Money Matters: This Week in Washington

This Week in Washington for June 1, 2020

June 01, 2020

Dina Ellis

THE BIG PICTURE

For the latest advice for businesses dealing with the coronavirus, be sure to check out Paul Hastings’ targeted alert series: https://www.paulhastings.com/coronavirus

Outrage over the death of George Floyd while in police custody in Minneapolis sparked days of protest in cities across the country as Americans advocated for criminal justice reform and racial equality. The demonstrations took a violent turn in some areas over the weekend, leading to riots and looting in commercial centers amid clashes with police and National Guard forces. The now-former officer involved in Mr. Floyd’s death was arrested and charged on Friday with third-degree murder and manslaughter, though three others captured in viral cell phone footage of the incident remain free.

Coronavirus cases in the country topped 1.8 million, as deaths surpassed the 100,000 mark. While infection rates continue to decline in many areas, others have begun to see an uptick as restrictions are eased. In an interview, Dr. Anthony Fauci expressed some optimism that a vaccine might be available by the end of the year and urged Americans to act “prudently” as states begin to reopen, cautioning that a second wave of infections isn’t inevitable if people follow local guidance.

The timeline for an additional relief package remains uncertain, as Senate leadership continues to favor a wait-and-see approach. The President voiced his support for a “back-to-work” bonus payment as an alternative to renewing enhanced unemployment benefits, which Republicans have criticized as incentivizing workers to stay home. Senate Democrats in turn have proposed billions in aid to strengthen the nation’s food supply chain. Senate Majority Leader Mitch McConnell continued to stress his commitment to the inclusion of liability protections in any future bill, proposing they be retroactive to December 2019.

Other highlights of last week include:

• After sparring with Twitter over the platform’s efforts at fact-checking his posts, the President signed an executive order aimed at challenging the immunity of social media companies that shields them from lawsuits over content on their sites.

• The President announced on Friday he planned to terminate the country’s relationship with the World Health Organization over disagreements with its response to the coronavirus pandemic.

• Despite weather related delays, on Saturday the SpaceX capsule carrying two NASA astronauts to the International Space Station successfully launched from Kennedy Space Center in Cape Canaveral, Florida. The astronauts docked and boarded the ISS on Sunday.

• An additional 2.1 million Americans filed for unemployment last week, as the economic toll of the pandemic continues to be felt across the country.

• In response to China “unilaterally impos[ing] control over Hong Kong’s security,” the President announced the U.S. will no longer consider Hong Kong autonomous and will revoke its preferential treatment.

LAST WEEK ON THE HILL

House Minority Leader Files Suit over Proxy Voting: On Tuesday, House Minority Leader Kevin McCarthy and a group of Republican members filed suit in D.C. District Court challenging the constitutionality of H. Res 965, the House’s plan to vote by proxy, which they called a “brazen violation of the Constitution” and an “unconstitutional power grab.”

HOUSE FINANCIAL SERVICES COMMITTEE

Roundtable on “Examining the Impacts of the COVID-19 Pandemic on U.S. Capital Markets”: On Tuesday, the Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets held a virtual roundtable with capital market experts to examine the impact of the COVID-19 pandemic on capital markets.

• Christopher Gerold, President, North American Securities Administrators Association and Bureau Chief of the New Jersey Bureau of Securities

• Heather Slavkin Corzo, Head of U.S. Policy, Principles for Responsible Investment

• LBrett Palmer, President, Small Business Investor Alliance/li>

• Tom Quaadman, Executive Vice President, U.S. Chamber Center for Capital Markets Competitiveness

Roundtable on “Understanding the Cyber Threats and Actors Exploiting the COVID-19 Crisis”: On Thursday, the Subcommittee on National Security, International Development, and Monetary Policy held a virtual roundtable with cybersecurity experts to learn more about efforts to protect consumers from financial cybersecurity-related attacks during the COVID-19 pandemic.

• Mr. Tom Kellermann, Head of Cybersecurity Strategy, VMware

• Mr. Guillermo Christensen, Partner, Data Security and Privacy Practice, Ice Miller LLP

• Mr. Naftali Harris, Co-founder and CEO, SentiLink

SENATE BANKING COMMITTEE

Lawmakers Urge CFPB and FHFA to Take Immediate Action to Protect Homeowners: On Wednesday, Sen. Sherrod Brown (D-OH), ranking member of the Senate Banking Committee, led 7 of his Senate colleagues in a letter requesting additional information on the Borrower Protection Program that the CFPB and FHFA announced in April. The agencies’ announcement stated that the CFPB and FHFA would share data under the program but did not say how that data would be used to protect borrowers. The Senators asked the agencies what information they would share and how each agency would use this new program to avoid unnecessary borrower defaults and foreclosures, as well as misinformation, unequal treatment of borrowers, or otherwise address servicers not complying with the law. “It is critical that the CFPB and FHFA act quickly to ensure homeowners across the country can access the relief they need during this national emergency. Any delay could result in unnecessary delinquencies and foreclosures that will set consumers back, rather than helping them recover,” wrote the lawmakers.

Brown Urges CFPB Director to Extend Taskforce Deadline: On Thursday, Sen. Sherrod Brown (D-OH), ranking member of the Senate Banking Committee, sent a letter to the Consumer Financial Protection Bureau’s Director Kathy Kraninger urging her to extend the deadline from June 1, 2020, to September 1, 2020, for interested parties to respond to Requests for Information by the CFPB’s Taskforce on Federal Consumer Law. Brown argued, “Given the breadth of information requested—and in the midst of a global pandemic and the most severe economic crisis since the Great Depression—that is too short of a response period to ensure meaningful responses.”

ON THE FLOOR

House Passes Bill to Ease Restrictions on Paycheck Protection Program, Rejects Reporting Requirements: On Thursday, the House voted 417-1 to pass H.R. 7010, the Paycheck Protection Program Flexibility Act of 2020, which would give businesses an extra 16 weeks beyond the initial 8 to spend the funds and still have loans forgiven, as well as lower the amount that must be spent on payroll from 75% to 60%. The final measure was a scaled back version of the initial proposal, after House leadership faced pushback from labor unions over the potential effects on workers. A separate proposal that would have required the SBA to issue a report on small business virus aid was defeated 269-147.

President Vetoes Student Loan Forgiveness Measure: On Friday, President Trump vetoed H.J. Res. 76, which disapproves the rule submitted by the Department of Education relating to “Borrower Defense Institutional Accountability.” The President said in a statement that the resolution “sought to reimpose an Obama-era regulation that defined educational fraud so broadly that it threatened to paralyze the nation’s system of higher education.” The House is set to vote in July in an effort to override the veto.

LEGISLATION INTRODUCED AND PROPOSED

H.R. 7011: Rep. Carolyn Maloney (D-NY) introduced H.R. 7011, which would establish a Pandemic Risk Reinsurance Program.

H.R. 7018: Rep. Mark Pocan (D-WI) introduced H.R. 7018, which would require the President to use authorities under the Defense Production Act to require emergency production of COVID 19 supplies to address the COVID 19 pandemic.

H.R. 7023: Rep. Lori Trahan (D-MA) introduced H.R. 7023, which would require the Secretary of the Treasury to implement a program that provides financial assistance to sports facilities, museums, and community theaters.

H.R. 7046: Rep. Sean Casten (D-IL) introduced H.R. 7046, which would amend the Bank Holding Company Act to place certain limitations on commodity ownership and to repeal the merchant banking authority.

THIS WEEK ON THE HILL

Tuesday, June 2

Senate Banking Committee Hearing on “Implementation of Title IV of the CARES Act”: 10:00 AM via WebEx.

Wednesday, June 3

House Financial Services Committee (Subcommittee on Consumer Protection and Financial Institutions) Hearing on “Promoting Inclusive Lending During the Pandemic: Community Development Financial Institutions and Minority Depository Institutions”: 12:00 PM via WebEx.

Thursday, June 4

TSenate Banking Committee Hearing on “Crisis in Hong Kong: A Review of U.S. Policy Tools”: 11:00 AM via WebEx.

THE REGULATORS

Federal Reserve Board Releases Annual Determination of Aggregate Consolidated Liabilities: On Friday, the Federal Reserve Board released its annual determination of the aggregate consolidated liabilities of financial companies as required by the Dodd-Frank Act. Effective July 1, 2020, aggregate consolidated liabilities equal $21,229,884,414,000. This number, which is the average of the year-end financial sector liabilities of the preceding two years, will be the measure of aggregate consolidated liabilities from July 1, 2020 through June 30, 2021.

CFTC Unanimously Approves an Interim Final Rule and a Proposed Rule: At an open meeting on Thursday, the CFTC unanimously approved an interim final rule to grant an extension of the compliance schedule for initial margin requirements for uncleared swaps in response to operational challenges certain entities are facing due to the COVID-19 pandemic. The Commission also unanimously approved a proposed rule, which provides an exemption from registration as a commodity pool operator (CPO) for certain foreign persons.

CFTC to Hold an Open Commission Meeting on June 4: On Thursday, the CFTC announced it will hold an open meeting on Thursday, June 4 at 10:00 a.m. The meeting will be held via conference call in accordance with the agency’s implementation of social distancing due to the COVID-19 pandemic. The Commission will consider: Final Rule: Amendments to Registration and Compliance Requirements for Commodity Pool Operators and Commodity Trading Advisors: Prohibiting Exemptions under Regulation 4.13 on Behalf of Persons Subject to Certain Statutory Disqualifications.

SEC Reports Spike in COVID-19 Related Fraud Tips, Complaints, and Referrals: Speaking at a webcast hosted by the Securities Industry and Financial Markets Association, Marc Berger, director of the SEC's New York regional office reported, “Since mid-March or so the commission has seen a spike in TCRs . . . as compared to the same period last year. We've opened new investigations, many of which are COVID-related.”

Small Business Administration and Treasury Department Announce $10 Billion for CDFIs to Participate in the Paycheck Protection Program: On Thursday, the Small Business Administration, in consultation with the Treasury Department, announced that it is setting aside US$10B of Round 2 funding for the Paycheck Protection Program (PPP) to be lent exclusively by Community Development Financial Institutions (CDFIs). CDFIs work to expand economic opportunity in low-income communities by providing access to financial products and services for local residents and businesses. The funds will ensure that entrepreneurs and small business owners in all communities have easy access to the financial system, and that they receive much needed capital to maintain their workforces.

IRS Issues Advisory Regarding Economic Impact Payments Sent by Prepaid Debit Cards: Amid reports that Americans may be accidentally throwing away the prepaid debit cards containing their economic impact payment, the IRS issued a reminder to the four million individuals receiving their funds via the cards, that the debit cards will arrive in a plain envelope from “Money Network Cardholder Services.”

Treasury, IRS Provide Safe Harbor for Taxpayers That Develop Renewable Energy Projects: On Wednesday, the Treasury Department and the Internal Revenue Service provided tax relief for taxpayers that develop renewable energy projects that produce electricity from sources such as wind, biomass, geothermal, landfill gas, trash, and hydropower, and use technologies such as solar panels, fuel cells, microturbines, and combined heat and power systems. Because COVID-19 has caused industry-wide delays in the supply chain for components needed to complete renewable energy projects otherwise eligible for important tax credits, the IRS has issued Notice 2020-41 to provide tax relief to affected taxpayers. For some projects that began construction in 2016 or 2017, Notice 2020-41 adds an extra year to the four year "Continuity Safe Harbor" provided in existing guidance, such that if these projects are placed in service in five years, construction will be deemed continuous. Notice 2020-41 also provides a 3½ Month Safe Harbor for services or property paid for by the taxpayer on or after September 16, 2019 and received by October 15, 2020.

OCC Issues Rule to Clarify Permissible Interest on Transferred Loans: On Friday, the OCC finalized a rule to clarify that when a national bank or savings association sells, assigns, or otherwise transfers a loan, interest permissible before the transfer continues to be permissible after the transfer. Recent developments, including a decision from the U.S. Court of Appeals for the Second Circuit (Madden v. Midland Funding, LLC), have created legal uncertainty regarding the effect of a transfer on a loan’s permissible interest rate. This final rule addresses this legal uncertainty by clarifying and reaffirming the long-standing understanding that a bank may transfer a loan without affecting the permissible interest term.

CFPB Study Highlights Challenges Retirees Face to Meet Expenses in Early Years of Retirement: On Wednesday, the CFPB released a first of its kind study examining the financial resources and expenses of retirees during the first five years of retirement among Americans who retired between 1992 and 2014. The study found that 51% of people who retired between 1992 and 2014 had income, savings, and/or non-housing assets to maintain the same spending level for five consecutive years after retiring. In addition, the Bureau found that the ability to maintain the same spending level in the first five years in retirement varies significantly by sex, race, marital status, health status, educational attainment, and generation.

Freddie Mac Issues Monthly Volume Summary for April 2020: On Tuesday, Freddie Mac announced that it issued its Monthly Volume Summary for April 2020, which provides information on Freddie Mac’s mortgage-related portfolios, securities issuance, risk management, delinquencies, debt activities, and other investments. The summary showed that total mortgage portfolio increased at an annualized rate of 14.3% in April. In addition, single family refinance loan purchase and guarantee volume was US$52.1B, representing 69% of total single family mortgage portfolio purchases and issuances.

EXIM Approved 186 Small Business Authorizations: On Thursday, the Export-Import Bank of the United States (EXIM) announced that it had approved 186 authorizations totaling US$173.3M in support of 900 American jobs at small businesses that export “Made in the USA” products around the world, according to preliminary estimates.

THE COURTS

Department of Justice Files Statement of Interest Challenging the Constitutionality of Maine Governor’s COVID-19 Orders: On Friday, the Department of Justice filed a statement of interest in a Maine federal court in support of a lawsuit filed by campgrounds in Maine—and New Hampshire residents who wish to enjoy them—challenging a measure by Governor Janet Mills in response to COVID‑19 that treats Maine residents more favorably than out-of-state residents when they seek to patronize campgrounds and RV parks within Maine.

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