Money Matters: This Week in Washington

This Week in Washington for August 27, 2019

August 27, 2019

Dina Ellis

THE BIG PICTURE

Amid concerns over the potential for a recession, on Tuesday the President told reporters that he was mulling a temporary payroll tax cut or reduction in capital gains taxes to provide a boost to the economy, saying he’d “love to do something.” By Wednesday afternoon however, he had reversed course and announced that both options were off the table as “we don’t need it.” The President continued his public criticism of Federal Reserve Chairman Jerome Powell for hindering the economy by “rais[ing] rates too fast, too furious.”

Following the first two rounds of debates, the crowded field of candidates in the Democratic primary narrowed as some contenders announced they would exit the race. On Friday, Rep. Seth Moulton (D-MA) and Governor Jay Inslee (D-WA) both ended their campaigns for the nomination after failing to gain traction in the polls. Former Colorado Governor John Hickenlooper who withdrew from the race earlier this month announced on Thursday that he would instead launch a bid for the Senate.

Trade tensions continued to escalate between the United States and China, with the President announcing on Friday that a 10% tariff on US$300B worth of Chinese goods would go into effect on September 1st. The move came in response to China’s decision to levy tariffs on US$75B worth of American goods, particularly targeting cars and agricultural products. The President urged the business community to find “an alternative” to doing business with the Chinese. After the announcements, the Dow dropped over 600 points, a sign of increased concern over the implications for the U.S. economy.

The President’s planned state visit to Denmark was called off following a tense exchange with the Danish Prime Minister over an unsolicited offer to purchase the autonomous territory of Greenland. The Prime Minister called the offer “absurd” in the media, which set off a minor diplomatic incident that resulted in the President describing her comments as “nasty” and canceling the two-day trip that had been set to take place in early September. The two held a “constructive” call on Thursday, in an attempt to mend relations with the close NATO ally.

Other highlights of last week include:

• On Wednesday, the administration announced a proposed rule that would allow undocumented immigrant families to be detained together indefinitely, replacing the Flores settlement, which set a 20-day limit for holding children.

• Billionaire conservative activist and donor David Koch passed away on Friday at the age of 79.

• On Friday, the Supreme Court announced that Justice Ruth Bader Ginsburg recently received treatment for a malignant tumor on her pancreas, and confirmed it was treated “definitively,” with “no evidence of disease elsewhere.”

LAST WEEK ON THE HILL

Congress remains in recess until September 8th.

HOUSE FINANCIAL SERVICES COMMITTEE

Fall Priorities Announced: Chairwoman Maxine Waters (D-CA) on Thursday, announced an overview of the Committee’s fall 2019 priorities, including:

• Working to ensure fairness, competition, and transparency by holding hearings on: examining the state of minority depository institutions; reviewing stock buybacks; and analyzing innovations in loan instruments.

• Providing strong oversight by: receiving testimony from and questioning top government officials and regulators such as Treasury Secretary Mnuchin, CFPB Director Kraninger, FHFA Director Calabria, and Federal Reserve Vice Chairman Quarles.

• Ensuring no one is left behind and working to protect all Americans by: examining the Terrorism Risk Insurance Program; analyzing efforts to improve diversity in workforce recruitment, hiring, retention, and promotion; and increasing access to home ownership by improving the Federal Housing Administration and reviewing housing finance reform.

• Continuing to encourage and regulate innovation by: exploring data privacy; examining the use of artificial intelligence in financial services; and reviewing the evolution of payments and cash.

LEGISLATION INTRODUCED AND PROPOSED

H.R. 4197: Rep. Carolyn Maloney (D-NY) introduced H.R. 4197, the “Revitalizing Cities Through Parks Enhancement Act” which would authorize the Secretary of Housing and Urban Development to make grants to nonprofit community organizations for the development of open space on municipally owned vacant lots in urban areas.

S. 2427: Sen. Catherine Cortez Masto (D-NY) introduced S. 2427, the “Women’s History and Nineteenth Amendment Centennial Quarter Dollar Coin Program Act” which would require the Secretary of the Treasury to mint and issue quarter dollars in commemoration of the 19th Amendment to the Constitution of the United States.

THE REGULATORS

FDIC Issues Proposed Rule on Interest Rate Restrictions Applicable to Less Than Well Capitalized Institutions: On Tuesday, the FDIC issued a notice of proposed rulemaking related to interest rate restrictions that apply to less than well capitalized insured depository institutions. Under the proposed rule, the FDIC would amend the methodology for calculating the national rate and national rate cap for specific deposit products to provide a more balanced, reflective, and dynamic national rate cap. The national rate would be the weighted average of rates offered on a given deposit product by all reporting institutions weighted by domestic deposit share.

FDIC Approves Interagency Final Rule to Simplify and Tailor the “Volcker Rule”: On Tuesday, the FDIC approved an interagency final rule to simplify and tailor requirements relating to Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, commonly known as the “Volcker Rule.” The Volcker Rule generally prohibits banking entities from engaging in proprietary trading and from owning or controlling hedge funds or private equity funds. “One of the post-crisis reforms that has been most challenging to implement for regulators and industry is the Volcker Rule, which restricts banks from engaging in proprietary trading and from owning hedge funds and private equity funds. Distinguishing between what qualifies as proprietary trading and what does not has proven to be extremely difficult. Meanwhile, banks that do relatively little trading are required to go through substantial compliance exercises to ensure that activities that have long been considered traditional banking activities do not run afoul of the Volcker Rule,” said FDIC Chairman Jelena McWilliams. The final rule will have an effective date of January 1, 2020, and a compliance date of January 1, 2021. Ranking Member of the Senate Banking Committee Sherrod Brown (D-OH) slammed the move, saying “regulators continue to open a Pandora’s box of risky trading and speculation at the expense of American taxpayers.”

FDIC Issues Proposed Rule on Assessment Credits: On Tuesday, the FDIC approved a notice of proposed rulemaking that would amend the deposit insurance assessment regulations that govern the use of small bank assessment credits and one-time assessment credits. Small bank credits were awarded to insured depository institutions (IDIs) that had less than $10 billion in assets, and that contributed to the growth in the Deposit Insurance Fund (DIF) reserve ratio at some point between July 1, 2016, and September 30, 2018, when the reserve ratio was between 1.15 percent and 1.35 percent. The proposal would require the FDIC to automatically apply small bank credits to quarterly assessments when the reserve ratio is at least 1.35 percent, rather than 1.38 percent, as required under current regulation. After applying credits for eight quarters, the FDIC would remit to IDIs the nominal value of any remaining small bank credits.

SEC Clarifies Investment Advisers’ Proxy Voting Responsibilities and Application of Proxy Rules to Voting Advice: On Wednesday, the SEC provided guidance to assist investment advisers in fulfilling their proxy voting responsibilities. The guidance discusses, among other matters, the ability of investment advisers to establish a variety of different voting arrangements with their clients and matters they should consider when they use the services of a proxy advisory firm. In addition, the Commission issued an interpretation that proxy voting advice provided by proxy advisory firms generally constitutes a “solicitation” under the federal proxy rules and provided related guidance about the application of the proxy antifraud rule to proxy voting advice. Both of these actions explain the Commission’s view of various non-exclusive methods entities can use to comply with existing laws or regulations or how such laws and regulations apply.

Waters Criticizes HUD Proposal to Revise the ‘Disparate Impact’ Rule: Following the release of a proposed rule earlier this month that would amend HUD’s interpretation of the Fair Housing Act’s disparate impact standard, House Financial Services Committee Chairwoman Maxine Waters (D-CA) released a statement slamming the rule as making “it substantially more difficult for victims of housing discrimination, including persons with disabilities, families with children, and racial minorities, to prove their case in a court of law and thereby hold bad actors accountable for their actions.”

Legislators Urge HUD to Reconsider Exclusion of Virgin Islands from Disaster Relief Funding: In a letter to HUD Secretary Ben Carson, 10 members of Congress led by Maxine Waters (D-CA), Chairwoman of the House Committee on Financial Services and Congresswoman Stacey Plaskett (D-VI), strongly criticized the agency’s recent announcement that it would release Community Development Block Grant Disaster Recovery (CDBG-DR) funding to the U.S. Virgin Islands and Puerto Rico separately from nine other disaster-impacted areas due to alleged corruption, fiscal irregularities and financial mismanagement occurring in Puerto Rico and capacity issues in the U.S. Virgin Islands. The members argued that the “conflating of any capacity issues in the Virgin Islands to unrelated challenges in Puerto Rico is absolutely inappropriate.”

Legislators Criticize CFPB Payday Lending Rule Delay: On Friday, Rep. Maxine Waters (D-CA), Chairwoman of the House Committee on Financial Services, and 101 Members of Congress sent a letter to CFPB Director Kathy Kraninger, calling on her to reconsider the Bureau’s final rule to delay the original August 19, 2019 compliance date for the 2017 Payday, Vehicle Title, and Certain High-Cost Installment Loans Rule (Payday Rule). The members wrote “Contrary to recklessly false characterizations, payday, car-title, and predatory consumer installment loans made without regard to the borrower’s ability to repay are not acceptable or sustainable sources of credit,” adding that “Research, including that coming from the Consumer Bureau, has shown that these predatory products trap people in a cycle of debt and leave them in a significantly worse position than they were in prior to taking out the loan.”

NCUA Releases Interim Guidance on Serving Hemp Businesses: On Tuesday, the National Credit Union Administration released a new guidance which advised that federally insured credit unions may provide certain financial services to legally operating hemp businesses. The guidance will be revised and updated once the Department of Agriculture finalizes forthcoming regulations and guidelines. Credit unions will be able to provide the customary range of financial services for business accounts, including loans, to hemp businesses within their fields of membership. “Lawful hemp businesses provide exciting new opportunities for rural communities,” NCUA Chairman Rodney Hood said. “My expectation is that credit unions will thoughtfully consider whether they are able to safely and properly serve lawfully operating hemp-related businesses within their fields of membership.”

Treasury Targets Chinese Drug Kingpins: On Wednesday, Treasury’s OFAC and FinCEN announced coordinated actions to bring additional financial pressure upon those who manufacture, sell, or distribute synthetic opioids or their precursor chemicals. In addition, FinCEN issued an advisory to alert financial institutions to financial schemes related to the trafficking of fentanyl and other synthetic opioids. Information in the advisory will assist them in detecting and reporting related criminal activity. FinCEN Director Kenneth A. Blanco said in a statement, “We are making the financial sector aware of tactics and typologies behind illicit schemes to launder the proceeds of these fatal drug sales, including transactions using digital currency and foreign bank accounts. Financial institutions must be on alert to red flags and other indicators of the complex schemes fentanyl traffickers are employing so that financial institutions can report and share relevant information with law enforcement, and ultimately help save lives.”

Treasury Designates Dominican Republic-Based Drug Trafficking Organization: On Tuesday, Treasury’s OFAC identified Dominican national Cesar Emilio Peralta and the Peralta Drug Trafficking Organization as significant foreign narcotics traffickers pursuant to the Foreign Narcotics Kingpin Designation Act. “Cesar Emilio Peralta and his criminal organization have used violence and corruption in the Dominican Republic to traffic tons of cocaine and opioids into the United States and Europe. Treasury is targeting these Dominican drug kingpins, their front persons, and the nightclubs they have used to launder money and traffic women,” said Sigal Mandelker, Under Secretary for Terrorism and Financial Intelligence. “This Administration continues to systematically target strategically important drug kingpins and cartels fueling our country’s opioid epidemic.”

COMINGS AND GOINGS AT THE AGENCIES

CFPB Appoints Private Education Loan Ombudsman: The CFPB announced the appointment of Robert Cameron to serve as the Bureau’s private education loan ombudsman. Mr. Cameron joins the Bureau from the Pennsylvania Higher Education Assistance Agency. In response, House Financial Services Committee Chairwoman Maxine Waters (D-CA) released a statement criticizing the move, saying she was “deeply concerned” that “the Trump Administration appears to be continuing its efforts to ignore the needs of consumers by appointing, as [prior ombudsman Seth Frotman’s] replacement, a high-ranking official from one of the nation’s largest student loan servicers.”

Fannie Mae Names Former FDIC Chair to the Board of Directors: On Wednesday, Fannie Mae announced that Sheila Bair had been appointed to the Board of Directors. Ms. Bair has previously served as the Chair of the FDIC, Assistant Secretary for Financial Institutions at the Treasury, Senior Vice President for Government Relations of the NYSE, and Commissioner of the CFTC.

OTHER NOTEWORTHY ITEMS

51 Attorneys General and 12 Phone Companies Reach Agreement to Combat Illegal Robocalls: Arizona Attorney General Mark Brnovich announced that as a result of a bipartisan, public/private coalition of 51 attorneys general and 12 phone companies, the phone companies agreed to adopt eight principles to fight illegal robocalls through prevention and enforcement. “These principles are being adopted to help us stop illegal robocalls from reaching our phones,” said Attorney General Mark Brnovich. “I applaud industry for working with attorneys general and for making available free call-blocking tools and committing to share information with my office so we can continue to bring bad actors to justice.”

Conference of State Bank Supervisors Launches New Fintech Tools: On Wednesday, the CSBS launched three online tools to aid industry players in navigating the state regulatory system and to help guard against cyber risks. The tools, which are part of the CSBS’ Vision 2020 roadmap, include (1) A portal of state agency guidance for nonbank financial services companies; (2) an interactive map of agent-of-the-payee exemptions from money transmission laws; and (3) a new cybersecurity 101 resource center for banks and nonbanks alike.

Secretary of State Discusses Bitcoin Regulation: During an interview on Tuesday, Secretary of State Mike Pompeo expressed his view that bitcoin transactions should be regulated the same way other transactions are, describing his fear that anonymous transactions could enable bad actors. He noted, “the risk with anonymous transactions is one that we all know well. We know this from 9/11 and terror activity that took place in the 15 years preceding that where we didn’t have good tracking, we didn’t have the capacity to understand money flows and who was moving money.”