Financial Services Report

January 25, 2017

Looking Ahead

Near Term

  • A short week in the House as Republicans leave on Wednesday for their Caucus retreat.  
  • The Senate will continue to move through the nominations process with votes scheduled for Mike Pompeo (R-KS) for CIA Director as well as numerous committee votes for those who have had hearings.
  • The Trump administration is expected to start kicking things into a higher gear on Monday, with a slew of executive orders expected to be signed.   Rumors continue to swirl that one of those orders will be a delay of the Department of Labor’s Fiduciary Rule.

The Past Week

Presidential Transition 
Obama Nominee Szubin to Act as Interim Treasury Secretary
On Thursday, a Treasury spokesman announced that current Undersecretary for Terrorism and Financial Intelligence, Adam Szubin, will serve as acting Treasury secretary until Trump nominee for the post, Steven Mnuchin, is confirmed by the Senate.  
Trump Team Vetting David Nason for Fed Regulator Role
On Thursday, reports surfaced suggesting that David Nason, a General Electric executive and former Treasury official, is being considered for the Federal Reserve Vice-Chair for regulation. The post was never filled by the Obama Administration, leaving many of its responsibilities to Fed Chair Janet Yellen and Governor Tarullo.

Legislative Branch
Fintech and Payments Caucus Announces Co-Chairs
On Wednesday, the Congressional Fintech and Payments Caucus announced two additional co-chairs for the 115th Congress, namely Reps. Patrick McHenry (R-NC) and Randy Hultgren (R-IL). The two will join minority members Reps. Kyrsten Sinema (D-AZ) and David Scott (D-GA) as co-chairs for the caucus, which serves as an informal group of members dedicated to innovation and growth in the fintech space. Remarking on his leadership in the caucus, Rep. McHenry said he looked forward to creating a “regulatory environment that allows fintech to reach its true potential.”
House GOP Committee Staff Release Report on CFPB actions Against Auto Lenders
On Wednesday, the Republican staff for the House Financial Services Committee released a new report detailing their concerns Consumer Financial Protection Bureau’s (CFPB) enforcement actions against the auto lending industry. According to the report, the CFPB’s use of “disparate impact” to determine penalties would not be able to be defended in court under precedent set by a recent case. That case stated that disparate impact could be used as proof to support racial discrimination claims, but that courts should seek out a “robust causality” when determining if a policy is discriminatory. The report was seen by some as evidence for the President to satisfy the legal standard for firing CFPB Director Cordray. 
Schumer Confirms Dem Opposition to CFPB Commission
On Tuesday, Senate Minority Leader Chuck Schumer (D-NY) confirmed that the Democrats will oppose any attempts to alter the Consumer Financial Protection Bureau’s (CFPB) leadership from a single director to a five-member commission, even after Richard Cordray’s term expires next year. His announcement comes after two Banking Committee Democrats, Sens. Sherrod Brown (D-OH) and Elizabeth Warren (D-MA), also resisted the idea of a commission, fearing that the agency would be “emasculated” by Congress’ failure to confirm nominees to the panel.   
Mnuchin Survives Aggressive Hearing
Goldman Sachs executive and former hedge fund manager Steven Mnuchin made it through a marathon five hour hearing last week.   The hearing started on an odd note after Sen. Pat Roberts (R-KS) jokingly offered valium to Ranking Member Sen. Ron Wyden (D-OR) following the Oregon Senator’s passionate opening statement – a joke that was not well received by the Democrats on the panel.   While Democrats have voiced serious opposition to the nominee over his past leadership at OneWest Bank, and outside groups hammered Finance Committee Member Heller (R-NV) with advertisements on the issue, during the hearing, Republicans unanimously supported the nominee, while Democrats balanced policy examination with attacks on Mnuchin’s past. In all, however, Mnuchin was able to defend his practices and offer more meaningful glimpses into President-elect Trump’s economic plans. Among the more significant policy revelations, Mnuchin offered support for Dodd-Frank’s Volcker Rule, called for a “21st Century Glass-Steagall Act,” claimed the Internal Revenue Service (IRS) was understaffed, and reaffirmed his support for raising the U.S. debt limit without controversy. Other issues, including the future of the Consumer Financial Protection Bureau (CFPB) and trade policy, were also discussed.
Ross Appears Headed to Confirmation
On Wednesday, the Senate Commerce Committee held a hearing to consider the nomination of billionaire investor Wilbur Ross to become the Secretary of Commerce for the incoming Trump Administration. Ross is known for turning around fledgling businesses with his investments in a variety of industries, although he has drawn the ire of some Democrats for his business practices. The hearing proved less controversial than for other Trump nominees, with Ross able to give detailed answers on the Administration’s trade priorities, plans to sell spectrum, and initiatives to promote GDP growth. You will also note that Senators of both parties prioritized the discussion of trade, with Ross offering his overall view as favoring “sensible trade” that benefited American workers. In questioning, he outlined his opposition to the Trans-Pacific Partnership (TPP) and suggested that the North American Free Trade Agreement (NAFTA) would be opened to renegotiation.
Warren Sends Letter to Investment Companies as Fiduciary Delay Fight Gets Underway
On Thursday, prominent Senate Banking Committee member Sen. Elizabeth Warren (D-MA) wrote to a group of thirty-three financial firms asking for support against the Trump Administration’s rumored delay of implementation of the Department of Labor’s rule governing retirement advice. The Trump team is rumored to favor a six-month delay, while a recently introduced bill from Rep. Joe Wilson (R-SC) would delay the rule two years from the date of enactment. In the letter, Warren argued that the companies should join forces to “ensure investment adviser fees, commissions and kickbacks aren’t draining away the money Americans do manage to save.”
Senate Banking Committee Announces Subcommittee Assignments
On Tuesday, the Senate Banking Committee released its subcommittee assignments. The chairs and ranking members of each subcommittee are:

  • Housing, Transportation, and Community Development

    • Sen. Tim Scott (R-SC), Chairman
    • Robert Menendez (D-NJ) Ranking Member
  • Financial Institutions and Consumer Protection

    • Sen. Pat Toomey (R-PA), Chairman
    • Sen. Elizabeth Warren (D-MA), Ranking Member
  • Securities, Insurance, and Investment

    • Sen. Dean Heller (R-NV), Chairman
    • Sen. Mark Warner (D-VA), Ranking Member
  • National Security and International Trade and Finance

    • Sen. Ben Sasse (R-NE), Chairman
    • Sen. Joe Donnelly (D-IN), Ranking Member
  • Economic Policy

    • Sen. Tom Cotton (R-AR), Chairman
    • Sen. Heidi Heitkamp (D-ND), Ranking Member

Select Highlights from the Administration
Federal Reserve
In Speech, Fed Governor Brainard Outlines Fiscal Policy Effects on Monetary Policy
On Monday, in a speech at the Brookings Institution, Federal Reserve Governor Lael Brainard explained the fiscal policy factors that would impact the Fed’s consideration of monetary policy. She highlighted four “key dimensions,” namely: the substance of the policy and its effect on aggregate supply and demand; how close the economy is to full employment and 2 percent inflation; the cyclical position of the U.S. economy compared to foreign countries; and the amount of budgetary resources. She added that against a “uncertain backdrop,” monetary policy will continue to be based on the employment and inflation mandates, with predicted “gradual and steady” progress on interest rates.
Commodity Futures Trading Commission (CFTC)
White House Resubmits Nominations of Brummer, Quintenz to CFTC
On Tuesday, President Obama resubmitted the nominations of Christopher Brummer and Brian Quintenz to serve as CFTC commissioners the Senate. The two nominees, one Democrat and one Republican, were initially tapped by the White House last year and were advanced by the Agriculture Committee in September.  
Department of the Treasury
Obama Treasury Rushes to Finish Anti-Inversion Rules
On Wednesday, the Treasury Department published final regulations that slightly amend temporary rules put into place in 2014 that disregard foreign parent stock attributable to inversions. The change builds on previous restrictions aimed at preventing companies from moving their headquarters overseas in order to dodge U.S. taxes. Former President Barack Obama’s Treasury Secretary, Jack Lew, had targeted inversions with regulations, with the late push also providing guidance to industry on the transfer of a foreign corporation’s stock after it has acquired “substantially all” of the properties of a domestic corporation.
Government Accountability Office
US Gov’t on ‘Unsustainable’ Fiscal Path – GAO
On Tuesday, the Government Accountability Office released an annual report on the nation’s fiscal health and, as in years prior, warned about the unsustainable growth of U.S. spending. Long-term projections for government spending show a “unsustainable fiscal path” according to the non-partisan agency. The full report is available, here.  
Consumer Financial Protection Bureau (CPFB)
CFPB Sues TCF National Over Deceptive Overdraft Fee Practices
On Thursday, the CFPB filed suit against TCF National Bank for allegedly tricking customers into overdraft charges. The suit describes TCF’s application process as one that obscures fees and makes overdrafts seem mandatory. Possible penalties for the bank includes financial redress for customers, an injunction to prevent future violations, and a civil money penalty. TCF has denied the charges.  
Next Week’s Schedule
Tuesday January 26th

  • Hearing: Senate Banking Committee to Vote on Carson Nomination – 10:00 AM – The Senate Banking Committee will hold an executive session to vote on the nomination of Dr. Ben Carson to be the next Housing and Urban Development (HUD) Secretary. Details here.
  • Hearing: Senate HSGAC to Consider Mulvaney for OMB Director – 2:30 PM – The Senate Homeland Security & Governmental Affairs Committee will hold a hearing to consider the nomination of Rep. Mike Mulvaney (R-SC) to be Director of the Office of Management and Budget for the Trump Administration. Details here.
  • Markup: Senate Commerce to Markup 19 Bills – 10:00 AM – The Senate Commerce Committee will hold an executive session to markup 19 bills related to technology and weather forecasting, among other issues. Details here.