Financial Services Report

February 23, 2017

Looking Ahead

Near Term

  • Both the House and the Senate are in Recess this week.

Further Out

  • Chairman Hensarling is expected to release the latest iteration of his Dodd-Frank replacement bill, known as the Choice Act, perhaps as soon as the week Members return.   According to some accounts, he has left version 2.0 behind and is now working on version 3.0. 

The Past Week

Legislative Branch

House Advances Two Resolutions Targeting Obama IRA Rules
On Wednesday, the House passed a pair of Congressional Review Act (CRA) resolutions undoing Obama Administration rules related to retirement savings. The first (H.J. Res. 66) disapproves a Labor Department rule that aims to auto-enroll employees in state-run individual retirement accounts (IRAs), and the second (H.J. Res. 67) would kill a rule allowing for large cities and counties to set up their own auto-enrollment retirement savings programs. Rep. Henry Cuellar (D-TX) was the only Democrat to approve of either measure.
Crapo Warns Dodd-Frank Repeal Will Move Slowly in Senate
New Senate Banking Committee Chair Mike Crapo (R-ID) said last week that making changes to financial regulations will be a slow process because of the parliamentary procedures required of Congress and the “toxic” climate in the upper chamber. He cited a timeline of 1 to 2 years before a complete financial services overhaul would make it to the president’s desk, tapping issues such as the $50 billion threshold for deeming banks systemically important, Basel capital standards, and reforms to the Financial Stability Oversight Council as priorities for such a bill.  
Cruz Introduce Bills to Abolish CFPB
Conservative Senator Sen. Ted Cruz (R-TX) and Rep. John Ratcliffe (R-TX) introduced mirroring bills (S. 370, H.R. 1031) last week that would repeal all of Title X of the Dodd-Frank Act.  This title established the Consumer Financial Protection Bureau (CFPB) as an independent agency within the board of governors of the Federal Reserve. The lawmakers accused the CFPB of “unaccountable overreach.” The Senate bill has four cosponsors, while the House version has 17; all of the cosponsors are Republican.  While Chairman Hensarling has been hard at work on a Dodd-Frank replacement bill, by all accounts he has not decided to include language that would eliminate the CFPB.
Perdue Introduces Bill Subjecting CFPB to More Oversight
On Wednesday, Senate Banking Committee member Sen. David Perdue (R-GA) announced he would be introducing a bill that would subject the CFPB to the congressional appropriations process. The bill, which reflects a similar bill introduced last year, has yet to be introduced. The CFPB is currently funded via an independent funding stream through the Federal Reserve.  It is widely expected that at such time there is another reconciliation bill for comprehensive tax reform, Republican Senators will put forth language to remove the CFPB’s Federal Reserve funding stream.
Senate Confirms Mulvaney as OMB Director
On Thursday, the Senate confirmed Congressman Mick Mulvaney to become the Director of the Office of Management and Budget Mick Mulvaney to the post on a razor thin 51-49 margin.  The vote was closer than had been previously expected due to opposition over Mulvaney’s  staunch belief in drastically slashing government spending, including for the military, which led Sen. John McCain (R-AZ) to join all Democrats in opposing his confirmation.
GOP Sens. Call on Mnuchin to Expand Sanctions on North Korea
On Tuesday, six Republican senators sent a letter to newly installed Treasury Secretary Steven Mnuchin asking him to escalate sanctions against North Korea in response to its most recent missile test. Specifically, the senators ask for Mnuchin to “execute the full extent of financial sanctions and targeted financial measure against North Korea allowed under current law.”
Gorsuch Hearing Set for Mar. 20 – Grassley
Senate Judiciary Committee Chairman Chuck Grassley (R-IA) announced last week that he expects the confirmation hearing for Supreme Court nominee Neil Gorsuch to begin on Mar. 20 and last for three to four days. Gorsuch would take the seat of the late Antonin Scalia after former President Obama’s selection for the seat – Merrick Garland – was stonewalled by the Senate last year.
Rubio, Hatch Introduce Measure to Expand HSAs
On Thursday, Sens. Marco Rubio (R-FL) and Orrin Hatch (R-UT) introduced the Health Savings Act (bill text) that would aim to simplify and expand Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs). Rep. Erik Paulsen (R-MN) introduced an identical version of the bill in the House.
Select Highlights from the Administration
Federal Reserve

Yellen Talks Fed Role in Global Talks, Stress Test Rule in Two Days on the Hill
Federal Reserve Chair Janet Yellen appeared before both the Senate Banking Committee and the House Financial Services Committee to give the Fed’s semiannual monetary policy report to Congress. In the latter of those two hearings, Yellen defended the Fed’s role in participating in negotiations over global bank regulations, telling Rep. Patrick McHenry (R-NC) that the Fed aims to “promote standards already determined domestically to be important for U.S. financial stability." She also alluded to tougher stress test standards for U.S. banks despite the impending departure of the Fed’s de facto regulatory head – Governor Daniel Tarullo – but did not offer a timeline for the proposal. Beyond that change, she said that she envisions a “relatively light schedule” of regulatory activity until Tarullo leaves in April.
White House
Puzder Withdraws; Trump Taps Acosta for DOL Post
Andy Puzder was scheduled to appear before the Senate Health, Education, Labor, and Pensions (HELP) Committee last week for his confirmation hearing to be Labor Secretary, but the nomination was derailed after as many as 11 Republican senators said they may oppose him in a Senate vote. Puzder attracted serious controversy over his beliefs on minimum wage and also suffered from personal scandals, including hiring an undocumented immigrant(s?) as a housekeeper and domestic violence allegations that were in a taped episode of the “Oprah” television show. With Puzder withdrawing on Wednesday, the White House moved quickly to nominate former National Labor Relations Board (NLRB) member Alexander Acosta for the position. Acosta, who has been confirmed twice by the Senate for other positions, would be the first Hispanic member of President Trump’s Cabinet and sports a considerable record of public service compared to the controversial nominee that preceded him. He was an Assistant Attorney General for Civil Rights in President George W. Bush’s Justice Department and has been a U.S. attorney, but he has not offered many comments on labor policy since leaving the NLRB in 2003.     
Trump Signs Resolution Killing SEC Resource Disclosure Rule
On Tuesday, President Trump signed a resolution (H.J. Res. 41) passed by both chambers of Congress to nullify a Securities and Exchange Commission rule that required companies to report payments made to local and foreign governments in order to extract resources. The rule was opposed by then Exxon CEO and current Secretary of State Rex Tillerson, which has led to outcry from some Democrats on the appropriateness of the rule. It was passed under the guidelines of the Congressional Review Act (CRA), which allows for a simple majority vote in both chambers to pass a disapproval resolution for any regulation finalized in the final sixty days of the previous session.
Securities and Exchange Commission (SEC)
Acting SEC Head Piwowar Lays Out 2017 Agenda
On Tuesday, the acting SEC Chair, Commissioner Michael Piwowar, told The Wall Street Journal that he believed he had the authority to slow the rulemaking process for certain rules mandated by the Dodd-Frank financial reform law. He cited the required regulations to force companies to disclose business done in war-torn areas of the world, an uncompleted rule that governs part of the swaps industry, and most controversially, one that would mandate companies disclose the pay-gap between their CEO and average employees. His Democratic counterpart, Commissioner Kara Stein, said that such moves “create uncertainty about which laws will be enforced.” President Trump has named Wall Street attorney Jay Clayton to be the permanent chair for the agency and hearings are expected at the Senate Banking Committee in the immediate near future. 
Consumer Financial Protection Bureau (CFPB)
Court Will Rehear CFPB Case in Victory for Bureau
On Thursday, the U.S. Court of Appeals in Washington ruled that the PHH Corp v. CFPB case would be reheard in October. The CFPB lost the first trial, which concluded that the bureau’s structure was unconstitutional and that the President should be able to fire the CFPB Director for any reason. Republicans largely dismissed the ruling, with House Financial Services Committee Chairman Jeb Hensarling (R-TX) saying it “wouldn’t effect” his plans to roll back the consumer watchdog through legislation.
CFPB Hopes Alternative Data Can Improve Access to Credit
On Thursday, the CFPB held a field hearing on using alternative data in credit scoring and also sent a formal request for information on the subject. Policymakers have long sought to provide an additional avenue to the traditional credit model, that focuses heavily on credit account usage while ignoring other potentially relevant information such as lease and utilities payments. The alternative crediting model has been championed by some online consumer and small business lenders, who argue that the use of the data can provide a more accurate picture of creditworthiness. However, some consumer groups have argued that said the use of the data could violate fair lending laws.