Financial Services Report 7/29

In this age of twitter, where everyone can be a pundit, yelling into that that ever-growing social media echo chamber it is important to remember that if politics is passion, then governing is math.  And the math still matters.  So while the media continues its codependent cycle with the President or jumping from hot take to hot take among members of Congress, to really understand Congress, and to maintain the appropriate contextual framework it becomes increasingly important to focus on the individual trees and not the forest.

 

As we turn to the August recess, and the inevitable drumbeat by lazy reporters about impeachment, remember that it isn’t the passion, but the raw numbers that matter. Right now, less than half of the Democratic Caucus (and one independent) support starting impeachment proceedings. Until those numbers get considerable higher, those who dream of impeaching this President will have to keep dreaming.  

Looking Ahead

 

With the House out of town, the Senate has the stage alone this week. However, since they are not expected to be here the full week, there are only a couple of hearings of note.

 

First, the Senate Banking Committee will hold a hearing on Blockchain on Tuesday that while framed as a high level discussion on the regulatory framework surrounding the issue could devolve into another conversation about Facebook's Libra project. Next, the Senate Finance Committee is holding a hearing on the USMCA, which should provide an interesting forum to frame the Administration's momentum going into the fall.

 

Last Week in the House

The Floor

 

On Thursday, the House voted to 284-149 to pass a two-year, $2.7 trillion spending deal negotiated by the White House and Congressional leadership earlier in the week. 65 Republicans joined 219 Democrats in voting to approve the deal, that provides for a $321 billion boost in federal spending over the next two years, while also suspending the debt ceiling. The legislation did not include any policy riders, and is headed to the Senate, where it is expected to pass this week.

 

Earlier in the week, the House also passed the Stopping Bad Robocalls Act (text) by a vote of 429-3. The bipartisan anti-robocall legislation would: (1) instruct the Federal Communications Commission (FCC) to publish rules ensuring that robocalls only be made with consumers' consent, as well as rules preventing the "abuse" of provisions allowing companies such as financial services companies to make calls without consent; (2) require carriers to implement call authentication technology; (3) instruct FCC to update its definition of an autodialer; and (4) increase FCC enforcement authority against illegal calls. Despite the legislation's bipartisan support, it has sparked concern from the financial services industry and others that it could result in the inadvertent blocking of legitimate calls.

 

Also Wednesday, the House passed the Rehabilitation for Multiemployer Pensions Act (HR 397), also known as the Butch Lewis Act. A key priority of Ways and Means Committee Chairman Richard Neal (D-MA), the legislation would establish a Pension Rehabilitation Administration within the Treasury Department that would provide low-interest, government-backed loans to distressed multiemployer pensions. While the legislation attracted unanimous support from House Democrats, only 29 Republicans voted in favor amid criticisms that the legislation constitutes a bailout to fiscally irresponsible plans.

 

Despite speculation that the House would pass legislation extending the National Flood Insurance Program (NFIP) (currently set to expire September 30) on Friday, the lower chamber broke for the rest of the summer after its Thursday budget vote.

 

Hearings and Markups

 

BB&T/SunTrust Merger (7/24): On Wednesday, the Financial Services Committee held a hearing examining the proposed merger between BB&T and SunTrust Bank, which would create the sixth largest US lender and has attracted significant scrutiny from Congressional Democrats. Chairwoman Maxine Waters (D-CA) and other Democrats kept up the heat on the two banks during the hearing, raising concerns that the merged bank would be "too big to manage" and lead to branch closures harming both consumers and employees. Several Democrats also criticized regulators' alleged "rubber stamp" approach to the merger. In contrast, Ranking Member Patrick McHenry (R-NC) and Committee Republicans were more defensive of the merger and argued that bank consolidation is the result of Dodd-Frank regulatory burdens.

 

Alternative Credit Data (7/25): On Thursday, the Financial Services Committee’s Fintech Taskforce held a hearing examining the use of alternative data to improve underwriting and credit scoring. During the hearing, members on both sides of the aisle broadly recognized the potential of “alternative” data—such as rent or utility payment history—to increase access to credit for the 26 million “credit invisible" Americans. However, members and witnesses were also wary of the discrimination risks posed by new underwriting models, particularly those using “fringe data” such as a person’s social media connections. In addition, there was a debate whether only "positive" components of this alternative data should be used, or whether the data itself could be inherently discriminatory. While some members expressed interest in ways to improve alternative data regulatory environment, most notably regulatory sandboxes allowing innovative companies to safely test new products in close collaboration with regulators, the more liberal members of the committee expressed concerns that these sandboxes may allow for discriminatory products to escape regulatory oversight.

 

Social Security 2100 Act (7/25): On Thursday, the Ways and Means Committee held a hearing on the Social Security 2100 Act (HR 860), Social Security reform legislation sponsored by Rep. John Larson (D-CT) that would: (1) increase benefits and improve cost of living adjustments; (2) set a new minimum benefit 25% above the poverty line; (3) increase the taxation threshold on social security income; (4) raise the maximum wages on which payroll tax is collected from $132,900 to $400,000; and (5) gradually increase worker and employee contributions from 6.2% to 7.4%. Despite bipartisan concerns about Social Security's teetering solvency, Republicans during the hearing continued to oppose the bill's increase to payroll taxes.

 

Bills Introduced

 

FHA Foreclosure Prevention Act (Waters): Increases oversight of lender compliance with FHA loss mitigation requirements—which require lenders to provide certain opportunities for borrowers in default to become current on their mortgage—by: (1) prohibiting the provision of FHA insurance benefits to any lender that fails to provide documentation on its loss mitigation compliance; (2) requiring HUD to conduct oversight of servicers; (3) establishing a robust complaint and appeals process for borrowers who believe they are victims of non-compliance; and (4) requiring servicers to provide borrowers with the results of their loss mitigation review prior to initiating foreclosure proceedings. Sen. Catherine Cortez Masto (D-NV) introduced companion legislation in the Senate.

 

Under-Banked Study (Scott and Duffy): Directs the CFPB Office of Community Affairs to conduct a study of causes of and solutions to the issue of unbanked and under-banked consumers.

 

Financial Data Privacy Study (Meeks): Requires certain regulators to carry out studies on their regulated institutions' processes for allowing third parties to access consumer financial data.

 

Real-Time Payments Study (Budd): Requires the Federal Reserve to carry out a quantitative impact study on any real-time payment system prior to implementing such a system.

 

Federal Reserve Accountability and Justification Act (Riggleman): requires the Federal Reserve to meet transparency requirements before providing, or substantially changing or expanding, any payment service. 

 

Housing Accountability Act (Cohen and Hill): Provides for biannual surveys of Section 8 subsidized housing residence to ensure the physical condition and maintenance of their properties.

 

Other Activity

 

Waters Homelessness Letter: On Thursday, Financial Services Committee Chairwoman Maxine Waters (D-CA) sent a letter to leadership of the Appropriations Committee calling for appropriators to provide at least $5 billion for HUD's McKinney Vento Homeless Assistance Grant Program, a $2.36 billion increase over last year's funding levels. The letter argues that the substantial increase to the program—which support a variety of anti-homelessness projects—would "deliver new resources to communities and people who so desperately need it."

 

Last Week in the Senate

The Floor



The Senate spent its week continuing to work through its nominations queue, including confirming Mark Esper to be Secretary of Defense. The upper chamber did not consider financial services legislation last week.

 

Hearings and Markups

 

Cannabis Banking (7/23): On Tuesday, the Banking Committee held a hearing examining cannabis banking. Despite having varying levels of legality in the States, due to cannabis's federally illegal status, the hearing highlighted how financial institutions face substantial legal uncertainty serving state-legal cannabis business, forcing many such businesses to operate on a cash-only basis and leading to associated concerns with money laundering, robbery, and tax compliance. In an attempt to address these problems, the Secure and Fair Enforcement (SAFE) Banking Act would provide a safe harbor to financial institutions doing business with state-legal marijuana businesses. That legislation received significant Democratic support during the hearing and its Senate sponsors appeared before the Committee to promote the bill. Interestingly, only one Republican, Committee Chairman Mike Crapo (R-ID), was in attendance, though he specifically noted that with competing hearings people shouldn't take the absences for a lack of interest.

 

Finance Committee Nominations (7/24): On Wednesday, the Finance committee held a nominations hearing including three nominees to key Treasury Department posts: (1) current General Counsel Brent McIntosh to be Undersecretary for International Affairs; (2) Deputy General Counsel Brian Callanan to be the Department's General Counsel; and (3) Former Mitch McConnell Chief of Staff Brian McGuire to be Deputy Undersecretary for Legislative Affairs. While not questioning the nominees qualifications, Committee Ranking Member Ron Wyden (D-OR) harshly criticized the involvement of Mr. McIntosh and Mr. Callanan in the Department's response to House Democrats' request for the President's tax returns, saying "that conduct does not warrant promotions."

 

Bills Introduced

 

Student Debt Relief Act (Warren): Cancels up to $50,000 in debt for student borrowers with household incomes under $100,000, among other reforms. Majority Whip Jim Clyburn (D-SC) introduced companion legislation in the House.

 

Payment Modernization Act (Van Hollen and Warren): Requires the Federal Reserve to develop its own real-time payments system. Reps. Ayanna Pressley (D-MA) and Chuy Garcia (D-IL) introduced companion legislation in the House.

 

Clarifying Law Around Insurance of Marijuana (CLAIM) Act (Menendez, Paul, Merkley, and Cramer): Provides a legal safe harbor for insurers who serve state-legal cannabis businesses. Reps. Nydia Velazquez (D-NY) and Steve Stivers (R-OH) introduced companion legislation in the House.

 

Export-Import Bank Reauthorization Act (Cramer and Sinema): Reauthorizes the Export-Import Bank for 10 years and provides for reforms including a temporary board to authorize large transactions when the bank's board lacks a quorum and increasing its exposure cap to $175 billion.

 

Ex-Im Delinquent Tax Debt (Braun and Kennedy): Prohibits the Export-Import Bank from providing financing to persons with seriously delinquent tax debt.

 

Other Activity

 

Fed Faster Payments Letter: On Monday, Sens. Mark Warner (D-VA), Thom Tillis (R-NC), David Perdue (R-GA), Tom Carper (D-DE), and Jon Tester (D-MT) sent a letter to Federal Reserve Chairman Jerome Powell making several inquiries into the Fed's potential participation in the development of a real-time payments system. While commending the Fed's efforts in the area and saying that they are "open minded" as to the Faster Payments Task Force's suggestion that the Fed may enter the faster payments space as a competitor to private industry, the letter asks for answers to the following questions: (1) what benefits a government-run system would have for consumers and how it would support innovation; (2) how the Fed views the the private sector's ability to provide such a system, given that Fed policy only allows the fed to offer a new service when the private sector cannot be expected to do so; and (3) how how a Fed-run system would be fully interoperable with a private system.

 

Brown Homelessness Letter: On Wednesday, Banking Committee Ranking Member Sherrod Brown (D-OH) sent a letter to President Donald Trump calling on the President to support policies aimed at ending homelessness, including: (1) maintaining funding for HUD affordable housing programs to which the administration's FY20 budget proposes cuts; (2) withdrawing proposals that would remove protections for non-cisgender individuals and undocumented families; and (3) investing in affordable housing, including through the re-implementation of the Affirmatively Furthering Fair Housing Rule and creating targeted tax incentives for the production and preservation of affordable housing.

 

Republican SEC China Letter: On Wednesday, Sen. John Kennedy (R-LA) led six other Republicans on a letter to SEC Chairman Jay Clayton urging the SEC to protect personal information collected in the Consolidated Audit Trail (CAT) from Chinese cyber-attacks. Noting that the personally identifiable information (PII) of every stock market investor would be an "easy target" for cyber espionage, the letter argues that the the risks of this storage "far outweigh" any oversight benefits and calls on the Commission to end its policy of putting the PII of every American stock market investor in the database.

 

Last Week in the Administration 

 

Regulators Issue Community Bank Volcker Exemption

On Monday, the five federal regulators of jurisdiction issued a final rule implementing sections 203 and 204 of last years S. 2155. Those sections exempted community banks from the Volcker rule. Under the final rule, firms with total consolidated assets of $10 billion or less and total trading assets and liabilities equal to 5 percent or less of total consolidated assets are excluded from the rule's definition of the "banking entity." The final rule also permits, under certain circumstances, a hedge fund or private equity fund to share the same name or a variation of the same name with an investment adviser that is not an insured depository institution, company that controls an insured depository institution, or bank holding company. Further rule making, which may produce additional relief from the Volcker Rule, is still forthcoming from the Fed.

 

Economy Grew 2.1% in Q2

On Friday, the Department of Commerce's Bureau of Economic Analysis (BEA) reported the the US economy grew 2.1% in the second quarter, slightly beating expectations but falling far short of the 3.1% growth in Q1. In addition to beating back fears of an impending recession, the data was well received by the White House, with President Trump tweeting: "Not bad considering we have the very heavy weight of the Federal Reserve anchor wrapped around our neck. Almost no inflation. USA is set to Zoom!" Regardless, the news has done little to dampen market expectations at this week's FOMC meeting, although expectations of a larger, 50-basis point drop have dampened.

 

Equifax Settles with FTC, CFPB, States

On Monday, federal regulators and officials from 48 states announced a settlement with Equifax over the the company's 2017 data breach. Under the terms of the settlement, the company agreed to pay up to $700 million in penalties and monetary relief to consumers affected by the incident. This includes up to $425 million to fund credit monitoring services for affected consumers, as well as $175 million in penalties to state governments and a $100 million penalty to the Consumer Financial Protection Bureau. The company has also pledged to invest more than $1 billion in cybersecurity measures.

 

The settlement received attention from some lawmakers including Senate Banking Committee Ranking Member Sherrod Brown (D-OH), Housing Energy and Commerce Committee Chairman Frank Pallone (D-NJ), and presidential hopeful Sen. Amy Klobuchar (D-MN) all who used the settlement to anchor calls for enacting comprehensive data privacy legislation.

 

CFPB: "GSE Patch" to Lapse

On Thursday, the Consumer Financial Protection Bureau issued an advance notice of proposed rulemaking indicating the agency's intention to allow the so-called "GSE patch" to expire by January 2021. First implemented in 2014 in order to prevent the ability to repay/qualified mortgage (ATR/QM) rule from harming undermining the recovery of the housing market, the GSE patch exempts Fannie and Freddie-backed loans from from ATR/QM, which requires that a borrower's debt-to-income ratio not exceed 43%. While studies have indicated that the exemption has significantly elevated GSE shares of the mortgage market, the agency indicated that the ANPR will serve to examine the need for another short extension or other steps necessary to "facilitate a smooth and orderly transition away from the GSE Patch." Reacting to the news, House Financial Services Committee Ranking Member Patrick McHenry voiced support for the decision, calling it "a step toward ensuring taxpayers are protected."

 

This Week's Schedule

Mon. (7/29)

 

Tues. (7/30)

 

Wed. (7/31)

 

Thurs. (8/1)

 

Fri. (8/2)