Money Matters: This Week in Washington

This Week in Washington for April 23, 2018

April 23, 2018

Dina Ellis

THE BIG PICTURE

Following a systems outage on Tuesday, the last day of the tax filing season, which prevented the IRS from accepting electronically filed returns and payments for much of the morning and afternoon, Commissioner David Kautter announced that they would extend the deadline to Wednesday at midnight. Kautter told reporters that the IRS expects to receive about 150 million tax returns for the filing season and had already received and processed approximately 120 million returns as of Friday. The IRS processing systems resumed normal operation late Tuesday afternoon, including its Direct Pay system. It was unclear how many taxpayers were affected by the glitch. However, Kautter said he didn’t think the problem was related to a third-party breach, such as a cyber-hack.

On Tuesday, the nation mourned the death of former first lady Barbara Bush at age 92. Mrs. Bush had been in declining health in recent months, and elected to stop medical treatment and receive comfort care earlier in the week. She was widely admired, and will be remembered for her dedication to public service, advocacy for literacy through the Barbara Bush Foundation for Family Literacy, and children’s leukemia research. A funeral service was held Saturday in Houston, and Mrs. Bush was buried on the grounds of the George H.W. Bush Library and Museum next to her daughter Robin, who died at the age of three following a battle with leukemia.

Top White House economic adviser Larry Kudlow apologized after saying on Tuesday that U.S. Ambassador to the United Nations Nikki Haley “got ahead of the curve” when she announced additional sanctions on Russia. “She was certainly not confused,” Kudlow told the New York Times, and that he was “wrong to say that – totally wrong.” Haley said Sunday that the U.S. planned to impose sanctions on Moscow as early as Monday, but the White House said Monday that the President has not decided to impose sanctions on Russia in response to a chemical weapons attack in Syria, contradicting Haley’s comments. Hayley hit back at the White House on Tuesday denying Kudlow’s claim that she was confused when she spoke about the alleged new sanctions.

On Thursday, President Donald Trump’s effort to crack down on sanctuary cities suffered legal setback as a federal appeals court in Chicago upheld a nationwide injunction against making federal grant funding contingent on cooperation with immigration enforcement. An all-Republican three-judge panel ruled that there were strong indications that the administration exceeded its legal authority in trying to implement the new conditions without approval from Congress. The ruling followed a suit filed by the City of Chicago after the Justice Department imposed new conditions last July in a bid to encourage state and local governments to provide more assistance to immigration authorities. Reagan appointee Daniel Manion, one of the judges on the 7th Circuit Court of Appeals panel, said he would narrow the injunction solely to protect Chicago. But the two other judges assigned to the case indicated that the nationwide injunction appeared to be justified.

Also on Thursday, President Donald Trump’s personal attorney Jay Sekulow confirmed the addition of former New York mayor Rudy Giuliani and former federal prosecutors Jane Serene Raskin and Marty Raskin to the President’s legal team. The hiring came at a time when the president has been facing an expanding Russia inquiry and a separate high-stakes criminal investigation into his longtime personal lawyer, Michael Cohen. “You’ve got different fronts,” Sekulow said in an interview earlier this week, “by nature, it’s going to expand the scope of who you’re going to retain.” “Hard to say how this fundamentally changes any of the current dynamic, but there is certainly a need for legal help,” said Sam Buell, a former federal prosecutor.

On Thursday night, the Department of Justice released 15 pages of redacted and declassified memos that former FBI Director James Comey wrote about his interactions with President Trump in the months leading up to Mr. Comey’s firing. The former FBI director depicted in the memos his early encounters with President Donald Trump, including details relating to the president’s disproving allegations in the Steele dossier and his demands for aides’ loyalty. Some of the episodes have also been recounted in Comey’s congressional testimony last year and in his new book, “A Higher Loyalty.”

On Saturday, North Korean leader Kim Jong Un said the regime no longer needs nuclear tests or intercontinental ballistic missile tests, according to the state-run KCNA. Kim said that “under the proven condition of complete nuclear weapons, we no longer need any nuclear tests, mid-range and intercontinental ballistic rocket tests, and that the nuclear test site in northern area has also completed its mission,” as quoted by KCNA. A North Korean source told CNN that Kim has finally decided to open up a new chapter for his nation and has committed to a path of denuclearization and will now focus on economic growth and improving the national economy. “North Korea has agreed to suspend all Nuclear Tests and close up a major test site,” President Donald Trump tweeted, “this is very good news for North Korea and the World – big progress! Look forward to our Summit,” referring to a meeting that might occur between the president and Kim.

Other highlights of last week include:

Republican lawmakers on Thursday pressed a Federal Reserve official to address moves by banks to stop doing business with the gun industry in the wake of a deadly shooting at a Florida high school in February. Fed Vice Chairman for Supervision Randal Quarles replied that it wasn’t his role to second-guess banks’ business decisions related to the gun debate.

LAST WEEK ON THE HILL

HOUSE FINANCIAL SERVICES COMMITTEE

Hearing entitled “Semi-Annual Testimony on the Federal Reserve’s Supervision and Regulation of the Financial System”: On Tuesday, the full committee held a hearing entitled the “Semi-Annual Testimony on the Federal Reserve’s Supervision and Regulation of the Financial System.” The purpose of the hearing was to receive the testimony of the Honorable Randal Quarles, Member of the Board of Governors of the Federal Reserve and Vice Chairman for Supervision, as proscribed by Section 1108 of the Dodd-Frank Act.

• The Honorable Randal Quarles, Vice Chairman for Supervision, Board of Governors of the Federal Reserve System

Hearing entitled “Housing Choice Voucher Program: An Oversight and Review of Legislative Proposals”: On Tuesday, the Subcommittee on Housing and Insurance held a hearing entitled “Housing Choice Voucher Program: An Oversight and Review of Legislative Proposals.” The purpose of the hearing was to review the Housing Choice Voucher Program and, in particular, examine three specific legislative proposals that would address how the program could improve mobility among families, foster kids, and those individuals recovering from opioid addiction. The proposals included (1) H.R. __, the “Housing Choice Voucher Mobility Demonstration Act of 2018”; (2) H.R. __, the “Transitional Housing for Opioid Recovery Demonstration Program Act of 2018”; and (3) the amended version of H.R. 2069, the “Fostering Stable Housing Opportunities Act of 2018.”

• Barbara Sard, Vice President for Housing Policy, Center for Budget & Policy Priorities

• Ms. Ruth White, Executive Director, National Center for Housing & Child Welfare

• Ms. Lynn Kovich, Deputy Secretary, Office of Mental Health and Substance Abuse Services, Pennsylvania Department of Human Services

• Mr. Dean Hammond, Board Member, Foundation for Affordable Housing in Kentucky

SENATE BANKING COMMITTEE

Hearing entitled “Nomination Hearing”: On Tuesday, the Committee held a hearing to consider the following nominations: The Honorable Thelma Drake, of Virginia, to be Administrator of the Federal Transit Administration; Mr. Jeffrey Nadaner, of Maryland, to be Assistant Secretary of Commerce for Export Enforcement; and Mr. Seth Appleton, of Missouri, to be Assistant Secretary of Housing and Urban Development for Policy Development and Research.

ON THE FLOOR

Senate Votes to Advance Joint Resolution on CFPB Auto Dealer Rule: On Tuesday, the Senate voted to advance for consideration a joint resolution introduced by U.S. Senators Jerry Moran (R-KS) and Pat Toomey (R-PA) that would roll back an Obama-era guidance and eliminate caps on how high dealerships are able to increase interest rates on auto loans. The rule was intended to eliminate racial discrimination, however industry groups have long argued the rule overstepped the CFPB’s mandate. Senate Majority Leader Mitch McConnell (R-KY) praised the bill, saying that it would “protect consumers from a brazen attempt by the past director of the Consumer Financial Protection Bureau to stretch his authority and interfere in the auto industry.”

LEGISLATION INTRODUCED AND PROPOSED

Bill Introduced to Prevent CFPB from Regulating Insurance: U.S. Senators Tim Scott (R-SC), Mike Rounds (R-SD), Tammy Baldwin (D-WI), and Joe Manchin (D-WV) have introduced legislation to prevent the Consumer Financial Protection Bureau from regulating the insurance industry. The House Financial Services Committee in January approved companion legislation, H.R. 3746 (115), in a 37-18 vote. The Senate bill, S.2702, states that it would “amend the Consumer Financial Protection Act of 2010 to clarify the authority of the Bureau of Consumer Financial Protection with respect to persons regulated by a State insurance regulator, and for other purposes.” “As someone who sold insurance for 23 years, I answered to our state’s insurance director in Columbia, not bureaucrats in Washington,” Senator Tim Scott said in an emailed statement, “Congress never intended for the CFPB to be an insurance regulator, and this bipartisan, common sense bill ensures that our 150-year old system of state-based insurance regulation stays in place while keeping costs down for policyholders of all kinds.”

Waters Introduces Bill to Prevent Foreclosures on FHA Borrowers: On Thursday, Congresswoman Maxine Waters (D-CA), Ranking Member of the House Committee on Financial Services, introduced legislation that would help prevent foreclosures for the Federal Housing Administration’s (FHA) borrowers through strengthening requirements for and increasing oversight of FHA mortgage servicers. “A decade after the devastating foreclosure crisis, we continue to see significant problems with the servicing of FHA loans that unnecessarily put homeowners at risk of foreclosure,” said Ranking Member Waters. “My bill, the FHA Foreclosure Prevention Act, would ensure that FHA servicers help families experiencing financial hardship avoid foreclosure so that they can remain in their homes.” A companion measure (S. 2698) has been introduced in the United States Senate by Senator Catherine Cortez Masto (D-NV); Senator Elizabeth Warren (D-MA) is an original cosponsor on the bill. “As Nevada’s attorney general during the foreclosure crisis, I saw far too many lives turned upside down due to rampant foreclosures, as well as the devastating effects that come with losing one’s home,” said Senator Cortez Masto. “To this day, borrowers are unnecessarily being put at risk of losing their homes because of servicers’ failures to comply with the FHA’s loss mitigation requirements. This bill will implement common-sense measures to give borrowers a fair chance at avoiding foreclosure.”

THIS WEEK ON THE HILL

Tuesday, April 24

Senate Finance Committee will conduct a hearing entitled “Early Impressions of the New Tax Law” 2:30 PM in 215 Dirksen Senate Office Building

Wednesday, April 25

House Financial Services Committee will conduct a hearing entitled “HUD’s Role in Rental Assistance: An Oversight and Review of Legislative Proposals on Rent Reform” 2:00 PM in 2128 Rayburn House Office Building

House Appropriations Subcommittee will conduct a hearing on “FY2019 Office of Housing and Federal Housing Administration” 2:00 PM in 2358-A Rayburn House Office Building

House Appropriations Committee will conduct a hearing entitled “Financial Services Member Day” 3:00 PM in H-309, The Capitol

Thursday, April 26

House Financial Services Committee will conduct a hearing entitled “Oversight of the SEC’s Division of Corporation Finance” 10:00 AM in 2128 Rayburn House Office Building

House Appropriations Committee will conduct a hearing entitled “FY2019 U.S. Securities and Exchange Commission” 9:30 AM in 2362-B Rayburn House Office Building

House Energy and Commerce Committee will conduct a hearing on “Perspectives on Reform of the CFIUS Review Process” 10:15 AM in 2322 Rayburn House Office Building

Friday, April 27

House Financial Services Committee will conduct a hearing entitled “Implementation of FinCEN’s Customer Due Diligence Rule – Financial Institution Perspective” 9:15 AM in 2128 Rayburn House Office Building

THE REGULATORS

Fed Governor Delivers Address on Community Development in Baltimore and Community Reinvestment Act Modernization: Speaking at the Federal Reserve Bank of Richmond Baltimore Community Development Gathering on Tuesday, Federal Reserve Governor Lael Brainard noted that “the time is ripe to modernize the CRA regulations to make them more effective.” She expressed the Fed’s commitment to ensuring the original goal of the law isn’t lost in the shuffle, saying “it should be possible to achieve better outcomes—both providing banks with the greater clarity and predictability they seek while also facilitating better provision of credit, investments, and banking services in low- and moderate-income areas.”

New York Fed President Considers Stock Market Prices to be Reasonable: During an interview on CNBC, outgoing New York Fed President Bill Dudley remarked that “we’re back to a more normal regime” and that “If you look at the stock market in the context of an economy that’s growing, and expect to continue to grow over the next few years, stock market valuations don’t look unreasonable.”

SEC Unveils Public Service Announcement to Promote Background Checks on Investor.gov: On Monday, the SEC unveiled a public service announcement to encourage investors to check the background of their investment professional by using the free search tool on Investor.gov before investing. “It can be hard to spot a fraudster, and Investor.gov’s free search tools can help investors verify that they are dealing with a registered investment professional,” said Lori Schock, Director of the SEC’s Office of Investor Education and Advocacy.

New York Fed Chief Said the Fed Should Maintain Current Frame Work for Setting Interest Rates: On Wednesday, New York Federal Reserve President Bill Dudley said the Fed should maintain its approach to setting monetary policy by paying interest to banks for the excess reserves they deposit at the central bank. “The case for retaining the current ... system is very compelling,” Dudley said in a speech at Lehman College, arguing that it was less complex since the central bank now doesn’t have to actively manage the supply of reserves. Dudley also suggested that the Fed should consider changing its inflation target to a range but should not make any changes until after it has met its two percent target, for concern of being viewed as “moving the goal posts.”

SEC Proposes New Rules for Financial Advisers: On Wednesday, in a 4-1 vote, SEC commissioners proposed rules and guidance totaling more than 1,000 pages for financial professionals about how they can interact with small investors. The proposed “regulation best interest” would require brokers to provide reasonable disclosure about conflicts of interest while making available a safe harbor from liability. The rules would mandate that financial professionals disclose to clients their responsibilities and ties to financial firms, and would restrict the use of the title “financial adviser.” “Regulation best interest will explicitly require for the first time in a commission rule that broker-dealers must act in their retail customers’ best interest,” said Dalia Blass, director of the SEC’s investment management division. It is estimated that a final SEC rule could come in 2019 with implementation in 2020.

Fed Regulatory Chief Indicated That Not All Banks Would Benefit from Proposed Change to Backup Capital Rule: On Thursday, Federal Reserve regulatory chief Randal Quarles said that some banks would not benefit from a section of the financial deregulation bill purported to ease capital requirements for custody banks. The Senate-passed bill would exclude from the ratio cash deposits at the Fed from banks “predominantly” engaged in custodial services. “There are regulatory arguments for that solution, but the concern I would have as a regulator is that I don’t know where one would turn off the dial,” Quarles said during a Senate Banking Committee hearing. Quarles also said that the Fed believed there should be a broader response to prevent the leverage ratio from being a binding constraint, a reason why it proposed easing the enhanced version of the ratio that applies to the largest banks.

COMINGS AND GOINGS AT THE AGENCIES

Dan Berkovitz Nominated for CFTC Post: President Trump has nominated current WilmerHale partner Dan Berkovitz to fill a Democratic commissioner vacancy at the Commodity Futures Trading Commission. Mr. Berkovitz previously served as general counsel for the CFTC from 2009-2013 during the Obama administration. He is not expected to have difficulty being confirmed, as his nomination will be paired with Republican commissioner nominee Dawn Stump whose nomination has been pending since June.

FTC Commissioner Terrell McSweeny to Step Down: FTC Commissioner Terrell McSweeny announced on Monday that she will resign effective April 28, the same day four of President Trump’s nominees are set for a confirmation vote. Ms. McSweeny, who has served since April 2014, is one of just two commissioners at the agency currently, alongside Acting Chairwoman Maureen Ohlhausen.

OTHER NOTEWORTHY ITEMS

NY AG Schneiderman Launches Inquiry into Cryptocurrency Exchanges: On Tuesday, New York’s Attorney General Eric Schneiderman announced he was launching an inquiry into cryptocurrency exchanges, sending letters to 13 virtual currency trading platforms requesting disclosures on their operations, use of bots, conflicts of interests and other issues. “With cryptocurrency on the rise, consumers in New York and across the country have a right to transparency and accountability when they invest their money. Yet too often, consumers don’t have the basic facts they need to assess the fairness, integrity, and security of these trading platforms,” said AG Schneiderman.

Venture Capital Firms Seek Securities Law Safe Harbor for Certain Digital Currency Projects: Venture capitalists and entrepreneurs with investments in digital currency-related business have been lobbying the SEC to adopt a safe harbor to protect at least some virtual currencies from being categorized as securities, a designation that would carry significantly more regulatory oversight. A 49-page memo was sent to senior SEC staff on March 26 by various stakeholders arguing that digital tokens should be granted protection from regulations when used for certain non-investment purposes. An informal venture capital working group also prepared a document on the subject outlining the strategy for a similar safe harbor to allow for a more flexible regulatory framework. “To remedy the uncertainty and confusion in this space, we are proposing a non-exclusive safe harbor to help provide guidance to the industry on what constitutes an ‘investment contract’ and how the investment contract law and guidance should apply to utility tokens,” the working group document states.

State Attorneys General Tell Congress Not to Shield Attorneys From FDCPA: On Thursday, the attorneys general of New York, California, and Massachusetts joined 17 of their counterparts in urging Congress to reject a bill that would shield law firms and attorneys involved in debt-collection litigation from the reach of the Fair Debt Collection Practices Act, arguing that the move would take away important safeguards. “We believe that H.R. 5082 would wrongly strip away safeguards against unscrupulous debt collection attorneys who abuse state court litigation to intimidate, harass and deceive consumers,” the attorneys general told the leaders of the House and Senate, “accordingly, we urge you to vote against the act.”

Lawmakers Press FDIC for Information on Breach Response: On Friday, leaders of the House Science Committee announced a strongly worded letter, dated Thursday and written by Science Chairman Lamar Smith (R-TX) and Oversight Subcommittee Chairman Ralph Abraham (R-LA), to the Federal Deposit Insurance Corp, inquiring whether any FDIC officials were disciplined for data breaches, including any administrative or other kinds of punishments, and criticizing the agency for not adequately notifying Congress. “This is one of the most astounding recommendations this committee has seen issued to an agency,” the letter dated Thursday says. “Essentially, the OIG is recommending that the agency tell the full truth.”

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