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Financial Services Report (6/10)

June 10, 2019

Looking Ahead

After an abbreviated week following the recess, the June slog begins – especially in the House where the lower chamber is expected to move through a series of spending measures. Also this week the House Financial Services Committee will mark-up a series of bills, including the bipartisan agreement on Flood Insurance, as well as a stand-alone measure offered by Congressman Velazquez that would also make changes to the National Flood Insurance Program. While the Senate is scheduled to continue churning through nominations, the Senate Banking Committee will hold a hearing on data brokers on Tuesday.

Last Week in the House
The Floor
 
Despite breaking early for D-Day anniversary ceremonies, the lower chamber passed two major pieces of legislation this week.
 
On Monday, the House passed a $19.1 billion disaster recovery package (HR 2157) providing relief from hurricanes, floods, and other recent natural disasters. Since being passed by the Senate before recess, the long-awaited disaster relief package—which also reauthorizes the National Flood Insurance Program through September 30—had been unable to pass by unanimous consent due to objections from several House conservatives wary of its budgetary impacts. 58 Republicans voted against the package, which was signed into law by the President on Thursday.
 
Also last week, House Democrats—joined by seven Republicans—passed the American Dream and Promise Act providing protection and a path to citizenship for participants in the Temporary Protected Status (TPS) and Deferred Enforced Departure (DED) programs. The legislation is House Democrats' flagship offering in today's ever-contentious immigration debate.
 
Hearings and Markups
 
FSGG Markup (6/3): On Monday, the Appropriations Subcommittee on Financial Services and General Government advanced the FY20 FSGG appropriations bill (text; fact sheet). The bill includes $24.55 billion in discretionary funding for the Treasury Department, independent regulators, and the White House, an increase of $1.4 billion over the FY19 enacted level and $355.5 million over the President’s budget request. Among other notable provisions, the package would also: (1) increase federal civilian pay by 3.1 percent; (2) remove previously contained policy riders relating to abortion, marijuana, and needle exchanges in the District of Columbia; and (3) increase funding for the Office of Terrorism and Financial Intelligence and FinCEN. The bill is expected to be approved by the full Committee this week.
 
Leveraged Lending (6/4): On Tuesday, the Financial Services Subcommittee on Consumer Protection held a hearing on leveraged lending where Members debated legislative proposals (committee memorandum) that would: (1) give the Office of Financial Research sole discretion over its own budget; (2) require OFR to use all available authorities to gather information and issue a semiannual report on the risks posed by leveraged lending; and (3) establish uniform examination procedures for bank regulators to supervise leveraged lending. During the hearing, numerous Committee Democrats raised concerns about the systemic risks associated with high levels of leveraged lending. Subcommittee Ranking Member Blaine Luetkemeyer (R-MO) and some other Committee Republicans, in contrast, questioned the significance of leveraged lending relative to the broader risks facing the financial system.
 
Ex-Im (6/5): On Tuesday, the Financial Services Committee held a hearing debating the reauthorization of the Export-Import Bank, which is set to to expire on September 30. During the hearing—which featured the testimony of small exporters and trade associations supportive of the Bank—Chairwoman Maxine Waters (D-CA) called for swift reauthorization of Ex-Im and criticized efforts by some conservative lawmakers to hobble the bank. For his part, Ranking Member Patrick McHenry (R-NC) pushed for "modernization and diversification" of the bank in order to support US strategic goals and national security.
 
Following the hearing, Chairwoman Waters pulled her yet-to-be-released Ex-Im reauthorization bill from this week's markup with the intention of introducing the legislation later this month. The draft bill had elicited concern from Members on both sides of the aisle for its limits on financing for certain industries and companies. Late on Saturday, the Committee announced a mark-up for June 26th.

Bills Introduced
 
Expanding Access to Retirement Savings for Caregivers Act (Rouda and Walorski): Allows individuals who take time out of the workforce to care for a family member to make catch-up contributions to their retirement accounts prior to age 50.
 
Woman on the 20 Act (Beatty): Requires all $20 bills printed after 2022 to feature Harriet Tubman.
 
Resubmission Thresholds (Duffy): Updates shareholder resubmission thresholds with the intention of reducing nuisance proxy votes.
 
Homeowners for Dreamers Act (Vargas): Specifies that DACA recipients are eligible for FHA homes loans, home loans backed by Fannie Mae or Freddie Mac, and Rural Housing home loans.
 
Other Activity
 
Diversity Data: On Wednesday, Financial Services Chairwoman Maxine Waters (D-CA) and Diversity and Inclusion Subcommittee Chairwoman Joyce Beatty (D-OH) sent letters to 44 financial institutions requesting their diversity and inclusion data and policies from 2015 to the present. Per the letter's authors, "the data request is designed to inform Congress of the diversity levels and diversity and inclusion policies and practices of the country’s biggest banks," which they allege have fallen behind on improving diversity in recent years.
 
New Dem USMCA Goals: On Wednesday, the New Democrat Coalition released its priorities for the United States-Mexico-Canada Agreement. Priority areas for the group of moderate Democrats—whose support is crucial to the passage of trade agreements—include: (1) restore confidence in the United States’ trade relationship with our North American allies; (2) strengthen enforcement, labor, and environmental commitments in an updated NAFTA and ensure any changes put forward in the implementing legislation do not adversely impact U.S. businesses, consumers, or workers; and (3) use the momentum behind updating NAFTA to advance a bipartisan domestic priority.
 
Flood Insurance: On Thursday, Financial Services Committee Chairwoman Maxine Waters (D-CA) and Ranking Member Patrick McHenry (R-NC) announced a bipartisan agreement providing for an extension of the National Flood Insurance Program through 2024. The long-term extension—which has eluded lawmakers for two years—is expected to considered in a Committee mark up on Tuesday.
 
The draft legislation would also include a number of reforms targeting the program's affordability, including a demonstration program to provide financial assistance to low-income policyholders, the repeal of certain surcharges, and a provision allowing for monthly payment. Other provisions in the bill would allow program participants who leave the program to purchase private policies to return to the program penalty free and modernize mapping and mitigation. Omitted from the bill is the forgiveness of the program's $20.5 billion debt, a priority of Chairwoman Waters. While the longterm extension is a significant step forward for NFIP, it has faced skepticism from key players on the Senate side who question if its reforms go far enough.
 
IRS FreeFile: On Thursday, Reps. John Lewis (D-GA) and Mike Kelly (R-PA) reintroduced the Taxpayers First Act (HR 3151), this time omitting a provision making permanent the IRS's Free File program. The dropping of the provision would allow IRS to, with 12 months notice, end the Free File program, which has come under fire following reports that Free File participants improperly directed eligible consumers towards paid products. A version of the bipartisan IRS reform and modernization package containing the provision passed the House by a voice vote in April
 
Last Week in the Senate
The Floor

On Wednesday, the Senate voted voted 84-9 to confirm Heath Tarbert to be Chairman of the Commodity Futures Trading Commission. Mr. Tarbert most recently served as Acting Under Secretary of the Treasury for International Affairs and is a former White House and Banking Committee staffer.
 
Also Wednesday, the Senate passed the Protecting Affordable Mortgages for Veterans Act (S. 1749) by a voice vote. Sponsored by Sens. Kyrsten Sinema (D-AZ) and Thom Tillis (R-NC), the legislation tweaks language in existing law in order to make it easier for veterans to use their VA home loan guaranty to refinance their mortgages.
 
Hearings and Markups
 
China (6/4): On Tuesday, the Banking Committee held a hearing examining the US-China economic relationship as it relates to transfers of investments and technology, export controls, and opioid trafficking. During the hearing, Members expressed concern at a number of Chinese commercial practices, particularly relating to telecommunications giants ZTE and Huawei, and discussed the use of sanctions to combat Chinese opioid trafficking. To this point, several Committee members spoke favorably of the Fentanyl Sanctions Act (S. 1044), which would impose sanctions on Chinese drug manufacturers that knowingly supply synthetic opioids to drug traffickers. 
 
Banking Nominations (6/5): On Wednesday, the Banking Committee held a hearing where Senators considered six administration nominees: (1) Thomas Feddo to be Assistant Secretary of the Treasury for Investment Security; (2) Nazak Nikakhtar to be Under Secretary of Commerce for Industry and Security; (3) Ian Paul Steff to be Director General of the US Commercial Service; (4) Michelle Bowman to be a Member of the Fed Board of Governors; (5) Paul Shmotolokha to be First Vice President of the Export-Import Bank; and (6) Allison Lee to be a Member of the Securities and Exchange Commission.
 
Committee Members directed particular attention to the nominations of Feddio, Nikakhtar, and Bowman. Ranking Member Sherrod Brown (D-OH) and other Democrats questioned the decision to examine six nominations in one day, which they argued prevents due consideration of each nominee.
 
Bills Introduced
 
EQUITABLE Act (Rubio, Menendez, Cotton, and Gillibrand): Delists companies that do not comply with U.S. accounting and oversight regulations from American stock exchanges. Specifically, the legislation aims to prevent the Chinese government from withholding the audit information of Chinese companies listed on US exchanges. A House companion bill was introduced by Reps. Mike Conaway (R-TX), Tim Ryan (D-OH), and Mike Gallagher (R-WI).
 
Senior Security Act (Sinema and Collins): Creates an SEC task force intended to protect seniors from scams and other financial crimes. Companion legislation passed the House in April.
 
Affordable Housing Credit Improvement Act (Cantwell): Expands the Affordable House Tax Credit to produce 19 million new affordable housing units over the next decade by: (1) increasing the amount of credits allocated to each state by 50 percent; (2) stabilizing the value of the 4% Affordable Housing Tax Credit; and (3) expanding and reforming the "recycling" of multifamily housing bonds. The bill additionally includes provisions targeting specific vulnerable populations including veterans, low-income people, native americans, and rural communities. Rep. Suzan Delbene (D-WA) introduced companion legislation in the House.
 
FIX Credit Reporting Errors Act (Klobuchar and Daines): Requires credit reporting agencies to forward to lenders any evidence provided by consumers disputing items on a credit report.
 
Other Activity
 
Warren Currency Plan: On Tuesday, Presidential Candidate and Senator Elizabeth Warren released a "plan for economic patriotism" in which she called for the "active management" of US currency in a way that would "promote exports and domestic manufacturing." In the proposal's announcement, Sen. Warren alleged that her plan would counteract currency manipulation by foreign central banks that have "driven up the value of our currency for their own benefit." “If we can aggressively intervene in markets to protect the interests of the wealthy and well-connected — as we have for decades with bailouts and subsidies— then we can damn well use all the tools at our disposal to protect the interests of American workers,” Sen. Warren added.
 
Deutsche Bank Investigation Letter: On Thursday, seven Senate Democrats led by Sen. Chris Van Hollen (D-MD) and Banking Committee Ranking Member Sherrod Brown (D-OH) sent a letter to the Fed and FDIC calling for an investigation into reports that senior Deutsche Bank wealth management officials quashed recommendations to file suspicious activity reports on transactions by entities related to President Trump. Citing "Deutsche Bank's extensive history of violations," the letter calls for the regulators to conduct a thorough review of the bank's compliance with BSA/AML regulations and requests responses to a series of inquiries by June 24.
 
Debt Collection Letter: On Thursday, Sen. Bob Menendez (D-NJ), Banking Committee Ranking Member Sherrod Brown (D-OH), and 24 other Democrats sent a letter to CFPB Director Kathleen Kraninger urging CFPB to reverse its recently proposed revisions to the Bureau's debt collection rule. Among other criticisms, the letter: (1) questions the proposal's lack of a requirement that collectors substantiate a debt with original documentation; (2) alleges that the proposed rule will "exacerbate and increase troubling harassment tactics" by allowing unlimited emails and text message and seven phone calls per week per debt; and (3) raises concerns that the proposal would weaken protections for consumers whose debts are no longer enforceable under federal law.
 
Smith Outlines Housing Priorities: On Thursday, Sen. Tina Smith (D-MN) sent letters to Banking Committee leadership and FHFA Director Mark Calabria outlining her priorities for efforts to reform the housing finance system. Priorities identified in the Senator's letter include: (1) retaining specific requirements to serve underserved rural and tribal communities and the manufactured housing market; (2) strengthening the Housing Trust Fund and Capital Magnet Fund; (3) preserving the affordable housing goals; (4) supporting rural lenders and small lenders and ensuring that they have access to the secondary mortgage market; and (5) consulting with tribes to ensure that any changes made to the mortgage market adequately support homeownership in Indian Country.
 

Last Week in the Administration

White House Calls Off Mexico Tariffs
On Friday, President Trump announced a decision to indefinitely delay escalating 5% tariffs set to have been imposed on Mexican imports in response to unauthorized border crossings. According to the State Department, Mexico as part of the deal agreed to deploy its national guard throughout the country and take "decisive action" to stop human trafficking. Later, the President also indicated on Twitter that Mexico would purchase "large quantities of agricultural products" from US farmers.
 
Uncertainty persisted last week as Mexican and US negotiators attempted to avert the imposition of the unconventional tariffs. Only further increasing the ambiguity, the possibility of Congressional Republicans attempting to overturn the action remained unclear. If left in place, the tariffs likely would have complicated the approval of President Trump's United States-Mexico-Canada Agreement
 
SEC Approves Long-Awaited Regulation BI
On Wednesday, the Securities and Exchange Commission voted 3-1 to approve its regulation Best Interest requiring brokers to act in the best interest of their clients and disclose conflicts of interest. According to the Commission, improves the standards that brokers must provide their clients when offering advice to clients from "suitable" to "best interest." At the same time, the Commission approved accompanying rulemaking requiring both broker-dealers and and Registered Investment Advisors to deliver a detailed "relationship summary" to investors as well as clarifying fiduciary standards for investment advisors.
 
Unsurprising, some stakeholders expressed their frustrations that the BI rule was less stringent than the Department of Labor's Obama-era Fiduciary Rule, particularly in its enforceability and clarity. Commissioner Robert Jackson Jr., the sole dissenting vote on the proposal, argued that the rules "retain a muddled standard that exposes millions of Americans to the costs of conflicted advice." House Financial Services Committee Chairwoman Maxine Waters warned that the regulation could "protect conflicted behavior to the detriment of mom and pop investors," while Senate Banking Committee Ranking Member Sherrod Brown (D-OH) called it a "confusing, jargon-filled document."
 
The Department of Labor is expected to announce its own companion measure shortly.
 
Powell Weighs Rate Cut in Face of Trade Tensions
On Tuesday, Federal Reserve Board of Governors Chairman Jerome Powell suggested that the the Fed would consider cutting interest rates to mitigate potential economic consequences of President Trump's trade policies. In a speech at the Chicago Fed, Chairman Powell said that the Fed would "act as appropriate" to sustain the current economic expansion and acknowledged that "we do not know how or when these [trade] issues will be resolved." The development is notable for a Federal Reserve Chairman who has thus far stood firm against pushes from President Trump to cut interest rates in order to accelerate economic growth.
 
CFPB Formally Delays Payday Lending Rule Underwriting Requirement
On Thursday, the Consumer Financial Protection Bureau finalized rulemaking delaying the compliance date (previously August 19, 2019) of the Payday Lending Rule's underwriting requirement to November 19, 2020. The Bureau first proposed delaying compliance with the rule's underwriting requirement in February, when it announced its review of the requirement that lenders verify a borrower's ability to repay. That review that has become one of several high profile controversies in the hot-button political debate over CFPB.
 
FCC Approves Callblocking Expansion amid Concerns from Financial Services Industry
On Thursday, the Federal Communications Commission voted to approve a declaratory ruling allowing voice providers to block robocalls on an opt-out basis—a measure which industry stakeholders have warned could impede financial services companies from communicating with customers. While all five Commissioners approved of the majority of the measure, Commissioner Michael O'Reilly raised concerns that encouraging the blockage of "unwanted" calls could unintentionally prevent legitimate communications and dissented on certain provisions with "breathtakingly expansive" language. Commissioner Jessica Rosenworcel dissented on allowing providers to charge for these call blocking services. The ruling also allows providers to, on an opt-in basis, block calls not on a consumer's "white list."
 
Tepid Numbers Show Just 75,000 New Jobs in May
On Friday, the Bureau of Labor Statistics reported that the economy added 75,000 jobs in May—falling far below expectations of 178,000 new jobs and short of the 151,000 job-growth average of the last three months. While the unemployment rate remained steady at 3.6%, the less than expected numbers elicited a more muted response from the White House than have previous reports. The report has sparked speculation as to what extent the employment figures indicate an economic slowdown and, if so, how this development may affect Fed interest rate policy.
 
This Week's Schedule
Mon. (6/10)
  • Chamber/BPC Event on LIBOR – 9:30 AM – The U.S. Chamber's Center for Capital Markets Competitiveness (CCMC) and the Bipartisan Policy Center (BPC) will host an event entitled "Transitioning from LIBOR: What it Means for Main Street & Wall Street." Details here.
Tues. (6/11)
  • Hearing: Senate Banking Committee on Data Brokers – 10:00 AM – The Senate Committee on Banking, Housing, and Urban Affairs will hold a hearing entitled "Data Brokers and the Impact on Financial Data Privacy, Credit, Insurance, Employment and Housing." Details here.
  • Hearing: House Budget Committee on Climate Change – 10:00 AM – The House Budget Committee will hold a hearing entitled "The Costs of Climate Change: Risks to the U.S. Economy and the Federal Budget." Details here.
  • World Elder Abuse Awareness Day Fifth Global Summit – 10:00 AM – The Securities and Exchange Commission (SEC) will host the National Adult Protective Services's (NAPSA) Global Summit on World Elder Abuse Awareness. Details here.
  • Markup: House Appropriations Committee – 10:30 AM – The House Appropriations Committee will markup the FY 2020 Homeland Security and Financial Services and General Government (FSGG) Appropriations bills. Details here.
  • Markup: House Financial Services Committee – 2:00 PM – The House Financial Services Committee will convene a markup to consider pending legislative measures. Details here.
  • Hearing: Senate Judiciary Sub. on Patents – 2:30 PM – The Senate Judiciary Subcommittee on Intellectual Property will hold a hearing entitled "The State of Patent Eligibility in America: Part III." Details here.
Wed. (6/12)
  • Hearing: Senate Commerce Committee on FCC Oversight – 10:00 AM – The Senate Committee on Commerce, Science, and Transportation will hold an oversight hearing of the Federal Communications Commission (FCC), featuring testimony from all five FCC Commissioners. Details here.
  • Markup: House Financial Services Committee – 10:00 AM – The House Financial Services Committee will resume its markup to consider pending legislative measures. Details here.
  • Hearing: House Education and Labor Sub. on Overtime Protections – 10:15 AM – The House Education and Labor Subcommittee on Workforce Protections will hold a hearing entitled “Restoring the Value of Work: Evaluating DOL’s Efforts to Undermine Strong Overtime Protections." Details here.
  • Hearing: House Judiciary Sub. on Online Platforms – 2:00 PM – The House Judiciary Subcommittee on Antitrust, Commercial, and Administrative Law will hold a hearing entitled "Online Platforms and Market Power, Part 1: The Free and Diverse Press." Details here.
  • Hearing: Senate Finance Sub. on China – 3:00 PM – The Senate Finance Subcommittee on International Trade, Customs, and Global Competitiveness ill hold a hearing entitled "China’s Belt and Road Initiative." Details here.
Thurs. (6/13)
  • Hearing: House Energy and Commerce Sub. Con Consumer Protection – 10:30 AM – The House Energy and Commerce Subcommittee on Consumer Protection and Commerce will hold a hearing entitled “Keeping Kids and Consumers Safe from Dangerous Products.” Details here.
Fri. (6/14)
  • No events scheduled.
Further Out
  • Hearing: Senate Banking Committee on TRIP – June 18 – The Senate Committee on Banking, Housing, and Urban Affairs will hold a hearing to discuss reauthorization of the Terrorism Risk Insurance Program (TRIP). Details not yet available.
  • Hearing: House Financial Services Sub. on Trade and Tax Policies – June 19 – The House Financial Services Subcommittee on National Security, International Development, and Trade will hold a hearing entitled "Slowing Economic Growth: The Impact of Recent Trade and Tax Policies on the U.S. Economy." Details here.
  • Hearing: House Financial Services Sub. on Securities Laws – June 19 – The House Financial Services Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets will hold a hearing entitled "Putting Investors First: Examining Proposals to Strengthen Enforcement Against Securities Law Violators." Details here.
  • Hearing: Senate Banking Committee on Beneficial Ownership– June 20 – The Senate Committee on Banking, Housing, and Urban Affairs will hold a hearing entitled “Outside Perspectives on the Collection of Beneficial Ownership Information.” Details not yet available.
  • Hearing: Senate Banking Committee on Fannie and Freddie – June 25 – The Senate Committee on Banking, Housing, and Urban Affairs will hold a hearing entitled “Should Fannie Mae and Freddie Mac be Designated as Systemically Important Financial Institutions?" Details not yet available.
  • Hearing: House Financial Services Committee on Debt Collection – June 25 – The House Financial Services Committee will hold a hearing entitled "Examining Legislation to Protect Consumers and Small Business Owners from Abusive Debt Collection Practices." Details here.
  • Hearing: House Financial Services Financial Technology Taskforce – June 25 – The House Financial Services Task Force on Financial Technology will hold a hearing entitled "Overseeing the Fintech Revolution: Domestic and International Perspectives on Fintech Regulation." Details here.
  • Hearing: Senate Banking Committee on the Ex-Im Bank – June 27 – The Senate Committee on Banking, Housing, and Urban Affairs will hold a hearing to discuss reauthorization and oversight of the Export-Import (Ex-Im) bank. Details not yet available.