Money Matters: This Week in Washington

This Week in Washington for July 3, 2017

July 03, 2017

Dina Ellis and Casey Miller

Both chambers of Congress are in recess this week for the Fourth of July and will return next week for what is sure to be a busy legislative period before August recess.

THE BIG PICTURE

Senate Delays Healthcare Vote: Senate Majority Leader Mitch McConnell (R-KY) delayed the vote on the Senate’s version of Obamacare repeal, saying that he wants to make changes and get a new score from the Congressional Budget Office (CBO). The current CBO score finds that the bill would cause 22 million Americans to lose health coverage and several moderate and conservative Republicans defected, saying that they would vote against the bill.

Lots to do After July 4 Recess: With Senate Republicans pushing back a vote on their healthcare bill, they are adding to a laundry list of things that they need to get done in a relatively short period. Among other things on the to-do list include raising the debt ceiling, passing appropriations bills, working on a defense reauthorization, and acting on key nominations. With a tight floor schedule, acting on everything that demands the chamber’s attention will be quite a feat.

Debt Ceiling will be hit in October: On June 29, the Congressional Budget Office projected that the U.S. Department of the Treasury will likely run out of cash in early to mid-October, though the exact timing is unclear. Department of Treasury Secretary Steven Mnuchin has urged Congress to raise the debt ceiling before its August recess.

Supreme Court to hear Travel Ban Arguments: The Supreme Court on June 26 agreed to hear arguments on President Trump’s travel ban executive order. Parts of the executive order will take effect in the meantime, until the court decides on the legality of the entirety of the measure.

Trump Administration Threatens to Expand Laptop Ban: The U.S. may expand its current laptop ban from certain countries to all flights bound for the U.S. from anywhere in the world for airlines that fail to take additional security measures against concealed explosives. The additional measures will include enhanced screening of electronic devices, more thorough passenger vetting, and new measures designed to mitigate the potential threat of insider attacks.

ALSO ON THE HILL LAST WEEK

House Republicans Seek to Pass Deregulation through Reconciliation: According to Committee Vice Chairman Patrick McHenry (R-NC), the House Financial Services Committee are attempting to strike down key provisions of the Dodd-Frank financial regulatory overhaul though budget reconciliation. McHenry said that the Committee is targeting Dodd-Frank’s orderly liquidation authority and seek to bring the CFPB’s funding under control of Congress. Both points are provisions in the Financial CHOICE Act that passed the House last month.

Subcommittee Examines Anti-Money Laundering Under Bank Secrecy Act: On June 28, the Financial Services Subcommittee on Financial Institutions and Consumer Credit held a hearing entitled “Examining the BSA/AML Regulatory Compliance Regime.” The primary focus of the hearing was to understand compliance challenges facing financial institutions, including compliance trends, the effectiveness of current reporting requirements, and opportunities to improve and enhance the federal government’s ability to combat money laundering and terrorist financing. Witnesses included:

• Ms. Faith Lleva Anderson, Senior Vice President and General Counsel, American Airlines Credit Union, on behalf of the Credit Union National Association

• Mr. Greg Baer, President, The Clearing House Association, Executive Vice President and General Counsel, The Clearing House Payments Company

• Mr. Lloyd DeVaux, President and Chief Executive Officer, Sunstate Bank, on behalf of the Florida Bankers Association

• Ms. Heather A. Lowe, Legal Counsel and Director of Government Affairs, Global Financial Integrity

Committee Dems Request Hearings with Trump Officials on Housing Cuts: On June 27, all 26 Democratic Members of the Financial Services Committee sent a letter to Committee Chairman Jeb Hensarling (R-TX), requesting hearings with Ben Carson, Secretary of the Department of Housing and Urban Development, and Sonny Perdue, Secretary of the Department of Agriculture, to discuss the Trump Administration’s budget request and the cuts to federal housing programs.

SENATE BANKING COMMITTEE

Committee Holds Hearing on Housing Finance Reform: On June 29, the Committee held a hearing entitled “Principles of Housing Finance Reform.” Witnesses included:

·  The Honorable David H. Stevens, President and Chief Executive Officer, Mortgage Bankers Association;

·  Mr. Edward J. DeMarco, President, Housing Policy Council of the Financial Services Roundtable; and

·  Mr. Michael D. Calhoun, President, Center for Responsible Lending

The hearing addressed how to handle reforming Fannie Mae and Freddie Mac, the housing giants that have been under government conservatorship since the financial crisis of 2008. Reforming Fannie and Freddie is a priority for both Republicans in Congress and the Trump Administration. In his opening statement, Committee Chairman Mike Crapo (R-ID) said that despite the fact that Fannie and Freddie are currently earning profits, if the market experiences a downturn, “taxpayers could again be on the hook for many billions of dollars.” Ranking Member Sherrod Brown commented in his opening statement that “the federal government should focus on what’s good for main street, period. And the way we do that is by finding solutions for homeowners and renters. I am confident Wall Street will be able to fend for itself.”

Members seemed to strike an optimistic tone at the hearing, showing that there may be a path forward. They were able to find common ground in ending conservatorship of Fannie and Freddie, as well as some basic issues such as taxpayer protection. Despite the fact that there is some consensus, it will still be an uphill battle to get housing reform done.

OTHER FINANCIAL SERVICES ISSUES ON THE HILL

Senate Appropriations Subcommittee Holds Hearing on Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) Budget Request: The Senate Appropriations Subcommittee on Financial Services and General Government held a hearing on June 27 on the FY28 budget request for the SEC and the CFTC. SEC Chairman Jay Clayton and CFTC Acting Chairman Chris Giancarlo said that there isn’t much leeway in their budget requests, which would hold level the SEC’s budget and increase the CFTC’s budget by $31.5M. Both chairmen also said that the funding was necessary to keep the agencies up-to-date on technological innovations in their regulated markets and expand their data-handling capabilities. Clayton said that even losing a percentage of his budget would “hurt.”

At the hearing, Clayton was asked by two Republicans about the impending hit to businesses from the European Union’s Markets in Financial Instruments Directive, or MiFID II, which is scheduled to start in January. MiFID II will alter the approach that investment advisers use to pay for stock trades and research on companies and is expected to have ramifications in the U.S.

House Ways and Means Committee Member Said Derivatives will be Addressed in Tax Code: Rep. Tom Reed (R-NY) of the Ways and Means Committee said on June 28 that the Committee will address taxation of derivative financial services products in tax code overhaul. According to Reed, “there’s a much-needed effort to harmonize what has been a very complicated, hodgepodge-type of regulatory and [Internal Revenue Service] ruling-type of treatment of it.”

House Appropriations Subcommittee Approves Funding Cuts for Commodity Futures Trading Commission (CFTC): On June 28, the Agriculture Subcommittee of the Appropriations Committee approved a bill that would cut CFTC funding to $248M. This is a $2M funding cut from its current level of $250M.

House Appropriations Committee Releases Financial Services Bill: The House Appropriations Committee released its FY18 financial services funding bill. The bill would advance some provisions of the Financial CHOICE Act that the House passed last month, including repealing the Volcker Rule proprietary trading ban. It would remove authority from the Consumer Financial Protection Bureau (CFPB) and bring it in line with the regular appropriations process. It would meet the White House’s $1.6B budget request for the Securities and Exchange Commission (SEC).

Senate Agriculture Committee Advances Nomination of CFTC Chairman Chris Giancarlo: On June 29, the Senate Agriculture Committee by a 16-5 vote approved the nomination of J. Christopher Giancarlo to serve as Chairman of the CFTC. Giancarlo will now be considered by the full Senate. He is currently serving as Acting CFTC Chairman.

LEGISLATION INTRODUCED AND PROPOSED

Bipartisan Legislation Introduced Regarding Financial Stability Oversight Council (FSOC): Banking Committee Chairman Mike Crapo (R-ID) introduced legislation with Ranking Member Sherrod Brown (D-OH) that would let the FSOC’s independent insurance member serve beyond the end of his term. House Financial Services Committee Ranking Member Maxine Waters (D-CA) introduced counterpart legislation in the House with Rep. Randy Hultgren (R-IL). So far, the legislation has been cosponsored by at least 23 members of the Financial Services Committee. The term of current FSOC independent member with insurance expertise Roy Woodall expires on September 30.

Financial Services Ranking Member Maxine Waters Introduces Bill to Fully Fund Public Housing: Ranking Member Maxine Waters and seven other Democrats introduced on June 29 the Public Housing Tenant Protection and Reinvestment Act, which will ensure “safe, decent, and affordable housing for over one million families who rely on public housing.” The bill would fully fund the public housing program, plus additional funding to address the backlog of capital needs.

Senator Rob Portman (R-OH) Introduces Independent Agency Regulatory Analysis Act: Senator Portman and four other Republicans introduced on June 27 legislation that would require independent agencies to “analyze the costs and benefits of new regulations and tailor new rules to minimize unnecessary burdens on the economy and job creators.” Under the bill, the president could require independent agencies to submit proposed and final rules for review by the Office of Information and Regulatory Affairs.

Reintroduction of the Empowering Employees through Stock Ownership Act: Senators Mark Warner (D-VA) and Dean Heller (R-NV) reintroduced the bipartisan Empowering Employees through Stock Ownership Act on June 27. The legislation lengthens the time period for employees to pay income taxes on their stock options by allowing employees to defer the inclusion of income from the stock.

THE REGULATORS

Capital Plans of All Big Banks Approved by Federal Reserve: For the first time, all of the nation’s largest banks passed the Fed’s annual stress test, known as the Comprehensive Capital Analysis and Review. This means that all 34 of the banks will be able to move forward with planned share buybacks or dividends. The results of this year’s test will likely be wielded as evidence of the effectiveness of the 2010 Dodd-Frank regulatory overhaul by proponents of the legislation, with four leading Senate Democrats saying that the results are proof that the law is working. The Federal Reserve is currently weighing changes to the annual stress test, in part, to address current criticisms that annual stress tests impose a significant regulatory burden.

Federal Housing Finance Agency (FHFA) Issues Proposed Rulemaking on Housing Goals: The FHFA, under the leadership of former President Obama appointee Chairman Mel Watt, issued a proposed rulemaking on June 29 that would maintain all but two of the housing goals for Fannie Mae and Freddie Mac through 2020. The two changes include: purchases of single-family home loans made in low-income regions would increase to 15 percent from 14 percent, and on multifamily buildings, the companies would be required to purchase mortgages that fund a higher number of affordable rental units, increasing from 300,000 to 315,000. Comments for the proposed rule are due in 60 days.

Sanctions Announced Against Chinese Bank: On June 29, Department of the Treasury Secretary Steven Mnuchin announced that the U.S. has charged the Bank of Dandong with laundering money for North Korea. As a result, Treasury, through FinCen has cut the bank off from accessing the U.S. financial system.

Export-Import Bank Nominee Faces Pushback from Businesses: Former Representative Scott Garrett (R-NJ) has been nominated by President Trump to lead the Ex-Im Bank, despite being one of the Bank’s harshest critics in Congress. That move is facing blowback from big businesses that rely on the bank to guarantee loans for foreign buyers of U.S. exports. According to one trade group executive, the level of concern about the nomination is “through the roof.” White House spokeswoman Natalie Strom said that Garrett would “refocus Ex-Im on its original mission of providing support for the businesses that truly need it while protecting taxpayers.”

CFPB Settles with Credit Repair Companies for Allegedly Charging Fees in Violation of the Telemarketing Sales Rule and Allegedly Misleading Consumers: The CFPB on June 27 filed two complaints and proposed final judgments against four California-based credit repair companies and three individuals for allegedly misleading consumers and allegedly charging fees in violation of the TSR. The CFPB also alleges a violation of the Dodd-Frank Act’s prohibition against misrepresentations in the sale of consumer products.

NOMINATIONS, COMINGS AND GOINGS AT THE AGENCIES

Ricardo Aguilera Appointed Chief Financial Officer at Fed: The Federal Reserve announced on June 27 the appointment of Ricardo A. Aguilera as Director of the Division of Financial Management and Chief Financial Officer. Aguilera served as Assistant Secretary of the Air Force for Financial Management and Comptroller until January 2017. Prior to that, he was the Director of the Chief Financial Officer Academy at the National Defense University.

Top Fundraiser for Trump Campaign Appointed at Ex-Im Bank: Anthony Scaramucchi, a top surrogate and fundraiser during President Trump’s 2016 campaign, has joined the Ex-Im Bank as Senior Vice President and Chief Strategy Officer.

Senate Tax Aide to go to Treasury Department: President Trump is planning to nominate Chris Campbell, Staff Director for the Senate Finance Committee, to serve as Assistant Secretary for Financial Institutions at the Treasury Department.

President Trump to Nominate David Kittle as Head of Ginnie Mae: President Trump is expected to nominate David Kittle to lead Ginnie Mae. Kittle is currently president of the Mortgage Collaborative, a co-op of lenders and financial vendors based in San Diego.

THE COURTS

U.S. Supreme Court to Hear Dodd-Frank Whistleblower Case: The U.S. Supreme Court agreed on June 26 to hear an appeal in Digital Realty Trust v. Somers, a whistleblower case in which the whistleblower reported alleged misconduct internally rather than to the SEC. The Court will decide whether this kind of reporting is shielded from retaliation under the Dodd-Frank whistleblower statute.

U.S. Supreme Court Rules for Financial Companies Over California Pension Fund: The U.S. Supreme Court issued a decision on June 26 in CalPERS v. ANZ Securities, Inc., ruling for more than a dozen major financial companies over the largest U.S. pension fund. The Court decided that CalPERS did not meet its statute of limitations requirements when it sued the firms in the wake of the Lehman Brothers bankruptcy.

OTHER NOTEWORTHY NEWS

Main Street GSE Reform Coalition offers Reform Alternative: On June 28, a group of affordable housing advocates and small and midsize mortgage lenders called for an end to the conservatorship of Fannie Mae and Freddie Mac and would replace the GSEs with private entities that would be given a government guarantee in securitizing mortgages. The coalition offered three main principles: to create a capital buffer, to continue and expand reform, and to end the GSEs’ conservatorship responsibly.

National Association of Realtors Call for Capital Buffer: The National Association of Realtors want to create a capital fund to help Fannie Mae and Freddie Mac cope with market fluctuations as Congress works on housing reform. The proposal put forth by the Association diverts profits from the companies to a fund managed by the Federal Housing Finance Agency. The cushion could reduce the chance of the mortgage giants drawing on a $258B taxpayer lifeline.

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Paul Hastings’ Government Relations team is monitoring these issues. We help our clients craft strategies to address federal legislative and regulatory matters. Please reach out to us if your organization needs assistance with congressional or regulatory relations.