Financial Services Report (5/11)

May 11, 2020
House lawmakers are currently scheduled to return to Washington next week, as House Democrats continue to work on tying loose ends on their forthcoming stimulus proposal. Provisions expected in the section from the Financial Services Committee include: prohibitions on negative credit reporting, debt collection and wage garnishment of stimulus funds, as well as rental market stabilization. Other anticipated provisions will include extending the PPP loan time frame – both for when companies need to use the money, as well as an extension of the loan terms to five years, as well as significant appropriations of federal funds to help states cope with unprecedented revenue shortfalls.

While text may be released next week, one complicating factor is whether the Democrats think they have a willing negotiating partner with Senate Republicans, with a decision in the affirmative likely slowing down introduction so as to provide more runway to negotiate. If not, then a vote on a Democratic “wish list” could happen later this week, or it could be delayed anywhere from next week until early June.

Even if the House is not back voting there is a schedule of virtual “hearings”, including one in a Financial Services Subcommittee with the Bank regulators, and a couple at the Small Business Committee.

The Senate is going to remain in session with votes expected on Deputy HUD Secretary Brian Montgomery along with another Executive Nomination. There are also a few hearings scheduled for next week, including those same regulators at the Banking Committee and a hearing in the Judiciary Committee on the liability issue that has become a red-line for Senate Republicans.
Last Week in the House
The Floor

The House was not in session last week and there was not any floor activity.

Hearings and Markups

As the House was out of session there were no hearings. However, earlier in the week, Chairman Waters and Ranking Member McHenry announced that they would be scheduling “virtual round tables” over the next several weeks. According to the memo, these events will focus on “mutually agreeable” topics, with the first one announced for this week.

Bills Introduced

Student Loan Forgiveness for Frontline Health Workers Act (Maloney): Establishes a federal and private student loan forgiveness program for health care workers who have made significant contributions to the COVID-19 response.

Emergency Rental Assistance and Rental Market Stabilization Act (Waters and Heck): Establishes a $100 billion Emergency Rental Assistance program to assist vulnerable families and individuals in paying their rent during and after the COVID crisis. The program is modeled after the federal Emergency Solutions Grant (ESG) program that provides temporary rental and utility payment assistance to households. The legislation has 131 House cosponsors and was jointly introduced in the Senate with Banking Committee Ranking Member Sherrod Borwn (D-OH).

Other Activity

Clyburn Committee Issues letters Public Companies Who Took PPP. On Friday, the Select Subcommittee on the Coronavirus Crisis, chaired by Whip Clyburn(“Clyburn Committee”) sent letters to a handful of public companies who had received PPP loans. According to the Committee, the targets of these letters were the companies with a market capitalization of more than $25 million, more than 600 employees and who received PPP loans of $10 million or more. The letters ask the CEOs if they are going to return the funds.

Additionally, earlier in the week the Republicans named their members to the select subcommittee, with Leader McCarthy announcing that Minority Whip Steve Scalise of Louisiana and Reps. Jim Jordan of Ohio, Blaine Luetkemeyer of Missouri, Jackie Walorski of Indiana and Mark Green of Tennsesse, would serve as the minority members of the subcommittee.

HFSC Democrats Letter to Mortgage Servicers. On Monday, Financial Services Committee Chairwoman Maxine Waters (D-CA) led Democratic subcommittee chairs on a series of letters to 11 major mortgage servicers requesting information on their efforts to assist homeowners affected by the COVID-19 pandemic. The requested information covers both implementation of the CARES Act’s moratorium on foreclosures against federally backed mortgages, as well as voluntary forbearance measures.
“It is critical that you communicate consistent and accurate information regarding the options available to borrowers who are unable to make their mortgage payments due to financial hardship that is directly or indirectly related to the pandemic. Similarly, borrowers seeking assistance must be able to contact a customer service representative without excessive wait times or other delays,” the letters read.

McHenry Regulatory Relief Letters. On Friday, Financial Services Committee Ranking Member Patrick McHenry (R-NC) sent a series to letters to federal financial regulators urging them to “finalize outstanding rules that will stimulate economic growth and to repeal existing regulations that hinder employers from directing resources to their employees and their communities.”

While the brief letters do not include specific policy recommendations, they draw attention to numerous issues which largely map with HFSC Republicans priorities prior to the COVID pandemic. To this end, the letters note that the deteriorating economic situation increases the pressure on regulators “to create the most favorable conditions for growth and employment.”

Specific policy areas identified in the letters include:

Consumer Protection: CFPB’s Payday, Debt Collection, and Qualified Mortgage rules.

Banking Regulators: The valid-when-made doctrine, the treatment of AI and machine learning, the Volcker Rule’s covered funds provision, and the the Community Reinvestment Act.

Housing: HUD’s Affirmatively Furthering Fair Housing regulations and rulemaking around the Fair Housing Act’s disparate impact standard, as well as FHFA’s Enterprise Capital Rule.

Securities: Crowdfunding facilitation, harmonization of exempt offerings, accredited investor modernization, and the regulation of proxy voting.
Last Week in the Senate
The Floor

The upper chamber returned to Washington in a limited capacity last week, with Senators resuming consideration of presidential nominations.


Banking Committee Nominations Hearing. The Banking Committee picked back up its activity this week with a hearing to consider the nominations of Brian Miller to serve as Special Inspector General for Pandemic Recovery and Dana Wade to serve as Assistant HUD Secretary for Housing and Federal Housing Commissioner. The hearing most notably featured Democratic skepticism over Mr. Miller’s independence from the White House in overseeing more than $500 billion in economic relief funding provided to the Treasury Department under the CARES Act.

Ranking Member Sherrod Brown warned that “as Special Inspector General, you must be willing to stand up to the Administration and any other bad actor and to uphold the goals of the law…anything less is unacceptable.” Others have raised concerns about Mr. Miller’s roles in the White House Counsel’s office and the Trump impeachment defense team, as well as Mr. Miller’s refusal to elaborate on his potential involvement in the firing of Intelligence Community IG Michael Atkinson.

Bills Introduced

RESTART Act (Bennet and Young): Extends the Paycheck Protection Program’s eight week loan forgiveness period to sixteen weeks for businesses that have seen their revenues decline by at least 25 percent. The legislation would additionally establish a longer-term “RESTART” program providing small and medium-sized businesses with six months of funding, which would be partially forgivable based on declines in revenue.

Other Activity

Democratic Payday Rule Letter. On Monday, Banking Committee Ranking Member Sherrod Brown (D-OH) led 11 Democrats on a letter calling on CFPB Director Kathleen Kraninger to halt work on her efforts to rescind the mandatory underwriting provisions of the Payday Lending Rule, changes which the letter argues would allow lenders to “trap borrowers in cycle of debt.” Drawing on recent press reports, the letter further alleges undue political and industry influence behind the rulemaking and accuses bureau leadership of failing to go through required processes in developing the rule.

Opportunity Zone COVID Letter. On Monday, Sen. Tim Scott (R-SC) led eight other Republicans on a letter to Treasury Secretary Steven Mnuchin calling for him to take additional action to provide relief to investors in Opportunity Zones impacted by the COVID-19 pandemic. The letter includes 10 requests to build on relief provided under the department’s recent Notice 2020-23, including: (1) extending by three months the 180-day period for proceeds to be contributed to a Qualified Opportunity Fund; (2) waiving penalties for funds that fail the meet the 90-percent investment standard through July 15; and (3) clarifying that the 24-month extension of the working capital safe harbor for businesses within a federally declared disaster area applies nationwide pursuant to the President’s Stafford Act declaration.

Loeffler Steps Down from Commodities Subcommittee. On Wednesday, Sen. Kelly Loeffler (R-GA) announced her intention to recuse herself from the Agriculture Subcommittee on Commodities amid persistent scrutiny of her financial portfolio. The freshman Senator is married to Jeffrey Sprecher, the chairman of the New York Stock Exchange, and has come under fire for stock trades made in the lead up to the coronavirus pandemic. The move did little to appease her primary opponent, Rep. Doug Collins (R-GA), who commented through a spokesperson: “What about the Agriculture Committee? The Joint Economic Committee? The U.S. Senate? She has five conflicts of interest before her first chai latte every day and her campaign is starting to look like a ‘Saturday Night Live‘ sketch.”

Credit Counseling Funding. On Wedesday, Sens. Jeff Merkley (D-OR) and Steve Daines (R-MT) led on a letter to Senate leadership calling for $700 million in funding for non-profit credit counseling centers to be included in a future COVID-response package. Per the Senators, “as housing counseling continues to be a critical resource for assisting consumers facing financial issues in the housing market and must be robustly funded, credit counseling presents another opportunity to help consumers and small businesses manage historically high levels of unsecured debt, including medical expenses, student loan debt, and credit card debt.”

PPP Payday Lender Letter. On Wednesday, Sens. Dick Durbin (D-IL), Jeff Merkley (D-OR), and four other Democrats sent a letter to the Treasury Department and Small Business Administration warning them against using their administrative authority to make payday lenders eligible for Paycheck Protection loans. A response to recent calls to make small dollar lenders eligible for PPP, the letter notes that such businesses are currently ineligible for SBA loans and argues that taxpayer relief should not enable “deceptive and predatory lending practices.”

Brown/Peters Pensions Letter: On Thursday, Sens. Sherrod Brown (D-OH) and Gary Peters (D-MI) sent a letter to House Speaker Nancy Pelosi (D-CA) calling for the House’s next COVID response package to include relief for struggling multiemployer pension plans. “Legislation to secure the pensions of millions of Americans who, through no fault of their own, are at risk of losing the benefits they earned, is long overdue. Addressing multiemployer pension insolvency is an integral part of remedying the economic impact of this epidemic and it must be done without sacrificing workers’ hard-earned benefits,” the letter argued.
Last Week in the Administration
BLS Publishes Worst Jobs Report Since the 1930s
On Friday, the Bureau of Labor Statistics reported that the economy lost 20.5 million jobs in April, with the unemployment rate surging upward to 14.7 percent. Both figures are the worst since the Great Depression. As expected, the worst losses came from the hospitality industry, which shed 7.7 million workers, but it should be noted that backbone sectors such as manufacturing, government, transportation, and construction also lost a combined $3.5 million jobs. While the dismal jobs report was widely expected—and actually slightly better than economist expectations—it can be nothing other than politically jarring, and is likely to provide further rhetorical fuel to the push to provide further economic relief to the economy.

Banking Regulators Continue Emergency Regulatory Relief
Throughout the week, federal banking regulators took several actions to provide relief to supervised depository institutions impacted by the COVID-19 pandemic.

On Tuesday, the Fed, FDIC, and OCC issued an interim final rule that modifies the agencies’ Liquidity Coverage Ratio (LCR) rule to support banking organizations’ participation in the Federal Reserve’s Money Market Mutual Fund Liquidity Facility and the Paycheck Protection Program Liquidity Facility. Specifically, the IFR facilitates participation in these facilities by neutralizing the LCR impact associated with the non-recourse funding provided by these facilities. The rule does not otherwise alter the LCR or its calibration.

On Wednesday, the Fed and FDIC announced ninety day extensions to two deadlines for banks to submit documents related to resolution planning.

Banking Regulators Issue CECL Clarification
On Friday, the Fed, OCC, FDIC, and NCUA issued an interagency policy statement aimed at promoting consistency in the interpretation and application of the Financial Accounting Standards Board’s credit losses accounting standard, which introduces the current expected credit losses (CECL) methodology. Per the agencies, “the interagency policy statement describes the measurement of expected credit losses using the CECL methodology and updates concepts and practices detailed in existing supervisory guidance that remain applicable.” The regulators also published interagency guidance on credit risk review systems containing principles for establishing a system of independent, ongoing credit risk review in accordance with safety and soundness standards.

CFPB Publishes PPP FAQ
On Wednesday, CFPB published a FAQ intended to clarify the treatment of Paycheck Protection Program loans under federal consumer financial protection laws. Most notably, the FAQ clarifies that Regulation B’s 30-day deadline to respond to a credit application only begins when the creditor has received a loan number or other response from SBA, ensuring that time spent waiting for SBA does not count towards the 30-day notice period.

SEC Provides Temporary Crowdfunding Flexibility
On Wednesday, the SEC published a temporary amendment to its Regulation Crowdfunding providing limited relief to established small companies facing urgent funding needs. Available only to companies that have been in business for at least six months, the amendment provides relief from several timing and financial statement requirements under Regulation Crowdfunding and expires at the end of August. Announcing the move, SEC Chairman Jay Clayton attributed the temporary relief to the challenge of quickly raising capital in the current environment and noted that the proposal follows suggestions made by members of the commission’s Small Business Capital Formation Advisory Committee.

Supreme Court Hears TCPA Case
On Wednesday, the Supreme Court heard oral arguments in Barr v. American Association of Political Consultants, which could decide the future of federal restrictions on robocalls. In the case, a group of political consultants argue that the Telephone Consumer Protection Act’s ban on automatically dialed (auto-dialed) calls to cell phones, combined with the 2015 exemption for calls made to collect government-owed debt, creates a filter on the content of speech in violation of the First Amendment.

While the Fourth Circuit Court of Appeals agreed that the carveout creates such a restriction and threw out the 2015 exemption, the political consultants argued that such a move restricts speech rather than furthers it and that the whole ban should be thrown out. The case poses potentially consequential questions pertaining to the relationship between severability and constitutional rights. It could more directly impact the financial services sector by allowing the broader contacting of cell phones by debt collectors and others in the financial services industry.

At the Court’s second ever day of telephonic oral arguments, Justices appeared to generally agree that the government debt exemption was a content-based restriction on speech while expressing a general hesitance at striking down what was described as a “popular” law. Justices grappled most significantly with the appropriateness of severing the debt exemption from the rest of the law, setting the stage for a possible decision that keeps TCPA autodialer restrictions in place to some extent moving forward.