Financial Services Report 5/20

May 20, 2019
It is going to be a busy week in the House of Representatives with two major financial services related bills coming to the floor. First is H.R. 1500, legislation offered by Chair Waters that will roll back many of the changes made to the CFPB by former Acting Director Mick Mulvaney. While the legislation had passed out of the Committee on a near party-line vote, what will make this bill even more interesting will be which amendments are made in order and voted on as there are some very controversial ones that have been filed.
Second, will be H.R. 1994, the SECURE Act, the son of RESA, a retirement security bill. This legislation includes many incentives and policy changes to spur retirement savings. However, before voting on the bill, the House will vote on an amendment that will reduce taxes on military survivor benefits and also remove language from the bill that would allow 529 style savings for homeschooling. Republicans are reportedly upset about the elimination of that provision though it is unclear whether their anger will translate into voting against a bill that they have basically already voted for last year.

The Senate will look to resolve the impasse over disaster relief funding, with reports of a deal between Congress and the White House on aid for Puerto Rico as well as funding for “humanitarian needs” at the U.S.-Mexico border. Of course, despite these reports, it is ultimately unclear whether the President will sign any legislation.
In notable committee activity next week, Treasury Secretary Steven Mnuchin will return to the House Financial Services Committee Wednesday morning to resume his Apr. 9 testimony on the state of the International Finance System. Also on Wednesday, the House Ways and Means Committee will hold a hearing to examine the United States-Mexico-Canada Agreement's (USMCA) enforcement mechanisms. 
Last Week in the House
The Floor
On Wednesday, the House passed four bills out of the Financial Services Committee. All four bills passed by a voice vote:
Hearings and Markups
Executive Compensation and Worker Protections (5/15): On Wednesday, the Financial Services Committee held a hearing ostensibly titled "strengthening workers rights and protections". During the hearing, Members considered four Democratic bills (committee memo) that would: (1) require publicly traded companies to disclose outsourcing data; (2) require publicly traded companies to publish human capital investment disclosures; (3) commission a study on rule 10b-18 stock buybacks; and (4) require publicly traded companies to publish data on pay increases for senior executives relative to median workers. Delivering the opening statement for Subcommittee Republicans, Rep. Trey Hollingsworth (R-IN) warned that the bills under consideration would "impede economic growth" by increasing compliance costs and expending resources that could otherwise go to investment and Representative Duffy used his time to query the panel about their salary and questioned one of the witnesses about the rate of pay for her domestic help.
Sanctions (5/15): On Wednesday, the Financial Services Committee held a hearing where Members debated draft sanctions legislation targeting Russian interference in US elections. The draft legislation would: (1) express the sense of Congress that Russia interfered in the 2016 elections; (2) sanction Russian financial institutions and sovereign debt; and (3) establish certain mandatory contingency sanctions in the event of future Russian interference.
Retirement Security (5/15): On Wednesday, the Budget Committee held a hearing on retirement security. While the hearing largely focused on the solvency of Social Security —including Rep. John Larson testifying in support of his Social Security 2100 Act—several Members asked about specific savings topics or voiced support for savings legislation including the SECURE Act.
Bank Regulators (5/16): On Thursday, the Financial Services Committee held a hearing featuring testimony from four federal banking regulators—the Federal Reserve, the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), and the National Credit Union Administration (NCUA). During the hearing, the witnesses outlined their progress in implementing last Congress’s Economic Growth, Regulatory Relief, and Consumer Protection Act regulatory relief package—a process which they indicated should be complete by the end of this year. From the dais, Members on both sides of the aisle were keenly interested in the Current Expected Credit Loss (CECL) accounting standard, fintech regulation, and efforts to modernize the Community Reinvestment Act (CRA).
Arbitration (5/16): On Thursday, the Judiciary Subcommittee on Anti-Trust held a hearing examining forced arbitration clauses. Democrats emphasized that Congress must reform arbitration policy to protect the interests of consumers, employers, small businesses, veterans, and victims of sexual assault. Democrats suggested that the Federal Arbitration Act (FAA) is outdated, and that reforms are needed to: (1) boost transparency and accountability; (2) promote more consumer choice in both who is arbitrating cases and consumer representation; and (3) mitigate burdens to consumers and businesses. Conversely, Republicans on the dais defended the current arbitration process, arguing that the U.S. court system does not have the capacity to handle these cases in a way that would provide meaningful outcomes for plaintiffs.
Payday Lending Rule (5/16): On Thursday, the Oversight Subcommittee on Economic and Consumer Policy held a hearing examining the Consumer Financial Protection Bureau's reexamination of the Payday Lending Rule's underwriting requirement. During the hearing, subcommittee Democrats continued to harshly criticized reconsideration of the rule and alleged that the small dollar lending industry had undue influence in the decision. Among other allegations, Democrats raised concerns that industry submitted fake or coerced comments to influence CFPB rulemaking.
Bills Introduced
HR 2763 (Sylvia Garcia): Prohibits the Department of Housing and Urban Development from implementing recently proposed rules requiring that every member of a family receiving housing aid be an eligible citizen. Mixed-status households can currently receive prorated housing aid for family members who are eligible citizens.
Free Credit Scores: Two Democratic bills this week would provide consumers with free access to their credit scores. Rep. Steve Cohen's (D-TN) Fair Access to Credit Scores Act and Rep. Joyce Beatty's (D-OH) Free Credit Score Act would both mandate that Fair Credit Reporting Act-mandated free annual credit reports include a credit score.
Office of Financial Research Repeal (Budd, Mooney, and Davidson): Eliminates the Treasury Department's Office of Financial Research, which the bill's sponsors and other conservatives have argued is "duplicative and unaccountable." Companion legislation in the Senate was introduced by Sens. Ted Cruz (R-TX), Tom Cotton (R-AR), and Thom Tillis (R-NC).
Other Activity

Democrat Letter to Fed: On Wednesday, Reps. Chuy Garcia (D-IL), Rashida Tlaib (D-MI), and 11 other House Democrats sent a letter to Federal Reserve Chairman Jerome Powell and Vice Chair for Supervision expressing concern at recent "deregulatory moves" by the Fed. Recent decisions cited in the letter include: (1) maintaining the Counter Cyclical Capital Buffer (CCyB) at zero; (2) eliminating the qualitative portion of stress testing; (3) the Financial Stability Oversight Council voting to consider "likelihood of distress" in its designation process; (4) decreasing resolution planning frequency; and (5) allowing foreign banks to "opt out" of capital requirements. The letter additionally questions the Fed's decision to "swiftly implement S. 2155's deregulatory agenda" and alleges that its regulatory strategy over the last two years "invites more risky financial activity."
Last Week in the Senate
The Floor

With much of the Senate's week dedicated to confirming executive and judicial nominees, the upper chamber did not consider any legislation directly pertinent to financial services this week.
Hearings and Markups
Retirement Security (5/14): On Tuesday, the Finance Committee held a hearing examining challenges to the retirement system. During the hearing, Members discussed several legislative proposals intended to enhance retirement security—most notably the Retirement Enhancement and Savings Act (RESA) and the recently introduced Retirement Security and Savings Act. Members and witnesses broadly supported the swift passage of retirement legislation, with particular attention dedicated to the potential of open multiple employer plans (MEPs) and non-discrimination testing adversely affecting beneficiaries of older plans. Additionally, several Members spoke favorably of state-facilitated automatic enrollment IRAs and raised concerns about the impending insolvency of multiemployer pension plans.
Bank Regulators (5/15): On Wednesday, the Banking Committee held a hearing with four federal banking regulators—the Federal Reserve, the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), and the National Credit Union Administration (NCUA). During the hearing, the witnesses outlined their progress in implementing last Congress’s Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155) regulatory relief package—a process which they indicated should be complete by the end of this year. While Committee Chairman Mike Crapo (R-ID) and Ranking Member Sherrod Brown (D-OH) continued to clash over the regulatory relief strategy embodied in the bill, other topics receiving Members attention included leveraged lending, tailoring for US operations of foreign banks, and the process of rewriting Community Reinvestment Act (CRA) regulations.
Treasury Appropriations (5/15): On Wednesday, Secretary of the Treasury Steven Mnuchin presented the Treasury Department's FY20 budget to the Appropriations Subcommittee on Financial Services and General Government. Notable exchanges during the hearing included: (1) Secretary Mnuchin indicating that lawmakers can "guess which way we're leaning" on providing the President's tax returns to Congress; (2) Secretary Mnuchin telling Sen. James Lankford (R-OK) that Treasury is monitoring how crypto-assets are tied to illegal activity; and (3) Secretary Mnuchin indicating that marijuana businesses should not be allow to participate in the Opportunity Zones program.
Bills Introduced
Retirement Security & Savings Act (Cardin and Portman): Includes more than 50 provisions aimed at enhancing retirement security along four lines: (1) allowing people who have saved too little to set more aside for their retirement; (2) helping small businesses offer 401(k)s and other retirement plans; (3) expanding access to retirement savings plans for low-income Americans without coverage; and (4) providing more certainty and flexibility during Americans’ retirement years. The legislation is intended to supplement other retirement proposals, including the Retirement Enhancement and Savings Act (RESA).
Flood Insurance Extension (Kennedy): Sen. Kennedy introduced two bills extending the National Flood Insurance Program (NFIP) this week. The National Flood Insurance Program Extension Act of 2019 would extend NFIP through September 30, a proposal which passed the House last week. The other bill, the National Flood Insurance Program Extension Act, would provide an 18-month extension through December 1, 2020.
Retirement Parity for Student Loans Act (Wyden): Allows employers to make retirement plan contributions "matching" employee student loan payments.
G-Fees (Perdue and Menendez): Prohibits Congressionally-mandated increases to GSE guarantee fees (G-Fees)—which protect against potential losses on loans—from being used to offset unrelated spending increases.
Other Activity
International Insurance Capital Standards: On Monday, a bipartisan group of 42 Senators sent a letter to Federal Reserve Vice Chairman for Supervision Randal Quarles raising concerns that the International Association of Insurance Supervisors' (IAIS) International Capital Standards (ICS) project could undermine the US system of state-based insurance regulation. The letter thanked Vice Chairman Quarles for his efforts to ensure that the US system of state-based insurance regulation be "deemed comparable" to ICS and urges the Financial Stability Board to publicly clarify that any global capital standard for insurers is not required. Additionally, it raised a concern that—regardless of its non-binding nature—an international standard that fails to accommodate the US insurance system could result in discrimination against US insurance companies doing business abroad.
Student Loan Information Sharing: On Thursday, Sen. Elizabeth Warren (D-MA) published an April letter from Consumer Financial Protection Bureau Director Kathleen Kraninger indicating that student loan servicers are declining to provide supervisory information requested to the Bureau pursuant to guidance by the Department of Education. The letter, a response to an earlier inquiry from Sen. Warren, describes the information withheld as a result of the Education Department's 2017 Privacy Act guidance as "necessary for supervisory examinations" of student lenders.
Director Kraninger's letter elicited strong pushback from liberal groups and Congressional Democrats. Accompanying the release, Sen. Warren and five other Senate Democrats sent letters to three student loan servicers calling for the immediate furnishing of information to CFPB and requesting responses to several inquiries. Former CFPB student loan ombudsman Seth Frotman described the action as "obstructing federal law enforcement officials."
Last Week in the Administration
Metal Tariffs Lifted, Paving Way for USMCA
On Friday, President Trump reached an agreement with the governments of Mexico and Canada to immediately lift steel and aluminum tariffs on the two key trading partners. While the deal while lift all tariffs within 48 hours without imposing quotas, the agreement requires countries to monitor surges in steal imports and allows the reimposition of tariffs in the case of future import surges.
Imposed last year on worldwide steel and aluminum imports—ostensibly to prevent harm to national security caused by the decline of the US steel industry—the tariffs had been a sticking point in the approval of President Trump United States-Mexico-Canada Agreement NAFTA replacement deal. Senate Republicans, as well as legislators in the other two countries, had been skeptical of approving a trade deal while the tariffs remained in place.
Bernanke, Yellen, Lew, and Geithner Question FSOC Designation Plan
On Monday, former Federal Reserve Chairs Janet Yellen and Ben Bernanke and Former Treasury Secretaries Timothy Geithner and Jack Lew sent a letter to Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell raising concerns with the Financial Stability Council's recent proposed guidance on its designation process. Arguing that FSOC's new approach would "neuter" the Council's regulations, the former regulators raise concerns that the change would constitute a "substantial weakening" of Dodd-Frank reforms. First proposed in March, the FSOC guidance in question would shift the designation of non-bank systemically important financial institutions to an "activities-based" approach rather than focusing on individual firms, as well as impose a cost-benefit analysis requirement.
GAO Finds Communication Gap in Bank Supervision
On Tuesday, the Government Accountability Office published a report which found that the Fed and FDIC could improve bank supervision by better communicating potential issues to bank leadership. While noting that bank supervision has improved since the financial crisis, the report recommends that more timely corrective action could be achieved through: (1) more complete supervisory recommendations to banks, including information on the likely cause and potential effects of the problem by both agencies; and (2) clear structures for examiners to escalate concerns.
DOT's Kan Considered for Fed Board
On Friday, Bloomberg reported that the White House is considering Department of Transportation official Derek Kahn for one of two open seats on the Federal Reserve Board of Governors. Kan, a former advisor to Senate Majority Leader Mitch McConnell (R-Ky), currently serves as a Senior Advisor to Transportation Secretary Elaine Chao. The White House has faced Senate pushback over its Fed nominees over the last several months—highlighted by the withdrawals of Heritage Foundation economist Stephen Moore and former Godfather's Pizza CEO Herman Cain.

CFPB's Johnson Named Permanent Deputy Director; Embattled Blankenstein Out
On Monday, the Consumer Financial Protection Bureau announced several key personnel changes, including the promotion of Brian Johnson to permanent Deputy Director. Mr. Johnson, a former staffer to ex-HFSC Chairman Jeb Hensarling (R-TX), has served as Deputy Director in an acting capacity since July. Other appointments include: (1) CFPB veteran Kate Fulton as Chief Operating Officer; (2) Former OMB ethics official Yasaman Sutton as Senior Advisor; (3) Equal Employment Opportunity Commission alumna Melissa Brand as Director of the Office of Civil Rights; and (4) Army Veteran Jim Rice as Assistant Director of the Office of Servicemember Affairs.
Later in the week, Bloomberg Law reported that CFPB Associate Director of Supervision Eric Blankenstein plans to depart CFPB at the end of the month. First appointed by former acting CFPB Director Mick Mulvaney, Mr. Blankenstein's employment sparked controversy last fall following the discovery of offensive blog posts from 2004.
CFPB Publishes RFA Plan; To Examine Overdraft Rule
On Monday, the Consumer Financial Protection Bureau published its plan for periodically reviewing rules under the Regulatory Flexibility Act. Pursuant to RFA's requirement that agencies review certain rules within 10 years of their publication, the plan indicates that CFPB will review several criteria as it evaluates past rulemaking, including: (1) the continued need for the rule; (2) public comments; (3) regulatory complexity; (4) duplication, overlap, or conflict; and (5) continued relevancy to changing conditions. Accompanying the plan, CFPB also announced that it would undertake review of the 2009 Overdraft Rule—which imposes guardrails on the levying of debit card overdraft fees and was transferred from the Fed to CFPB in 2011.
Report: SEC prepared to Adopt Best Interest Rule this Month
On Monday, Politico reported that Securities and Exchange Commission is expected to adopt its proposed regulation Best Interest around the end of this month. First proposed in April 2018, the regulations would require brokers to act in the "best interest" of clients when making investment decisions. as well as to disclose potential conflicts of interest. Although details are still forthcoming on the final draft—which has been circulated to Commissioners for tweaks—the proposed revision is expected to be substantially more accommodating to financial advisers than the since-overturned 2016 Department of Labor Fiduciary Rule.
This Week's Schedule
Mon. (5/20)
  • No events scheduled.
Tues. (5/21)
  • Hearing: Senate Banking Committee on Combating Illicit Financing – 10:00 AM –The Senate Committee on Banking, Housing, and Urban Affairs will hold a hearing entitled "Combating Illicit Financing By Anonymous Shell Companies Through the Collection of Beneficial Ownership Information." Details here.
  • Hearing: House Financial Services Committee on Oversight of HUD – 10:00 AM –The House Financial Services Committee will hold a hearing entitled "Housing in America: Oversight of the U.S. Department of Housing and Urban Development." Details here.
  • Hearing: Senate Judiciary Committee on Digital Advertising – 10:00 AM – The Senate Judiciary Committee will hold a hearing entitled "Understanding the Digital Advertising Ecosystem and the Impact of Data Privacy and Competition Policy." Details here.
  • Hearing: House Small Business Sub on the SBA Community Advantage Loan Program – 10:00 AM – The House Small Business Subcommittee on Investigations, Oversight, and Regulations will hold a hearing entitled "Investing in Community: The SBA’s Community Advantage Loan Program." Details here.
  • Hearing: House Education and Labor Committee on Employment – 10:15 AM –The House Committee on Education and Labor will hold a hearing entitled “Optimizing for Engagement: Understanding the Use of Persuasive Technology on Internet Platforms." Details here.
  • Hearing: Senate Commerce Sub. on Internet Platforms – 2:30 PM – The Senate Committee on Commerce, Science, and Transportation will hold a hearing entitled "Optimizing for Engagement: Understanding the Use of Persuasive Technology on Internet Platforms." Details here.
Wed. (5/22)
  • Hearing: House Financial Services Committee on the State of the International Financial System – 9:00 AM – The House Financial Services Committee will resume its Apr. 9 hearing on the state of the International Finance System with Treasury Secretary Steven Mnuchin. Details here.
  • Hearing: House Ways and Means Committee on USMCA Enforcement – 10:00 AM –The House Ways and Means Committee will hold a hearing entitled "Enforcement in the New NAFTA." Details here.
  • Hearing: Joint Economic Committee on the Census –2:00 PM – The Joint Economic Committee will hold a hearing entitled "The Economic Impacts of the 2020 Census and Business Uses of Federal Data." Details here.
  • Hearing: House Oversight Sub. on Student Debt –2:00 PM – The House Oversight and Reform Subcommittee on Economic and Consumer Policy will hold a hearing entitled “Examining For Profit College Oversight and Student Debt.” Details here.
Thurs. (5/23)
  • No events scheduled.
Fri. (5/24)
No events scheduled.