Money Matters: This Week in Washington

This Week in Washington for July 29, 2019

July 29, 2019

Dina Ellis

THE BIG PICTURE

The long awaited Mueller hearings took place on Wednesday, with the former Special Counsel appearing before both the House Intelligence and Judiciary Committees in back to back sessions. Mueller, who had been reluctant to appear after previously describing the report as his testimony, frequently gave clipped answers over the course of the day, revealing little new information and failing to give House Democrats their desired optics. Mueller did issue a warning on foreign interference in our elections, saying Russian efforts continue and “they’re doing it as we sit here.”

In a 5-4 split along ideological lines, the Supreme Court ruled that the administration could redirect US$2.5B in military funding to build a wall on the Southern border. The decision was a win for the President on one of his signature issues, and he celebrated on Twitter, saying “Wow! Big VICTORY on the Wall.” The case will continue to be litigated at the appeals court level; however construction will be able to begin in the interim. House Speaker Nancy Pelosi criticized the ruling, saying it allows the President to “defy the bipartisan will of the Congress” and “undermines the Constitution and the law.”

Other highlights of last week include:

• On Sunday, the President announced that Director of National Intelligence Dan Coats would be stepping down, effective August 15th. The President plans to nominate Rep. John Ratcliffe (R-TX) to succeed him.

• On Thursday, the House voted 284-149 to pass a US$1.37T two year budget deal which will increase non-defense spending levels by US$24.5B as well as suspending the debt ceiling through July 2021. The Senate is expected to pass the measure this week.

• The federal government is set to resume capital punishment after a 15-year hiatus, after Attorney General Bill Barr instructed the Federal Bureau of Prisons to change their protocol.

• Boris Johnson became the next prime minister of the United Kingdom after winning the Conservative Party’s leadership contest. He succeeds Theresa May, and is expected to renew stalled efforts on Brexit.

• Data released by the Commerce Department showed that economic growth in the U.S. slowed to 2.1% in the second quarter.

LAST WEEK ON THE HILL

HOUSE FINANCIAL SERVICES COMMITTEE

Hearing on “Examining the Use of Alternative Data in Underwriting and Credit Scoring to Expand Access to Credit”: On Thursday, the Task Force on Financial Technology held a hearing to examine the ways in which emerging technologies have rapidly evolved how data is used in lending decisions and credit scoring for consumers. The Committee also considered two draft pieces of legislation: (1) H.R. __, the “Credit Access and Inclusion Act of 2019” and (2) H.R. __, the “FHA Additional Credit Pilot Program Reauthorization Act.”

• Ms. Chi Chi Wu, Attorney, National Consumer Law Center

• Mr. Aaron Rieke, Managing Director, Upturn

• Ms. Kristin Johnson, McGlinchey Stafford Professor of Law, Tulane University Law School

• Mr. Lawrance Evans, Managing Director of Financial Markets & Community Investment, Government Accountability Office

• Mr. Dave Girouard, Founder & CEO, Upstart

SENATE BANKING COMMITTEE

Hearing on “Challenges for Cannabis and Banking: Outside Perspectives”: On Tuesday, the full Committee held a hearing to consider the challenges that state-sanctioned businesses in the cannabis industry have when attempting to access mainstream financial services. Ranking Member Sherrod Brown (D-OH) argued that workers in the cannabis industry “work hard to support themselves and their families, just like workers in any other industry, and they deserve the same rights and protections.”

• The Honorable Cory Gardner, United States Senator, Colorado

• The Honorable Jeff Merkley, United States Senator, Oregon

• Ms. Rachel Pross, Chief Risk Officer, Maps Credit Union

• Ms. Joanne Sherwood, President and CEO, Citywide Banks

• Mr. Garth Van Meter, Vice President of Government Affairs, Smart Approaches to Marijuana

• Mr. John Lord, CEO and Owner, LivWell Enlightened Health

ON THE FLOOR

Senate Confirms Next Defense Chief: On Tuesday, the Senate voted to confirm Mike Esper to serve as the next Secretary of Defense. He had previously served as Army Secretary from 2017-2019, and had been serving as acting Defense Secretary. He was sworn in just hours after the vote.

House Passes Robocall Legislation: On Wednesday, the House voted 429-3 to pass H.R. 3375, the “Stopping Bad Robocalls Act.”

LEGISLATION INTRODUCED AND PROPOSED

Real Time Payments: Senators Chris Van Hollen (D-MD) and Elizabeth Warren (D-MA) along with representatives Ayanna Pressley (D-MA) and Jesús García (D-IL) introduced parallel measures called the “Payment Modernization Act of 2019” which would amend the Expedited Funds Availability Act to require that funds deposited be available for withdrawal in real time and to require the Board of Governors of the Federal Reserve System to create a real time payment system. “For far too long, consumers and small businesses have unfairly shouldered the costs of our slow payments system — despite the fact that we have the technology to update it and a clear and urgent need to do so,” Van Hollen said in a statement. “I’ve pushed the Federal Reserve to develop a system that has the necessary guardrails, but progress there has been too slow.”

S. 2088: Sen. Tim Scott (R-SC) introduced S. 2088, the “Repeatedly Flooded Communities Preparation Act” which would amend the National Flood Insurance Act of 1968 to ensure community accountability for areas repeatedly damaged by floods.

S. 2122: Sen. John Kennedy (R-LA) introduced S. 2122, the “National Flood Insurance Program Consultant Accountability Act of 2019” which would authorize the Administrator of the Federal Emergency Management Agency to terminate certain contracts on the basis of detrimental conduct to the National Flood Insurance Program.

S. 2227: Sen. Kamala Harris (D-CA) introduced S. 2227, the “Marijuana Opportunity Reinvestment and Expungement Act” which would decriminalize and deschedule cannabis, provide for reinvestment in certain persons adversely impacted by the War on Drugs, and provide for expungement of certain cannabis offenses.

H.R. 3885: Rep. Tulsi Gabbard (D-HI) introduced H.R. 3885, which would amend the Bank Holding Company Act of 1956 to defer part of the compensation of senior employees of large bank holding companies (and their subsidiaries) for 10 years, to use such deferred amounts to pay any civil or criminal fines that may be levied on the bank holding company (or subsidiary).

H.R. 3886: Rep. Ben McAdams (D-UT) introduced H.R. 3886, which would amend the Sarbanes-Oxley Act of 2002 to provide a temporary exemption for low-revenue issuers from certain auditor attestation requirements.

H.R. 3928: Rep. Denver Riggleman (R-VA) introduced H.R. 3928, which would require the Board of Governors of the Federal Reserve to satisfy certain requirements before providing any new payment service, or substantially changing or expanding any existing payment service.

H.R. 3939: Rep. Ted Budd (R-NC) introduced H.R. 3939, which would require the Board of Governors of the Federal Reserve System to carry out a quantitative impact study of any proposed real-time payment system under the Faster Payments Initiative before implementing such system.

H.R. 3948: Rep. Gregory Meeks (D-NY) introduced H.R. 3948, which would amend the Fair Debt Collection Practices Act to extend the provisions of that Act to cover a debt collector who is collecting debt owed to a state or local government, to index award amounts under such Act for inflation, and to provide for civil injunctive relief for violations of such Act.

H.R. 3951: Rep. Ayanna Pressley (D-MA) introduced H.R. 3951, which would amend the Expedited Funds Availability Act to require that funds deposited be available for withdrawal in real time and to require the Board of Governors of the Federal Reserve System to create a real time payment system.

H.R. 3958: Rep. Maxine Waters (D-CA), Chairwoman of the House Financial Services Committee introduced H.R. 3958, the “FHA Foreclosure Prevention Act of 2019,” which would require HUD to increase its oversight of FHA mortgage lenders in an effort to strengthen compliance with the FHA’s loss mitigation requirements. This bill would also establish a robust complaint and appeals process to provide borrowers the ability to adequately voice their concerns about unfair treatment.

THIS WEEK ON THE HILL

Tuesday, July 30

Senate Banking Committee Hearing on “Examining Regulatory Frameworks for Digital Currencies and Blockchain”: 10:00 AM in 538 Dirksen Senate Office Building.

THE REGULATORS

Federal Bank Regulatory Agencies and FinCEN Improve Transparency of Risk-Focused BSA/AML Supervision: On Monday, the Federal Reserve, FDIC, NCUA, and OCC along with FinCEN issued a joint statement as part of continuing efforts to improve transparency into their risk-focused approach to Bank Secrecy Act (BSA)/anti-money laundering (AML) supervision. The statement outlines common practices for assessing a bank’s money laundering/terrorist financing risk profile, assisting examiners in scoping and planning the examination and initially evaluating the adequacy of the BSA/AML compliance program.

CFPB, FTC and States Announce Settlement with Equifax Over 2017 Data Breach: On Monday, the CFPB, FTC, and states announced a global settlement with Equifax that would provide up to $700 million in monetary relief and penalties. “Today’s announcement is not the end of our efforts to make sure consumers’ sensitive personal information is safe and secure. The incident at Equifax underscores the evolving cyber security threats confronting both private and government computer systems and actions they must take to shield the personal information of consumers. Too much is at stake for the financial security of the American people to make these protections anything less than a top priority,” said CFPB Director Kathy Kraninger.

CFTC Extends Public Comment Period for Proposal to Improve Data Quality and Streamline Regulations for Swap Data Repositories: On Monday, the CFTC announced that it is extending until October 28, 2019 the comment period for the proposed rulemaking to amend certain CFTC regulations related to swap data reporting. The proposed amendments to Parts 23, 43, 45, and 49 of the CFTC’s regulations would, among other things, update requirements for swap data repositories (SDRs) to verify swap data with reporting counterparties, update requirements to correct swap data errors and omissions, and update and clarify certain SDR operational and governance requirements. The original comment period for the proposed rulemaking was to expire on July 29, 2019.

Federal Reserve and FDIC Complete Resolution Plan Evaluations and Extend Deadline for Certain Firms:On Friday, the Federal Reserve and FDIC announced several resolution plan actions, including completing their evaluations of the 2018 resolution plans for 82 foreign banks and extending the deadline for the next resolution plans from those firms, as well as 15 domestic banks. The extensions will give the banks additional time to prepare their plans in light of resolution plan rule changes proposed by the agencies in April 2019. The agencies did not identify shortcomings or deficiencies, defined as weaknesses the firm would be required to address, in the 2018 resolution plans of the 82 foreign banks. The agencies requested additional specific information in the next resolution plans from seven firms.

FDIC Announces Meeting of Advisory Committee on Community Banking: On Wednesday, the FDIC announced that it will hold a meeting of the Advisory Committee on Community Banking on Tuesday, July 30. FDIC senior staff will provide an update on various supervisory policy issues and the FDIC Subcommittee on Supervision Modernization, as well as brief Committee members on minority and community development financial institutions, Money Smart financial education materials, and de novo institutions. In addition, the FDIC Ombudsman will provide a briefing to the Committee, and a panel will discuss FDIC and U.S. Small Business Administration collaboration efforts. The Committee also will discuss local banking conditions.

CFPB Releases Qualified Mortgage ANPR: On Thursday, the CFPB issued an Advanced Notice of Proposed Rulemaking seeking information relating to the expiration of the temporary qualified mortgage provision applicable to certain mortgage loans eligible for purchase or guarantee by the GSEs, Fannie Mae and Freddie Mac, in the Bureau’s Ability to Repay/Qualified Mortgage (ATR/QM) Rule. This provision, also known as the GSE patch, is scheduled to expire no later than January 10, 2021. In the ANPR, the Bureau solicits comments on possible amendments to the ATR/QM Rule, including whether to revise Regulation Z’s definition of a qualified mortgage in light of the GSE Patch’s scheduled expiration. The ANPR seeks information and comment on whether the definition of qualified mortgage should retain a direct measure of a consumer’s personal finances (for example, debt-to-income ratio), and whether the definition should include an alternative method for assessing financial capacity.

On Friday, Senator Sherrod Brown (D-OH) called on the agency to maintain critical consumer mortgage protections as it reviews its “qualified mortgage” (QM) rule, saying “the action they take on this critical rule should be first and foremost about providing access to sustainable mortgages that fit the needs of individual consumers in today’s housing market, and they should hold lenders accountable when they don’t live up to their obligations.”

Republican Senators Call on SEC Chairman to Abandon Plans for Consolidated Audit Trail Database: On Wednesday, a group of Republican Senators led by John Kennedy (LA) wrote to SEC Chairman Jay Clayton, asking the agency to abandon its planned Consolidated Audit Trail Database due to the risk of hacking. The Senators argued that, “the national security risks posed by China and other foreign adversaries are too great to ignore.”

SEC Chairman Discusses Permanent Solutions for MiFID: Speaking at a conference on Thursday, SEC Chairman Jay Clayton discussed agency efforts to respond to the EU’s revised Markets in Financial Instruments Directive that requires brokerages to bill for trading and research services separately in a bid to increase transparency. The Chairman acknowledged that the agency hadn’t decided whether or not to extend a temporary fix set to expire next year saying, “it’s a live experiment—there was a regulatory change and we’re seeing what’s happening in the market,” adding that, “now we need a more permanent solution.”

SEC Issues Agenda for July 29 Meeting of the Fixed Income Market Structure Advisory Committee: On Thursday, the SEC released the agenda for the July 29 meeting of the Fixed Income Market Structure Advisory Committee. The meeting will include panels on (1) Draft Recommendation for Investor Education Regarding Retail Notes; (2) Draft Recommendation on Certain Principal Transactions with Advisory Clients; (3) Updates from the Technology and Electronic Trading Subcommittee and ETFs and Bond Funds Subcommittee; (4) Content and Timeliness of Municipal Issuer Disclosures; and (5) Credit Ratings: Future Modifications or Status Quo.

FINRA Encourages Firms to Voluntarily Disclose Work with Digital Assets: FINRA has issued a guidance encouraging firms to notify them if they engage in activities related to digital assets, saying it “believes it is important to keep the lines of communication with members open on this important topic.”

Treasury Secretary Discusses Potential New Crypto Rules: During an interview on Wednesday, Treasury Secretary Steven Mnuchin discussed efforts to ensure that cryptocurrencies don’t have a negative impact on the financial ecosystem, saying “we’re looking at all of the crypto assets,” adding that “we’re going to make sure we have a unified approach and my guess is that there are going to be more regulations that come out from all these agencies.”

IRS Sends Letters to Virtual Currency Owners Advising Them to Pay Back Taxes: The Internal Revenue Service has begun sending letters to taxpayers with virtual currency transactions that potentially failed to report income and pay the resulting tax from virtual currency transactions or did not report their transactions properly. “Taxpayers should take these letters very seriously by reviewing their tax filings and when appropriate, amend past returns and pay back taxes, interest and penalties,” said IRS Commissioner Chuck Rettig. “The IRS is expanding our efforts involving virtual currency, including increased use of data analytics. We are focused on enforcing the law and helping taxpayers fully understand and meet their obligations.” The IRS started sending the educational letters to taxpayers last week. By the end of August, more than 10,000 taxpayers will receive these letters. The names of these taxpayers were obtained through various ongoing IRS compliance efforts.

OTHER NOTEWORTHY ITEMS

New Report Details Malware and Cyberattack Trends: The cybersecurity firm Check Point released a report last week detailing the rise of mobile banking malware crimes, with a 50% increase in infections over 2018. The researchers described how, “in correlation to the growing use of banks’ mobile applications, malware capable of stealing payment data, credentials and funds from victims’ bank accounts have been pushed from the general threat landscape and became a very common mobile threat too.”

House Financial Services Chairwoman Calls on Appropriators to Address Homelessness Crisis: On Friday, Rep. Maxine Waters (D-CA), who chairs the House Financial Services Committee wrote to senior Members of the House Committee on Appropriations, requesting that additional discretionary funds be used to address the ongoing homelessness crisis. Rep. Waters wrote that “homelessness has reached crisis proportions in some parts of the country, and we cannot expect to make any significant progress towards our nation’s goals for ending homelessness without substantial new funding.”

NYDFS Launches Innovation Division: On Tuesday, New York’s Department of Financial Services announced the launch of its Research and Innovation Division related to Fintech. Director Linda Lacewell said in a statement that “the financial services regulatory landscape needs to evolve and adapt as innovation in banking, insurance and regulatory technology continues to grow.” She heralded the new division and appointments as a move that “position DFS as the regulator of the future, allowing the department to better protect consumers, develop best practices, and analyze market data to strengthen New York’s standing as the center of financial innovation.”