Financial Services Report

June 15, 2015

While the defeat of the Trade Adjustment Assistance (TAA) on Friday was either “a procedural snafu” or the greatest victory for organized labor in recent memory, we think the real story of the TPA / TAA fight is part of a larger picture.  That we are at an inflection point in how the power in Washington, DC is shifting away from the old guard of entrenched interests to (the hackneyed Silicon Valley term) disruptors who are using a combination of the Internet, relaxed campaign finance rules and hyper-partisan congressional districts to successfully influence policy. 

While the fight on TPA / TAA was still a battle between two entrenched DC power centers – business and labor, the transition is even more obvious when one examines the battle to reauthorize Ex-Im or the Congressional effort to impose a sales tax on the internet.  In both instances large institutions, whether they are the Chamber of Commerce or other trade associations, have faced difficulty in easily advancing the political agendas of the traditional corporate community, in part because technological advances have reduced the barriers to entry for really riling up the so-called grass roots.   
To date, these organizations have tended to exist within their own stovepipes.  However when groups like Club for Growth and Heritage Action on the Right and DFA on the left, happen to find an issue like TPA where the populist fears of both the right and left can be exploited, the results speak for themselves.  As a result historians may look back at the Ex-Im battle as the inflection point of the true political ascendency of various 3rd parties and the rise of an anti-global anti-big business ideology permeating both sides of the aisle.  If true, and because these groups continuous stress the need for the perfect instead of the broadly-held good, it might mean further calcification of the type of grid lock and dysfunction in Congress that so many of us hate.
Looking Ahead

Near Term
·         The House in session and besides trying to figure a way out of the “procedural snafu” that was the overwhelming vote against the TAA, is expected to take up the Intelligence Authorization, a bill to repeal the Medical Device Tax, and possibly a bill to remove the U.S. Military out of Iraq and Syria.
·         An Ed and Workforce Subcommittee will hold a hearing on the DOL’s Fiduciary Rule while the Capital Markets Subcommittee holds a hearing on Business Development Companies (BDCs).
·         The Senate continues to debate the Defense Authorization Bill.

Further Out

  • The remaining statutorily imposed deadlines for the year are:

    • June 30: Export-Import Bank
    • July 31st Surface Transportation
    • Sept. 30: Child Nutrition & WIC
    • Sept. 30: FAA Authorization
    • Sept. 30: End of the Federal Fiscal Year
    • End of September or October: Extraordinary Measures for dealing the Debt Ceiling run out and default becomes possible.

The Past Week – Legislative Branch
House Votes Down TAA – TPA Status in limbo
On Friday, by a vote of 302-126, the voted against the Trade Adjustment Assistance throwing President Obama’s efforts to sign TPA into law into limbo.  Under the House procedures used to bring up the bill, both TPA and TAA needed to pass.  So even though TPA ultimate passed by a one vote margin (219-211) the President needs to find a whole bunch of votes to flip when the next vote on TAA takes place.   
House Passes CFTC Reauthorization – Senate Action Uncertain
On Tuesday, by a vote of  246-171, the House passed legislation to reauthorize the Commodities Futures Trading Association (CFTC) through 2019.  The measure passed over a veto threat, based on Democratic concerns that the measure would work to undermine critical Dodd-Frank reforms.  The House had passed similar legislation last year though the Senate never took it up and it appears that may be the outcome of this bill as well.
Appropriations Subcommittee Approves FY16 Funding Bill
On Thursday, the House Appropriations Financial Services Subcommittee approved its version of the FY16 spending bill on a voice vote.  Including among the proposal is funding for the SEC at $1.5 billion dollars, or at the same level the SEC got this year.  Language in the proposal would preclude the SEC from using its reserve fund and prohibit the agency from putting out its political disclosure rule.  The legislation would also move the CFPB under regular appropriations, rather than to receive its funding from the Federal Reserve.  The issue is highly controversial and a non-starter for democrats and should be one of the many highly contentious debates when the full Committee marks up the bill on Wednesday.
Financial Institutions Subcommittee Hearing on a Dozen Bills
On Thursday, the Financial Institutions Subcommittee held a hearing entitled, “Examining Legislative Proposals to Preserve Consumer Choice and Financial Independence” where the subcommittee discussed the merits of twelve (12) bills, including:

  • H.R. 766, the Financial Institution Customer Protection Act of 2015
  • H.R. 1210, the Portfolio Lending and Mortgage Access Act
  • H.R. 1266, the Financial Product Safety Commission Act of 2015
  • H.R. 1413, the Firearms Manufacturers and Dealers Protection Act of 2015
  • H.R. 1553, the Small Bank Exam Cycle Reform Act of 2015
  • H.R. 1660, the Federal Savings Association Charter Flexibility Act of 2015
  • H.R. 1737, the Reforming CFPB Indirect Auto Financing Guidance Act
  • H.R. 1941, the Financial Institutions Examination Fairness and Reform Act
  • H.R. 2091, the Child Support Assistance Act of 2015
  • H.R. 2213, to provide for a temporary safe harbor from the enforcement of integrated disclosure requirements for mortgage loan transactions under the Real Estate Settlement Procedures Act of 1974 and the Truth in Lending Act, and for other purposes
  • H.R. 2287, the National Credit Union Administration Budget Transparency Act
  • H.R. 2643, the State Licensing Efficiency Act of 2015

As expected, in general Republicans voiced support for passage of all these bills, while Democrats issued selective support for various proposals.  For example, Chairman Neugebauer touted the bipartisan nature of his bill, H.R. 1266, which would alter the CFPB from a Director to 5-member commission by pointing to David Scott (D-GA) and Kyrsten Sinema (D-AZ) as Democratic cosponsors.
Financial Services Committee Hears from HUD Secretary Castro
On Thursday, the full House Financial Services Committee heard from HUD Secretary Julian Castro about the state of American Housing.  The hearing, which was entitled, “The Future of Housing in America: Oversight of the Department of Housing and Urban Development” focused on HUD, affordable housing, the pending disparate impact case at the Supreme Court, and Housing Finance Reform, among other things. 
Ex-Im Test Vote Succeeds?
On Wednesday, proponents of reauthorizing the Export-Import Bank were able to take advantage of a Senate procedural vote to show the support for renewing the bank.  That vote, where 65 Senators voted against tabling a motion to strip an amendment out of the NDAA that would have reauthorized the Bank may have been a pyrrhic victory, because it was totally symbolic and the next day Leader McConnell’s office indicated that the vote satisfied a commitment that the Leader had made to Senator Cantwell and other Ex-Im bank supports in an exchange for their votes on TPA.  While it all but certain that the Bank’s charter will expire, the question now is whether opponents of the bank will be willing to accept that short term expiration as a moral victory or if they will be bolstered in their position.  Proponents of the bank will likely get two bites at the apple, one in late July on the transportation reauthorization and then perhaps in the appropriations bill at the end of the year. 
Select Highlights from the Administration
Consumer Financial Protection Bureau (CFPB)
CFPB Finalizes Rule on Non-Bank Auto Finance Companies
On Wednesday, the Consumer Financial Protection Bureau (CFPB) published its final rule to supervise larger participant nonbank automotive finance companies. The final rule remains largely the same as what it originally proposed in September 2014.  The CFPB’s rule retained the 10,000 transaction threshold, meaning that nonbank auto finance companies that make, acquire, or refinance 10,000 or more loans or leases in a year will come under CFPB supervision and enforcement and will be subject to the Consumer Protection Act’s prohibition on unfair, deceptive, or abusive acts or practices.  According to the Bureau, the rule will extend their jurisdiction over 34 of the largest nonbank auto finance companies and their affiliated companies that engage in auto financing, which the CFPB estimates will cover around 90 percent of nonbank auto loans and leases.  The final rule also defines additional automobile leasing activities for coverage by certain consumer protections of the Dodd-Frank Act.  Coinciding with the release of this rule the CFPB updated its Supervisory and Examination Manual to provide guidance on how the Bureau will monitor the bank and nonbank auto finance companies that it supervises.
OFR Releases Research Note on Need for Transparency in Bank Capital Risk Transfer Trades
On Thursday the FSOC’s Office of Financial Research (OFR) released a research brief discussing why more transparency is needed for bank capital relief trades.  The report discussed how banks obtain capital relief from credit derivatives but more transparency is needed about those and other types of regulatory capital relief trades for investors and counterparties to monitor and analyze their potential risks.

Securities and Exchange Commission (SEC)
Aguilar and Gallagher Push SEC to Revamp Transfer Agent Rules
On Thursday, SEC Commissioners Dan Gallagher and Luis Aguilar issued a joint statement calling the SEC to  propose new rules governing transfer agents, the intermediaries that track stock ownership for publicly traded companies.  Referring to the current rules as “anachronistic” and “out of sync,” the commissioners went on to add that the new rules should allow transfer agents to be insured and bonded, and use written agreements with their issuer clients.  In addition they should have heightened disclosure requirements, avoid or disclose conflicts of interest, and develop disaster recovery plans.  Later in the day, Commissioners Stein and Piwowar issued their own joint statement supporting their colleagues efforts to push for an update on the rules. 
Next Week’s Schedule
On Tuesday, June 16th at 10:00am in 2128 Rayburn, the Oversight and Investigations Subcommittee will hold a hearing entitled, “A Global Perspective on Cyber Threats.” 

On Tuesday, June 16th at 2:00pm in 2128 Rayburn the Capital Markets and Government Sponsored Enterprises Subcommittee will hold a hearing entitled, “Legislative Proposals to Modernize Business Development Companies and Expand Investment Opportunities.” 
On Wednesday June 17th at 10:00 am in 2359 Rayburn the Appropriations Committee will meet to mark-up the Financial Services and General Government Appropriations Bill for FY16
On Wednesday, June 17th at 10:00 am the Financial Services Committee will hold a hearing entitled, “The Annual Report of the Financial Stability Oversight Council.”  Treasury Secretary Jacob Lew will be the sole witness. 

On Wednesday, June 17th at 2:00 pm the Monetary Policy and Trade Subcommittee will hold a hearing entitled: “The Impact of the International Monetary Fund: Economic Stability or Moral Hazard?”
On Wednesday, June 17th at 10:00 am the Ed and Workforce Subcommittee on Health, Employment, Labor and Pensions will hold a hearing entitled, ““Restricting Access to Financial Advice: Evaluating the Costs and Consequences for Working Families and Retirees” 
On Wednesday, June 17th at 10:00am in Room 1100, the Ways and Means Committee will hold a hearing entitled, “Long-Term Financing of the Highway Trust Fund.”
On Thursday, June 18th at 10:00am in Room 215 Dirksen, the Senate Finance Committee will hold a hearing entitled, “Dead End, No Turn Around, Danger Ahead: Challenges to the Future of Highway Funding.”