislative Branch

House
House Passes TPA –Again – Sends Standalone Measure Back to Senate
On Thursday, by a vote of 218-208, the House once again passed legislation to grant the President Trade Promotion Authority (TPA), however this time it was as a stand-alone measure disconnected from the Trade Adjustment Authority (TAA) that was voted down last week.  Once again twenty-eight Democrats, mostly from the New Dem caucus, voted in favor of the measure giving it just enough votes for passage.  The measure now heads back to the Senate, where Leadership is hopeful that a promise to pass TAA on the African Trade bill will be enough to persuade pro-trade Democrats to send TPA to the President.
 
Lew Testifies Before Financial Services Committee
On Wednesday the House Financial Services Committee held a hearing entitled “The Annual Report of the Financial Stability Oversight Council.” Treasury Secretary Jack Lew was the sole witness.  The hearing focused on the Financial Stability Oversight Council (FSOC) annual report, market liquidity, the systemically important financial institution (SIFI) designation process, and cybersecurity in the financial sector.  In addition members of the Committee also queried Lew on money market reforms, GSE reforms and whether the Federal Insurance Office (FIO) and FSOC are pursuing a “backdoor” way to take over insurance regulation through international agreements.
 
Cap Markets Subcommittee Hears from BDCs
On Tuesday the House Financial Services Committee's Capital Markets and Government Sponsored Enterprises Subcommittee held a hearing entitled “Legislative Proposals to Modernize Business Development Companies (BDCs) and Expand Investment Opportunities.”  During the hearing, the committee heard from witnesses about two bills, H.R. 2187, the “Fair Investment Opportunities for Professional Experts Act”, sponsored by Rep. David Schweikert (R-AZ); and another bill not yet formally introduced at the time of the hearing, but which was referred to as the “Small Business Credit Availability Act” and was introduced by Rep. Mick Mulvaney (R-SC).  During the question and answer section of the hearing it was clear that while Republicans strongly support both proposals, Democratic support is more guarded with concerns expressed about transparency, the definition of an accredited investor and leverage ratios. 
 
Appropriations Committee Approves Financial Services Spending Bill
On Wednesday, on a party line vote of 30-20 the House Appropriations Committee approved the FY16 Financial Services and General Government Appropriations Bill.  The $20.2 billion dollar spending measure includes numerous riders and spending levels that Democrats opposed.  During the mark-up Subcommittee Ranking Member Jose Serrano (D-NY) decried the funding that the SEC and the IRS received under the bill.  Other provisions sure to be opposed by the White House included language to stop the Net Neutrality rules from going into effect, an amendment that  would make it harder for the FSOC to regulate mutual fund companies as SIFIS,  and an amendment that would require the CFPB to conduct another study before starting rule making on mandatory arbitration.
 
Ed and Labor Subcommittee Hears from Perez on Fiduciary Rule
On Wednesday, the Health Education Labor and Pensions Subcommittee of the House Education and Workforce Committee held a hearing entitled, “entitled “Restricting Access to Financial Advice: Evaluating the Costs and Consequences for Working Families and Retirees.” The hearing focused on the Department of Labor's (DOL) proposed rule modifying the definition of a fiduciary applicable to retirement plans and IRAs.  Labor Secretary Tom Perez was the sole witness on the first panel and during the hearing he appeared to indicate that certain elements of the proposal, such as the process for a consumer to sign the Best Interest Contract, would be refined based on the comments received.  While Republicans included a provision in their HHS funding bill that would prevent DOL from moving forward with the rule, it is unclear how that language would survive into law.
 
Financial Services Oversight and Investigations Subcommittee Hears about Cybersecurity Threats
On June 16, the House Financial Services Committee's Oversight and Investigations Subcommittee held a hearing entitled “A Global Perspective on Cyber Threats.” The hearing's discussion covered a broad range of cybersecurity topics, including data security for American companies.  In addition the hearing discussed how cyber security not only includes actions of rogue criminals but also how it has become a tool of nations conducting steal actions against other nation states.
 
Senate
80 Republicans Urge CFPB to Re-Do Arbitration Study
On Wednesday, nearly 80 Republicans, including nearly 20 Senators, led by Senator Tim Scott (R-SC) and Rep. Patrick McHenry, sent a letter to CFPB Director Cordray expressing their concern about the CFPB’s arbitration study and urging the Bureau to re-open the study process in order to create a better product for which the CFPB to analyze when it turns to a rulemaking on the use of mandatory arbitration provisions in consumer products.  Currently the CFPB has announced that it will move forward with a rulemaking sometime in the fall.
 
Select Highlights from the Administration

Federal Reserve Board (Fed)
Latest FOMC Continues to Indicate Gradual Rate Increase
On Wednesday, the Federal Open Market Committee released its most recent report, which was followed Fed Chair Janet Yellen’s press conference.  During which, Chair Yellen noted that the spirit and the official language of the FOMC statement was in line with official forecasts for a rate increase in 2015.  However, when questioned about the process, Chair Yellen was adamant that the Fed does not intend to follow any mechanical plan for raising rates.
 
Consumer Financial Protection Bureau (CFPB)
CFPB Reverses Course and Delays TRID Rule
On Wednesday the announced that due to “an administrative error that [they] just discovered in meeting the requirements under federal law, which would have delayed the effective date of the rule by two weeks” the CFPB announced that it was delaying the Know Before You Owe Rule, also known as the TILA / RESPA Integrated Disclosure or TRID rule, until October 1st.  The announcement came just over a week after the CFPB had refused to acquiesce to Congressional requests to delay the rule’s August 1st start date. 
 
Bureau Sues Auto Lender for Aggressive Debt Collection Practices
On Wednesday, the CFPB announced that it was suing Security National Automotive Acceptance Company, for aggressive debt collection tactics against service members.  The following day, Security National Automotive Acceptance Co. announced that it was surprised by news of the suit, since it was in “active” discussions with CFPB representatives “to better understand and resolve their concerns.”
 
CFPB Finds that 90% of Co-signers of Student Loans Denied Co-Signer Relief
On Thursday, the CFPB’s Student Loan Ombudsman released a report detailing how 90% of student loan co-signers were being rejected for co-signer release. 
In other news it was also announced that the Ombudsman, Rohit Chopra, will be leaving the agency soon.  While his future plans have not been publicly announced, Senator Elizabeth Warren (D-MA) has been vocal in her belief that he would be an excellent replacement for Benjamin Lawsky, the top Financial Services regulator in New York State.
 
Securities and Exchange Commission (SEC)
Stein Talks about Mutual Funds
On Monday, at a speech at the Brookings Institute, Commissioner Kara Stein put forward her analysis about areas of the Investment Company Act of 1940 that she believes need to be updated to reflect changes in mutual funds since the law was enacted 75 years ago.  Calling out what she described as “cracks in the foundation” of the 75 year law Commissioner Stein suggested that the rules need to be modified to reflect evolutions in “alternative mutual funds.” 
 
Federal Communications Commission (FCC)
Actions on TCPA Bring No Relief For Many Financial Services Companies
On Thursday the FCC, by a 3-2 vote, approved new rules on robo calls.  Under the Telephone Consumer Protection Act (TCAP), businesses are generally barred from making robo-calls to a cellphone without the consumer's prior consent.  Banks and a diverse group of other companies were hoping that the FCC would have used Thursday’s meeting to update the TCPA to take into account pragmatic, common-sense changes such as eliminating liability when one inadvertently dials a wrong number, or when a company has consent from a customer but the customer changes the number.  However, the FCC’s actions left many companies disappointed, and perhaps was best summed up by Richard Hunt of the CBA who characterized the rulings as having a chilling effect on legitimate consumer communications and noted that “[c]lass-action attorneys appear to be today's winners at the expense of consumers and well-meaning American businesses.” 
 
Next Week’s Schedule
On Tuesday June 23rd at 10:00am in 538 Dirksen the Senate Banking Committee will hold a hearing entitled, “Oversight Review of the National Flood Insurance Program.”
 
On Wednesday, June 24th at 2:00pm in 2128 Rayburn the Task Force to Investigate Terrorism Financing will hold a hearing entitled, “Evaluating the Security of the U.S. Financial Sector.”
 
On Wednesday, June 24th at 10:00am in 538 Dirksen, the Senate Banking Committee will hold a hearing entitled, “Assessing and Improving Flood Insurance Management and Accountability in the Wake of Superstorm Sandy.”
 
On Wednesday, June 24th at 10:00am in 2128 Rayburn, the Financial Services Oversight and Investigations Subcommittee will hold a hearing entitled, “Examining Continuing Allegations of Discrimination and Retaliation at the Consumer Financial Protection Bureau.”
 
On Wednesday, June 24th at 10:00am in 1100 Longworth, the Ways and Means Subcommittee on Select  Revenue Measures will hold a hearing on Repatriation of Foreign Earnings as a Source of Funding for the Highway Trust Fund.