Money Matters: This Week in Washington

This Week in Washington for February 5, 2018

February 05, 2018

Dina Ellis and Casey Miller

THE BIG PICTURE

The President gave the State of the Union address on January 30; however, the speech was eclipsed by the release of a classified memo prepared by House Intelligence Committee Republicans. The memo, known as the “Nunes Memo,” was released by the White House against the advice of FBI Director Christopher Wray. The memo alleges that the FBI overstepped its authority and may have relied on politically motivated sources early in the investigation into Russian election meddling.

Republicans are reportedly planning to pass a bill that would fund the government through March 22, 2018 however, they may face dissention in their own ranks. Among others, House Freedom Caucus Chairman Mark Meadows is threatening to withhold votes without more concessions on immigration. Funding for the government expires on February 8. According to the Congressional Budget Office, Congress will also need to raise the debt ceiling in the first two weeks of March.

The U.S. Court of Appeals for the District of Columbia issued a ruling last week upholding the constitutionality of the structure of the Consumer Financial Protection Bureau (CFPB). House Financial Services Committee Chairman Jeb Hensarling released a statement saying that he is “deeply disappointed with the court’s decision and hope[s] the Supreme Court will review the ruling in short order.” The decision was applauded by Congressional Democrats.

On a related note, a federal judge in New York dismissed a lawsuit challenging Acting CFPB Director Mick Mulvaney’s appointment. The suit was brought by the Lower East Side People’s Credit Union in support of Deputy Director Leandra English’s claim that she should rightfully be acting head of the bureau.

Other highlights of last week include:

• FBI Deputy Director Andrew McCabe stepped down from his position. According to White House Press Secretary Sarah Huckabee Sanders, President Trump was not involved with the decision.

• The Justice Department filed a motion to seek dismissal of its indictment against Senator Robert Menendez (D-NJ). The decision came about a week after a federal judge acquitted Menendez on seven of the 18 counts on which he was charged.

• The head of the Centers for Disease Control and Prevention, Brenda Fitzgerald, resigned last week amid reports that she traded tobacco stocks while heading the agency.

• Todd Ricketts is likely to be named finance chair of the Republican National Committee. Ricketts is a major donor and his family owns the Chicago Cubs. The last finance chair, Steve Wynn, stepped down amid allegations of sexual harassment.

• House Republicans had their retreat last week in West Virginia. Democrats will hold theirs this week in Maryland.

• Rep. Rodney Frelinghuysen (R-NJ), Chair of the House Appropriations Committee, will not seek reelection.

• Rep. Trey Gowdy (R-SC) announced last week that he will not be running for re-election and intends to leave politics.

LAST WEEK ON THE HILL

HOUSE FINANCIAL SERVICES COMMITTEE

Subcommittee Holds Hearing on Human Trafficking: On January 30, the Oversight and Investigations Subcommittee held a hearing entitled “Following the Money: How Human Traffickers Exploit U.S. Financial Markets.” The purpose of the hearing was to examine how financial institutions monitor, review and verify depository relations with a payment processor, in order to better understand potential problems and long-term challenges that exist, including examples of how human traffickers avoid detection. Witnesses included:

• The Honorable Cyrus R. Vance Jr., District Attorney, New York County, District Attorney’s Office

• Dr. Louise I. Shelley, Founder and Director, Terrorism, Transnational Crime and Corruption Center, George Mason University

• Ms. Tina Frundt, Founder and Director, Courtney’s House

• Mr. Bassem Banafa, Financial Forensics Consultant, Bassem Banafa, LLC

Subcommittee Holds Fintech Hearing: Also on January 30, the Financial Institutions and Consumer Credit Subcommittee held a hearing entitled “Examining Opportunities and Challenges in the Financial Technology (“Fintech”) Marketplace.” The purpose of the hearing was to examine the current regulatory landscape, the need to amend or modernize the regulatory landscape and the necessity to amend existing financial laws or develop new legislative proposals that would allow financial services entities to use fintech to develop new products and services for consumers. Witnesses included:

• Mr. Nathaniel Hoopes, Executive Director, Marketplace Lending Association

• Mr. Brian Knight, Director, Program on Financial Regulation and Senior Research Fellow, Mercatus Center, George Mason University

• Mr. Brian Peters, Executive Director, Financial Innovation Now

• Mr. Andrew Smith, Partner, Covington and Burling, LLP

• Prof. Adam J. Levitin, Professor of Law, Georgetown University Law Center

SENATE BANKING COMMITTEE

Treasury Secretary Mnuchin Testifies on the Financial Stability Oversight Council: On January 30, Department of Treasury Secretary Steven Mnuchin testified in a hearing entitled “The Financial Stability Oversight Council Annual Report to Congress.” Among other things, he urged Congress to “act as soon as possible to protect the full faith and credit of the United States by increasing the statutory debt limit.” Mnuchin also insisted that the Trump Administration will at some point impose sanctions on oligarchs linked to Russian President Vladimir Putin.

SENATE FINANCE COMMITTEE

Hatch Sends Letter to NCUA Chairman Mark McWatters: Senate Finance Chairman Orrin Hatch (R-UT) sent a letter expressing concern that credit unions may be operating beyond their tax-exempt purpose. In a letter to National Credit Union Administration Chairman Mark McWatters, Hatch wrote: "I am concerned that the credit union industry is evolving in ways that take many credit unions further from their original tax-exempt purpose."

ON THE FLOOR

House Passes Online Banking Bill: On January 29, the House passed H.R. 1457, legislation requiring states to allow consumers to open bank accounts online using copies of their drivers’ license or other forms of identification.

Other financial services legislation passed includes:

• H.R. 1426, the Federal Savings Association Charter Flexibility Act of 2017, sponsored by Rep. Keith Rothfus (R-PA), would amend the Home Owners’ Loan Act to allow certain federal savings associations to operate with the same rights and privileges as national banks supervised by the Office of the Comptroller Currency. H.R. 1426 is Section 551 of H.R. 10, the Financial CHOICE Act of 2017.

• H.R. 2255, the Housing Opportunities Made Easier (HOME) Act by Rep. David Trott (R-MI). Title 1 would amend the Truth in Lending Act to allow mortgage appraisal services to be donated by a fee appraiser to an organization that is eligible to receive tax-deductible charitable contributions. Title 2 would amend the Securities Exchange Act of 1934 to require the SEC’s Advocate for Small Business Capital Formation to identify any unique challenges that rural-area small businesses have in securing capital and to include a summary of such issues in the Advocate’s annual report to Congress. Lastly, Title 3 would exempt financial institutions and some of their employees from liability in any civil or administrative proceedings in situations where those employees make a report about the potential exploitation of a senior citizen to a governmental agency, so long as the entity has provided training and the report is made in good faith.

• H.R. 4292, the Financial Institution Living Will Improvement Act of 2017, sponsored by Rep. Lee Zeldin (R-NY), would amend the “Dodd-Frank Wall Street Reform and Consumer Protection Act” to reform the resolution plan submission “living will” process by requiring bank holding companies to submit to the Federal Reserve Board (Federal Reserve) and the Federal Deposit Insurance Corporation (FDIC) resolution plans every two years. This bill requires the Federal Reserve and FDIC to provide feedback regarding a resolution plan within six months after a bank holding company submission. This bill would also require the Federal Reserve and FDIC to publicly disclose the assessment framework used to review the adequacy of resolution plans.

• H.R. 4792, the Small Business Access to Capital After a Natural Disaster, sponsored by Rep. Nydia Velazquez (R-NY), would amend the Securities Exchange Act of 1934 to have the Securities and Exchange Commission’s Advocate for Small Business Capital Formation identify any unique challenges to small businesses, in areas affected by hurricanes or other natural disasters, when identifying problems that small businesses have with securing access to capital.

LEGISLATION INTRODUCED AND PROPOSED

Draft Housing Bill Released: A draft bill being prepared by Senators Bob Corker (R-TN) and Mark Warner (D-VA) was leaked last week. The legislation reforms Fannie Mae and Freddie Mac and includes provisions to expand affordable homeownership and rental housing. Senator Elizabeth Warren (D-MA) criticized the legislation, saying that it “isn’t even close to a solution that works for families who hope to buy homes.”

On another housing-related related note, Senators Tammy Duckworth (D-IL), Tim Scott (R-SC) and Ron Johnson (R-WI) introduced the The Housing Opportunity Mortgage Expansion Act. The legislation would reverse a decision by the Federal Housing Finance Agency, made in January 2016, that restricts certain captive insurers from borrowing from the Home Loan banks.

THIS WEEK ON THE HILL

Tuesday, February 6

House Financial Services Committee, Hearing entitled “The Annual Report of the Financial Stability Oversight Council,” 10:00AM in 2128 Rayburn House Office Building

• The Honorable Steven T. Mnuchin, Secretary, U.S. Department of the Treasury

Senate Banking Committee, Hearing entitled “Virtual Currencies: The Oversight Role of the U.S. Securities and Exchange Commission and the U.S. Commodity Futures Trading Commission,” 10:00AM in 538 Dirksen Senate Office Building

• The Honorable Jay Clayton, Chairman, U.S. Securities and Exchange Commission; and

• The Honorable J. Christopher Giancarlo, Chairman, U.S. Commodity Futures Trading Commission.

THE REGULATORS

Office of the Comptroller of the Currency to Seek Input on Community Reinvestment Act: Comptroller of the Currency Joseph Otting said in an interview on February 2 that the agency will seek input on ideas to reform regulations around the Community Reinvestment Act (CRA). According to Otting, “it calls out for simplification in my mind and clarity around what CRA is and how you would measure one’s success.” He said the agencies should “create a simple benchmark that everyone can measure against” in order to determine a bank’s influence on its communities.

Commodity Futures Trading Commission Chairman J. Christopher Giancarlo Announces New Paradigm for Measuring Size of Swaps Markets: Commodity Futures Trading Commission (CFTC) Chairman J. Christopher Giancarlo released a new paradigm for measuring the size of the global swaps markets, in a speech to DerivCon 2018 in New York. In his speech, Giancarlo said, “swaps have a problem of large numbers. We have known it for a long time. Sizing the global swaps markets in hundreds of trillions of dollars has done nothing to bring clarity to newspaper accounts, policy discussions in Congress or regulatory policy setting in the decade since the financial crisis. Rather, it more often confuses the issue and hinders dispassionate consideration and sound policy setting.”

Department of Housing and Urban Development Awards US$1.5B to Help Puerto Rico Recover from Hurricanes Irman and Maria: The U.S. Department of Housing and Urban Development (HUD) on February 1 awarded more than $1.5 billion to help Puerto Rico recover from Hurricanes Irma and Maria. HUD's Deputy Secretary Pamela Hughes Patenaude announced the disaster recovery grants with Governor Ricardo Rosselló during her third visit to the island since Hurricanes Irma and Maria.

On February 2, the Department announced it was awarding US$242.7M to help the U.S. Virgin Islands recover from Hurricanes Irma and Maria. HUD's Deputy Secretary Pamela Hughes Patenaude announced the disaster recovery grants with Governor Kenneth E. Mapp during a tour of damaged homes in St. Thomas.

Federal Reserve Board Releases Scenarios for 2018 Comprehensive Capital Analysis and Review (CCAR) and Dodd-Frank Act Stress Test Exercises: The Federal Reserve Board on February 1 released the scenarios banks and supervisors will use for the 2018 Comprehensive Capital Analysis and Review (CCAR) and Dodd-Frank Act stress test exercises, and issued instructions to firms participating in CCAR. This year, 18 of the largest and most complex firms will be subject to both a quantitative evaluation of their capital adequacy and a qualitative evaluation of their capital planning capabilities, including five foreign firms with U.S. operations, for the first time. Twenty firms with less complex operations, including the U.S. operations of one foreign firm, will only be subject to the quantitative portion of CCAR.

Agencies Complete Assessment of Resolution Plans of 19 Foreign-Based Banks: The Federal Reserve Board and the Federal Deposit Insurance Corporation communicated their expectations to 19 foreign-based banking organizations for the firms' next resolution plans. Resolution plans, required by the Dodd-Frank Act and commonly known as living wills, must describe the company's strategy for rapid and orderly resolution under bankruptcy in the event of material financial distress or failure of the company. For foreign banking organizations, resolution plans are focused on their U.S. operations.

FHFA Extends Deadline to March 30 for Request for Input on Fannie Mae and Freddie Mac Credit Score Requirements: The Federal Housing Finance Agency (FHFA) on February 2 announced that it will extend, from February 20, 2018 to March 30, 2018, the deadline for interested parties to provide input on potential changes to the credit score requirements of Fannie Mae and Freddie Mac (the Enterprises). FHFA is seeking input on all aspects of a potential change from the current Classic FICO requirement, including feedback on the operational and competition considerations of continuing to use a single credit score model or allowing the use of more than one credit score model.

Consumer Financial Protection Bureau Issues Request For Information On Administrative Adjudications: On January 31, the Consumer Financial Protection Bureau (CFPB) issued a Request for Information (RFI) about administrative adjudications. The Bureau is seeking to better understand the benefits and impacts of its use of administrative adjudications, and how its existing process may be improved. This is the second in a series of RFIs announced as part of Acting Director Mick Mulvaney’s call for evidence to ensure the Bureau is fulfilling its proper and appropriate functions to best protect consumers. This RFI will provide an opportunity for the public to submit feedback and suggest ways to improve outcomes for both consumers and covered entities.

CFPB Reshuffles Lending-Discrimination Operations: Last week, an agency spokesman announced that the CFPB would revamp their lending-discrimination operations. The changes place the Office of Fair Lending and Equal Opportunity directly under the control of acting director Mick Mulvaney. Previously, the office was part of the division that examines banks and brings enforcement cases.

Treasury Targets Hizballah Financial Network in Africa and the Middle East: On February 2, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) targeted the business operations of Hizballah by designating six individuals and seven entities, pursuant to Executive Order (E.O.) 13224, which targets terrorists and those providing support to terrorists or acts of terrorism. As a result of the designations, all property and interests in property of these persons subject to U.S. jurisdiction are blocked, and U.S. persons are generally prohibited from engaging in transactions with them.

COMINGS AND GOING AT THE AGENCIES

Jerome Powell Takes the Helm at the Fed: Federal Reserve Chair Janet Yellen’s term ended on February 3, and Jerome Powell has stepped into the role of Chair. House Financial Services Ranking Member Maxine Waters (D-CA) said “Janet Yellen is unquestionably one of the most qualified and experienced policymakers to ever lead the Federal Reserve, and she will have a legacy of sound stewardship and economic progress.” Yellen will join the Brookings Institution as a distinguished fellow.

Cohn Announces Promotions at National Economic Council: Gary Cohn, director of the National Economic Council, announced that he was promoting Shahira Knight to deputy director for domestic policy. Ashley Marquis, currently Cohn’s chief of staff, will be elevated to deputy director for economic affairs. The promotions are a result of deputy director Jeremy Katz's resignation.

Michael Maloney, Enforcement’s Chief Accountant, to Leave SEC: The Securities and Exchange Commission last week announced that Michael F. Maloney, Chief Accountant of the SEC’s Division of Enforcement, is planning to leave the agency next month. Since February 2014, Mr. Maloney has led the Division’s Office of Chief Accountant, providing advice, consultation and support on all of the Division’s accounting, auditing and financial reporting enforcement matters.