Financial Services Report

July 17, 2018

Looking Ahead

Near Term

  • The House will take up two bills of importance to the financial services industry. First, they continue to move forward with another minibus spending bill. This one comprised of the Financial Services and General Government (FSGG) measure. Second, on Tuesday, the full House, under the suspension calendar (i.e., non-controversial) will take up S. 488 – the JOBS and Investor Confident Act and amend it to include nearly 50 bills that have already passed the House. This will be the JOBS 3.0 bill that Chairman Hensarling has negotiated with Ranking Member Waters. Whether the Senate will take it up remains to be seen.
  • The Senate will continue to move forward with judicial and non-judicial nominations, including the nomination of Randy Quarles to the Fed Board. While already confirmed as Vice Chair for Supervision, but the Governors Board seat requires a separate confirmation.  
  • Speaking of the Fed, Chairman Powell will be on the Hill twice this week to offer his bi-annual Humphrey-Hawkins report.
  • The Senate Banking Committee is also teed up to hold a nominations hearing for Kathy Kraniger to be the next director of the CFPB (or CBFP).
  • Will third time be the charm? On Tuesday the FSOC meeting and once again the question of de-designating a non-bank SIFI (presumably Prudential and Zions Bank) is on the agenda. 

Further Out

  • The House Financial Services Committee may hold yet another mark-up next week.
  • August Recess for the House but the Senate will be in session and is expected to hold hearings.

The Past Week

Legislative Branch
HFSC Airs Tariff Grievances with Mnuchin at International Finance Hearing
On Thursday, the House Financial Services Committee held a lengthy hearing with Treasury Secretary Steven Mnuchin that was formally dedicated to the Treasury’s report on the state of the international financial system. In reality, the hearing provided a bipartisan sampling of Committee Members to air their grievances publicly with a high-ranking official about the Trump Administration’s recent tariffs against China and Western nations. Lawmakers balanced their remarks between trade policy at-large and specific impacts on their home districts. For his part, Secretary Mnuchin insisted that the trade policies were having little impact on American economic growth or ongoing bilateral trade negotiations. He also denied that we were in a trade war.
Besides the multitude of members asking about trade policy, the hearing also shared insight into the Department’s thinking about updating the Bank Secrecy Act(BSA) and anti-money laundering (AML) laws with Secretary Mnuchin indicating that he hopes to clarify Treasury’s position in the coming months. Mnuchin also indicated that the much-awaited release of the Treasury’s report on financial technology and innovation should be public within thirty days. Finally, the hearing appeared to show agreement between the Committee and the Secretary was on a bill that would make reforms to the Committee on Foreign Investment in the United States (CFIUS), which Secretary Mnuchin called “very important” to his Department’s work.   
Tax Fix Bill to Come After Midterms According to Speaker Ryan
On Thursday, Speaker Paul Ryan (R-WI) stated that he expects legislation to fix the new tax law to be released following November’s midterm elections. The bill would focus on the international tax system and include other changes that are viewed as unintended consequences from last year’s tax reform package. Speaker Ryan suggested that the tax corrections bill will be discussed at the end of the year as Democrats are unlikely to support the measure before midterms given political divides over the effect of the tax cuts. It is also likely that House Republicans and the White House will put forth legislation to extend the 2017 law’s tax cuts for individuals, which would be separate from any technical fix bill.
House Passes International Insurance Standards Bill Under Suspension of Rules
On Tuesday, the House approved the International Insurance Standards Act (H.R. 4537) by a voice vote under suspension of the rules, which limits debate and requires bills to have a two-thirds majority to pass. The bill — led by Reps. Sean Duffy (R-WI) and Denny Heck (D-WA) — would give Congress additional oversight of American negotiators at international regulatory forums, particularly the International Association of Insurance Supervisors. It would also modify requirements for a covered agreement entered into by the Federal Insurance Office (FIO) and stipulate that Congress has the power to review and disapprove such agreements with a joint resolution. The measure is expected to be part of the JOBS 3.0 package that the House is scheduled to take up this week.
Financial Services Committee Approves another 8 Bills As Marathon Monthly Markups Continue
On Wednesday, The House Financial Services Committee approved 8 bipartisan bills that would, among other things: expand access to capital markets for small and new companies, streamline securities regulations, and create stronger anti-fraud protections for consumers. The mark-up continues the effort of Committee Chair Jeb Hensarling (R-TX) who continues to put pressure on leadership and the Senate by moving bills, many with broad bipartisan support with the goal of advancing another deregulatory package. The bills cleared by the panel Wednesday included Democratic bills to create a SEC department to protect seniors from fraud and write new disclosures for companies for multi-class share structures. Republican-led bills that passed include measures to allow tax-deferred investments, clarify financial market instruments, and increase the number of shares held by a company’s mutual fund.
Senate Banking Committee Examines Credit Bureaus and the Fair Credit Reporting Act
On Thursday, the Senate Committee on Banking, Housing, and Urban Affairs held a hearing that examined the current state of credit bureaus and the Fair Credit Reporting Act (FCRA). Senators on the Committee questioned the panel — consisting of representatives from the Federal Trade Commission (FTC) and Consumer Financial Protection Bureau (CFPB) — about their agencies’ actions to protect consumer data following last year’s Equifax data breach. Senators on both sides of the aisle expressed concern that consumers lack control over their personal information, and that FTC and CFPB lack the ability to apply penalties when credit bureau’s break the law. The representatives from FTC and CFPB each expressed a willingness to work with Congress to come up with a plan that creates a safer, more controlled credit reporting system.
Dems Call on Mulvaney to Restore Consumer Advisory Board
On Friday, a group of twenty-five Democratic senators wrote to CFPB Acting Director Mick Mulvaney urging him to restore a body known as the Consumer Advisory Board (CAB) that is aimed at providing consumer input to the regulator. Mulvaney dismissed members of the board and cancelled its two scheduled meetings, citing an improvement to how the Bureau’s four external advisory boards operate. The letter says that the move represents the Bureau “deliberately rejecting statutorily required advice from qualified professionals who are volunteering their services to the American public.”
Warren and Daines Reintroduce ‘Lost and Found’ Retirement Bill
Recently, the bipartisan pair of Sens. Elizabeth Warren (D-MA) and Steve Daines (R-MT) introduced a bill that would set up an online database for participants to find lost retirement accounts and alter rules regarding automatic rollovers. The bill was originally introduced in 2016, but never became law. According to a press release to announce the reintroduction, the database would rely upon already-reported information from employers and would not punish plans that fail to find missing participants. On rollovers, the bill increases the automatic rollover amount from $5,000 to $6,000 and expands investment options for these rollovers to include a target-date or lifecycle fund.

Select Highlights from the Administration

The White House
Trump Signs an Executive Order Initiating a Task Force to Fight Consumer Fraud
In an executive order signed Wednesday, the Trump Administration promised to focus on fighting fraud against consumers — particularly seniors and service members — using the resources of regulatory and law-enforcement agencies. The executive order follows a similar Obama initiative as it orders to bring together a task force to strengthen the efforts of regulators to investigate and prosecute fraud schemes and recover proceeds for consumers. In addition, the effort will expand to focus on fraud schemes involving cyber methods. The initiative is in line with the Administration’s emphasis on punishment of bad actors as it pursues deregulatory policies, and pushes back on criticism that Trump Administration officials — particularly Consumer Financial Protection Bureau Acting Director Mick Mulvaney — have not done enough to act as a consumer watchdog.
Federal Reserve
Powell Cites Rising Business Concerns over Trade Tensions and Tariffs
On Thursday, while speaking in a radio interview, Federal Reserve Chair Jay Powell said that the central bank is “hearing a rising level of concern” from U.S. businesses about the impact of tariffs recently enacted by the Trump Administration. Powell suggested that global free trade has served the international and U.S. economy well as incomes have increased, but he still acknowledges that due to the uncertainty over trade policy, businesses have had to scale back capital spending. The Chairman dodged questions about whether the tensions would impact monetary policy decisions, but that is sure to be a line of questioning when he goes up to Capitol Hill for the Fed’s semi-annual testimony this week.  
Consumer Financial Protection Bureau
CFPB Deputy Director English Resigns, Drops Lawsuit
Last week, CFPB Deputy Director Leandra English officially resigned from her post at the consumer watchdog and announced she would be dropping a lawsuit challenging Mick Mulvaney’s position as Acting Director, bringing a long-running partisan dispute to an anticlimactic end. In a statement announcing the move, English said she was conceding the lawsuit — which was initially ruled in favor of the Trump Administration by the District Court of the D.C. Circuit last November — as the result of President Trump’s nomination of Kathy Kraninger to fill the CFPB Director post permanently. Many Democrats had backed English’s claim to succeed Richard Cordray at the Bureau, though the practical reality had been that Mulvaney had undertaken a number of steps to lead the agency in a new direction since his appointment late last year. The Senate Banking Committee is scheduled to hold a hearing on Kraninger’s confirmation on July 19.
Mulvaney Taps New No.2 at CFPB Ahead of Kraninger Confirmation Battle
On Monday, Acting CFPB Director Mick Mulvaney promoted the agency’s principal policy director, Brian Johnson, to take over as the agency’s new acting deputy director. Johnson had been Mulvaney’s first hire at the bureau when he took over in November 2017 and has previously worked as an aide to Rep. Jeb Hensarling (R-TX), where he helped draft measures critical of the Bureau, including a detailed report on the Bureau's work on auto finance.   
Securities and Exchange Commission
SEC Drops Obama-era Proposal on Board Elections
On Tuesday, Reuters reported that the Securities and Exchange Commission was dropping an Obama-era proposal that would have given shareholders in companies more freedom to vote for their preferred candidates during contested board elections. The SEC had initially pitched the idea two weeks before President Trump was sworn-in, and well-before current SEC Chair Jay Clayton had taken his post at the head of the agency. Many had speculated that Chair Clayton would be likely to kill the rule proposal given his prioritization of making it easier for companies to go public. 
The States
New York
New York Financial Services Regulator Aims to Tighten Fintech Rules
The New York Department of Financial Services issued a report last week suggesting that it would aim to tighten regulation of online lenders through such means as instituting a consumer lending usury cap. The broad-ranging report targets online lenders for small businesses in particular, making a suggestion that those lenders issue disclosures similar to those made for consumer lenders. The Department also supports requiring all non-bank lenders to get a license from the state in order to charge interest rates of even percent or higher. All of the changes would require legislation in the New York state legislature.