Financial Services Report

July 26, 2017

Looking Ahead

Near Term

  • The House is expected to take up a Congressional Review Act measure that would overturn the arbitration rule that the CFPB announced two weeks ago.   Also on the agenda for the floor is a “minibus” appropriations bill that includes the Defense, Legislative Branch, Military Construction-Veterans Affairs, and Energy and Water Development appropriations bills.
  • The Financial Services Committee is scheduled to hold a mark-up on Tuesday.  On the agenda are a series of Capital Markets measures, plus a resolution of inquiry to compel the Treasury Secretary to produce documents related to the President’s business with Russia.  
  • With a razor thin margin continuing to pose problems for Leader McConnell as he works to bring up the health care reform bill, the Senate is expected to spend most of the week burning floor time to move a series of nominees.
  • Speaking of nominees, the Senate Banking Committee will hold a hearing on Thursday to consider the nominations of Joseph Otting to be the Comptroller of Currency and Randal Quarles to be the Vice-Chair of Supervision at the Federal Reserve.

Further Out

  • Members of the House will go out for the traditional month long August recess (though with a caveat that they may be called back if the Senate is able to pass a health care reform bill) while the Senate has announced that they will stay in session for the first two weeks of the month. 
  • There is rampant speculation that if Senator McCain unable to be in Washington while he recuperates and receives treatment, then the plan to spend much of those two weeks on the NDAA legislation will not happen and there is a chance that the Senate will give back the second week allowing members to get out of town and staff to breathe a sigh of relief. 

The Past Week

Legislative Branch
Republicans Take Bicameral Action on Arbitration Rule, Aiming for Disapproval Passage by August
Republican lawmakers are mounting a response to the Consumer Financial Protection Bureau’s recently finalized rule barring mandatory arbitration clauses in consumer contracts by introducing legislation in both chambers blocking the rule. House Financial Services Chair Jeb Hensarling (R-TX) and Senate Banking Chair Mike Crapo (R-ID) introduced the bills, both with a significant number of Republican cosponsors. The House will consider its measure on the House floor next week, with Republican leadership hoping to get the bill to the president’s desk before the August recess.
Group of House Republicans Revolt on Flood Insurance Bill
Last week, a group of twenty-six House Republicans led by Rep. Pete King (R-NY) wrote to Republican leadership saying that they will not support the flood insurance reauthorization advanced out of the House Financial Services Committee last month. Some lawmakers from coastal areas and business groups tied to the industry have argued that the bill would have serious consequences on the insurance market due to its restriction of “grandfathering,” in which homeowners can pay lower premiums through government-sponsored plans would flood maps change. The National Flood Insurance Program (NFIP) is currently $24 billion in debt and its funding expires on Sep. 30.
Ed and Workforce Committee Advances Fiduciary Rule Disapproval on Party-Line Vote
On Wednesday, the House Education and Workforce Committee held a markup on the Affordable Retirement Advice for Savers Act (H.R. 2823), which would repeal the Department of Labor’s (DOL) controversial fiduciary rule and replace it with a different proposal to set up a best interest standard for retirement advisers. The markup predictably unfolded along partisan lines, with Republicans praising the legislation as a means to undo a costly rule, and Democrats criticizing it as an unnecessary move that would hurt consumers. The underlying legislation passed 23 to 17 on a straight party-line vote, sending the bill to the House floor.
Ways and Means Panel Talks NAFTA Renegotiation Objectives in Hearing
On Tuesday, the House Ways and Means Subcommittee on Trade held a hearing on the impending renegotiation of the North American Free Trade Agreement (NAFTA). The hearing comes a day after the United States Trade Representative (USTR) released the Administration’s negotiating objectives, which were met with some skepticism from Democrats in the panel session. Key issues during the hearing included Democrat demands for additional labor standards, Republican concerns on investor-state dispute settlement (ISDS), and discussion on a digital trade chapter in the new agreement, including addressing de minimis thresholds. Unsurprisingly, the two parties have different views on how the Trump Administration should go about conducting a renegotiation of NAFTA, with clear cleavages on issues such as labor standards and ISDS.
Financial Services Subcommittee Examines Remittances
On Tuesday, the Terrorism and Illicit Finance Subcommittee held a hearing entitled, “Managing Terrorism Financing Risk in Remittances and Money Transfers.  The hearing examined the risks that money service businesses (MSBs), remittance payments, and other value-transfer systems may have and how they can be exploited by criminals and terrorists.
Capital Markets Subcommittee Examines Sarbanes Oxley Impact on Public Companies
On Tuesday, the Capital Markets Subcommittee Chaired by Republican Bill Huizinga (R-MI) held a hearing entitled, “The Cost of Being a Public Company in Light of Sarbanes-Oxley and the Federalization of Corporate Governance.”  Witnesses included representatives from the New York Stock Exchange, the Chamber of Commerce and the Competitive Enterprise Institute among others.
Waters Urges Sessions to Step Down on Deutsche Bank-Russia Investigation
In light of the revelation that the Justice Department is looking into the business dealings of President Trump with Deutsche bank, House Financial Services Committee Ranking Member Maxine Waters (D-CA) demanded that Attorney General Jeff Sessions recuse himself from the investigation. Writing to the Justice Department, Rep. Waters argued that the Justice Department has lagged behind the actions of the New York Department of Financial Services and the United Kingdom Financial Conduct Authority. Among other practices, the banks is reportedly being investigated for helping Russian oligarchs launder money.
Ways and Means Panel Holds Hearing on Tax Reform Impact on Individuals
On Wednesday, the House Ways and Means Tax Policy Subcommittee continued its informational campaign on a comprehensive tax reform package by holding a hearing on the impact such a package would have at the individual and family level. Permanence was again a key issue, with the panelists hoping for a permanent package over temporary tax cuts. Retirement plans were also a focus of the hearing, but Republicans were hesitant to offer details on the impact the tax reform package may have on the retirement system.
Dems Introduce ‘No Confidence’ Resolution on Trump’s Presidency
Democrats put their skepticism of President Trump’s fitness to serve as president into writing last week by introducing a “no confidence” resolution that officially questions the White House’s legitimacy. It lists a series of the President’s ongoing controversies and turmoil, ranging from the White House’s questionable connections to the Kremlin to the failure to release President Trump’s tax returns to his arguably offensive language targeting women and the press. The resolution received the backing of House Minority Leader Nancy Pelosi (D-CA) and was signed by over 20 liberal Democrats.   
Banking Committee Releases Flood Insurance Bill
Following action in the House Financial Services Committee, Senate Banking Committee Chair Mike Crapo (R-ID) and Ranking Member Sherrod Brown (D-OH) released the Senate’s version of flood insurance reauthorization. The bill mostly mirrors the House’s proposal, including provisions to update flood mapping procedures, place caps on National Flood Insurance Program premiums and deductibles, and mandate the use of higher actuarial rates over time. While a bill from Sens. Dean Heller (R-NV) and Jon Tester (D-MT) to ease the sale of private flood insurance was not included in the released package, Committee leadership suggested that the legislation could be amended during the Committee’s eventual markup. The National Flood Insurance Program (NFIP) is currently $24 billion in debt and its funding expires on Sep. 30.
Banking Committee Holds Hearing on Housing Reform
On Thursday, the Senate Banking Committee held a hearing entitled, “Housing Finance Reform: Maintaining Access for Small Lenders.”  Among other things, the witnesses urged Congress to “make permanent the mandate of equal fees for all lenders and the FHFA’s authority to regulate the guaranty fees charged by the GSEs as well as extending these two safeguards to upfront risk sharing arrangements,” and to provide a federal backstop to the GSEs in order to ensure that the 30-year fixed mortgage survives.     
Brown Defends Cordray, Arbitration Rule
On Tuesday, Senate Banking Committee Ranking Member Sherrod Brown (D-OH) wrote to Acting Comptroller of the Currency Keith Noreika on the ongoing dispute between his agency and the CFPB over the recently finalized rule related to arbitration clauses. The Ranking Member said it was “disappointing but not altogether surprising that the OCC is trying to manufacture an argument that a vital consumer protection conflicts with the safety and soundness of banks,” and that the argument is “as specious today as it has been in the past.” Citing the Wells Fargo scandal, Sen. Brown went on to ask the OCC for documentation supporting its claims.
Finance Committee Has Opening Session on Tax Reform
On Tuesday, the Senate Finance Committee held a hearing entitled “Comprehensive Tax Reform: Prospects and Challenges.” During the hearing, members from both sides of the aisle stressed the need to reform an “outdated” tax code with a permanent solution, but offered varying perspectives as to how to achieve it. The panel — featuring four former Assistant Secretaries from the Department of the Treasury — offered their first-hand perspectives from their time at the Treasury Department as to why comprehensive tax reform is badly needed. While the committee members proved to show fewer divisions than their counterparts in the House, many of tax reform’s most contentious issues — such as the border adjustment tax (BAT) and immediate capital expensing — were left undiscussed.
Select Highlights from the Administration 
Office of the Comptroller of the Currency (OCC)
Noreika, Cordray Spar over Arbitration Rule
A weeklong disagreement between Acting Comptroller of the Currency Keith Noreika and Consumer Financial Protection Bureau (CFPB) Director Richard Cordray continued last week over the latter agency’s recently finalized rule barring arbitration clauses from being included in companies’ contracts with consumers. Noreika wrote to Cordray on Monday saying that he was concerned on the “safety and soundness” implications of the rule on the federal banking system and that Cordray’s previous reassurances were insufficient as the “CFPB is, by design, not a safety and soundness regulator.” The spat may be irrelevant as Congress is due to consider a disapproval resolution that would nullify the rule.
Noreika Offers Insights into FinTech Charter
On Wednesday, Acting Comptroller of the Currency Keith Noreika gave a speech at the Exchequer Club where he shared his views on the OCC’s FinTech charter.  In his speech, Noreika largely defended the OCC, its process and the general concept of the need for a FinTech charter.  Although it was perhaps telling that he noted that “OCC has not determined whether it will actually accept or act upon applications from nondepository fintech companies for special purpose national bank charters” and that the OCC has not even received an application to date.  Noreika’s permanent replacement, former OneWest president Joseph Otting, will be considered by the Senate Banking Committee in a hearing this week.
The White House
Trump Renominates Peirce for SEC Post
Hester Peirce was selected by President Trump last week to fill the remaining Republican seat on the Securities and Exchange Commission after her original nomination died in the Senate last year. Peirce is a former Banking Committee staffer currently working for George Mason University’s Mercatus Center and has been nominated for a term that would end in June 2020.
Federal Reserve
Fed Releases Final Faster Payments Report
On Thursday, the Federal Reserve released the final report from its Faster Payments Task Force that has investigated the issues for the past two years. The Task Force aims to identify ways that the Fed can encourage faster payment systems being implemented by 2020, and the report focuses on the infrastructure necessary to produce such an outcome. The report details 16 proposed faster payments solutions that outline possible approaches to achieving a faster and more efficient payment system and sets a goal for making receipt of faster payments available to every U.S. consumer and business by 2020.