Money Matters: This Week in Washington

This Week in Washington for June 12, 2017

June 12, 2017

Dina Ellis and Casey Miller

THE BIG PICTURE

Former Federal Bureau of Investigation Director James Comey Testifies in Senate: Former FBI Director James Comey testified on June 8th before the Senate Intelligence Committee. Comey disavowed the notion that he was fired because the FBI was in disarray and poorly led: “Those were lies, plain and simple.” He said that he thought he was fired as an effort to hinder the FBI’s investigation into Russian meddling in the 2016 presidential election. Comey also said that the President asked him several times to drop the investigation into former national security adviser Michael Flynn, and Comey said that he refused to do so. He said that it was up to special counsel Robert Mueller whether that amounted to obstruction of justice.

Trump to Nominate Next Director of Federal Bureau of Investigations: President Trump announced on Twitter June 7th that he will nominate Christopher Wray to be the next FBI Director. Wray previously served as Assistant Attorney General from 2003 to 2005 and is currently a partner at law firm King & Spalding.

Rep. Trey Gowdy (R-SC) to be Next Chairman of House Oversight Committee: Rep. Trey Gowdy has been selected to be the next chairman of the House Oversight Committee. He will be replacing current chairman Rep. Jason Chaffetz (R-UT), who will be retiring at the end of June.

House Approves Financial CHOICE Act to Overhaul Dodd Frank: The House of Representatives on June 8th approved the Financial CHOICE Act, nearly along party lines. All but one Republican voted for the bill and all Democrats voted in opposition. The CHOICE Act is a Dodd-Frank overhaul with key components that include repealing the Volcker Rule and the Department of Labor’s Fiduciary Duty Rule, as well as major changes to the Consumer Financial Protection Bureau (CFPB) and the Federal Reserve. Republican lawmakers have said that the CHOICE Act is key to their broader regulatory agenda.

The CHOICE Act was approved in the House notwithstanding the 1.7 million-member group Veterans of Foreign Wars (VFW) circulating a memo on Capitol Hill asking Members of Congress to oppose the legislation because of concerns related to the Consumer Financial Protection Bureau. However, House Financial Services Chairman Jeb Hensarling (R-TX) said that he would work with the organization to ensure that the new agency would “protect[] our nation’s veterans from fraudulent and predatory practices while still maintaining access to affordable credit.” The VFW said that its concerns are satisfied “for now.”

Commentators have said that even though the legislation is unlikely to make it past Democratic opposition in the Senate, parts of the bill may pass on a bipartisan basis. One issue that may have bipartisan support is raising from $50B the threshold for “systemically important” designation. There may also be bipartisan support for raising the $10B threshold for when banks must conduct their own stress testing. Finally, there may possibly be bipartisan support for replacing the single director at that Consumer Financial Protection Bureau with a bipartisan commission, though leading Democrats like Senators Elizabeth Warren (D-MA) and Sherrod Brown (D-OH) would oppose this change.

ALSO ON THE HILL LAST WEEK

House Appropriations Committee Holds Hearing on Commodity Futures Trading Commission Budget: The House Appropriations Subcommittee on Agriculture, Rural Development, Food and Drug Administrations, and Related Agencies held a hearing on June 8th on the CFTC budget. Speaking after the hearing, subcommittee Chairman Robert Aderholt said that he prefers the White House’s request of $250M over the CFTC’s separate request of $281.5M: “My mind may change, but right now I think we’re good as far as the number that’s been put out there by the administration.” The sole witness at the hearing was Chris Giancarlo, acting Chairman of the CFTC. Giancarlo has also recently said that he wants to defer some of the CFTC’s enforcement work to other civil and criminal watchdog agencies, which could save the CFTC money.

HOUSE FINANCIAL SERVICES COMMITTEE

Flood Insurance Hearing: The House Financial Services Committee held another hearing on the reauthorization of the National Flood Insurance Program, which expires in September. Committee Chairwoman Maxine Waters (D-CA) urged in her opening statement for a bipartisan reauthorization bill and stressed the importance of not letting the program lapse; however, she is not yet on board with the Republicans’ draft legislation. House Financial Services Chairman Jeb Hensarling (R-TX) is tentatively planning to hold a markup this week reauthorizing the program.

Committee Threatens Contempt Charges Against Consumer Financial Protection Bureau (CFPB) Director Richard Cordray: In a report released on June 6th by House Financial Services Republicans, the Committee threatens to file contempt charges against CFPB Director Richard Cordray. According to the report, Cordray lied to Congress in April in connection with an investigation into a bank scandal and the CFPB’s role.

Ranking Member Maxine Waters Publishes Op-Ed on CFPB: In an op-ed, House Financial Services Ranking Member Maxine Waters discussed the numerous ways the CFPB “continues to fight for hardworking Americans who have been harmed by predatory financial schemes.” The op-ed blasted the Trump Administration and Congressional Republicans, saying that they want the agency “dead” and that they are trying to undermine the CFPB’s work.

SENATE BANKING COMMITTEE

Senate Banking Committee Releases Legislative Proposals to Improve Economic Growth: After collecting proposals from a wide variety of stakeholders, the Senate Banking Committee has released over 130 proposals it has received to improve economic growth. Proposals came from various groups like think tanks, public interest advocates, trade groups, and financial institutions.

Senate Banking Committee Member Looking at Return of Glass-Steagall: In an interview on June 7th, Senator John Kennedy (R-LA) said that he is interested in learning more about a return of Glass-Steagall, the depression-era law that separated commercial from investment banks. At a hearing last month, Kennedy asked Department of Treasury Secretary Steven Mnuchin whether he supported a return of Glass-Steagall. Mnuchin said that he is interested in a modernized version of the law.

Senate Banking Committee Holds Hearing on Fostering Economic Growth: On June 8th, the Banking Committee held a hearing entitled “Fostering Economic Growth: The Role of Financial Institutions in Local Communities.” In his opening statement, Committee Chairman Mike Crapo (R-ID) said that “community financial institutions are the pillars of communities across America, particularly in mostly-rural states” and expressed concerns about regulatory burdens. Ranking Member Sherrod Brown (D-OH) expressed concern about the uneven recovery from the financial crisis, with some communities recovering faster than others, and talked about other challenges facing communities, such as opioid addiction.

At the hearing, Senator Elizabeth Warren (D-MA) said that she wants to keep a Dodd-Frank regulation that subjects banks with more than $50B in assets to stricter rules. Regional banks are currently lobbying to eliminate the threshold and leave it at regulators’ discretion to pick which banks to subject to stricter rules.

Trump Nominee Shows Independent Streak During Confirmation Hearing: President Trump’s nominee to head the Council of Economic Advisers, Kevin Hassett, expressed some independent views at his confirmation hearing on June 6th, especially regarding immigration. He refused to outright endorse a border wall between U.S. and Mexico and said that he is not an expert on the subject. He also said that immigration increases productivity. In his opening statement, Banking Committee Ranking Member Sherrod Brown called Hassett “a respected economist [who] has done some important work related to the policies that drove manufacturing out of Ohio communities and others like it across this country.” Chairman Mike Crapo also recognized Hassett’s “distinguished career in economics” in his opening statement.

The nomination hearing also included Pamela Patenaude for Deputy Secretary of Housing and Urban Development.

LEGISLATION INTRODUCED AND PROPOSED

Legislation Introduced to Repeal Fiduciary Duty Rule: Representatives Phil Roe (R-TN) and Peter Roskam (R‑IL) introduced legislation on June 8th to repeal the Department of Labor’s Fiduciary Duty Rule. According to Roe, the bill “reflects a more responsible solution that will ensure all Americans have access to affordable retirement advice that’s in their best interest.” Parts of the Fiduciary Duty Rule went into effect this month.

THIS WEEK ON THE HILL

Tuesday, June 13

Senate Banking Committee, Executive Session to Vote on Nominations, 10:00AM, 538 Dirksen Senate Office Building

• Mr. Kevin Allen Hassett, to be Chairman of the Council of Economic Advisers; and

• The Honorable Pamela Hughes Patenaude, to be Deputy Secretary of Housing and Urban Development.

Thursday, June 15

Senate Banking Committee, Hearing, Fostering Economic Growth: Midsized, Regional, and Large Institution Perspective, 10:00AM, 538 Dirksen Senate Office Building

• Mr. Harris Simmons, Chief Executive Officer and Chairman, Zions Bancorporation, on behalf of the Regional Bank Coalition;

• Mr. Greg Baer, President, The Clearing House Association;

• Mr. Randy Chesler, President and Chief Executive Officer, Glacier Bancorp, on behalf of the Midsize Bank Coalition of America; and

• Ms. Saule Omarova, Professor of Law, Cornell University Law School.

THE REGULATORS

Consumer Financial Protection Bureau Mired in Litigation: The CFPB is currently facing at least a dozen lawsuits challenging its constitutionality and a large and growing number of disputes surrounding its enforcement actions. With the political uncertainty around the agency, many companies are choosing to challenge enforcement rather than settle. One-third of the 21 enforcement actions filed through May are being challenged. Though the agency maintains that it has enough resources to handle the cases, others are speculating that the agency is being stretched thin.

States Positioned to Pick up Slack in CFPB Enforcement: As Republicans seek to dismantle the CFPB, state attorneys general are set up to fill the enforcement gap created if the CFPB decreases its enforcement activity. Before the CFPB was in place, multistate cases resulted in billions of dollars of settlements over predatory lending charges. If the CFPB does scale back enforcement activity, state action may again play an important role in checking predatory lending.

Department of Labor Asks for White House Guidance on Fiduciary Duty Rule: The Department of Labor sent a request for information on the Fiduciary Duty Rule to the White House Office of Management and Budget. Department Secretary Alexander Acosta described the request as “the first step in the administration’s review of [the] rule.” The Fiduciary Duty Rule requires that broker dealers consider only the client’s best interests, and not commissions or fees, when providing retirement advice.

Administration Open to Tweaks to the Committee on Foreign Investment in the United States (CFIUS): The Trump Administration is working on some “technical changes” to CFIUS. Speaking at the U.S.-China Business Council’s annual membership meeting, Treasury Secretary Steven Mnuchin said that the Administration wants “to keep CFIUS as a national security review” but that it wants to “deal with economic issues separately.” The statement is a response to speculation that the Administration will use CFIUS and national security concerns as a tool to ease the growing trade deficit.

Supreme Court Rules in Securities and Exchange Commission Remedies Case: On June 5th, the Supreme Court issued a ruling in Kokesh v. Securities and Exchange Commission, which questioned whether the SEC could disgorge companies of profits dating back earlier than five years. The Court ruled that “disgorgement” is subject to the same statute of limitations as other SEC penalties. “Any claim for disgorgement in an SEC enforcement action must be commenced within five years of the date the claim accrued,” the Court ruled.

CFPB Asks Retail Credit Card Companies to Consider More Transparent Promotions: On June 8th, the CFPB announced that it sent letters to top retail credit card companies, encouraging them to use more transparent promotions. Many retailers use credit cards with deferred-interest promotions to give consumers a financing option, often for larger purchases. The CFPB is concerned that these promotions may surprise consumers with high, retroactive interest charges after the promotional period ends. To correct this, the CFPB is suggesting that companies use a zero-percent-interest promotion that is more transparent and carries less risk for consumers.

Financial Stability Oversight Council (FSOC) Looking at Effect of Regulations on Financial Instability: FSOC is looking at whether regulations are causing financial instability, rather than preventing it. Wall Street has said since rules were put into place after the 2008 financial crisis that the regulations make markets more susceptible because they dry up liquidity. According to bankers, it has become much harder to trade during periods of stress. An FSOC working group has been tasked with investigating this contention and the impact of rules on liquidity.

CFPB Study Finds Consumers in Low Income Areas More Likely to Become Credit Visible Due to Negative Records: On June 7, the CFPB released a study that found that the way consumers establish credit history can differ greatly based on economic background. Consumers in higher-income areas are more likely than those in lower-income to establish credit history by using a credit card or relying on someone else, whereas those in lower-income areas are more likely to become credit visible due to negative records such as debt in collection.

Federal Reserve Enforcing Compliance with Volcker Rule: The Federal Reserve on June 7th announced that it was giving three banks five years to come into compliance with the Volcker Rule. The Volcker Rule prohibits banking entities from engaging in proprietary trading and from acquiring or retaining ownership interests in, sponsoring, or having certain relationships with a hedge fund or private equity fund.

NOMINATIONS, COMINGS AND GOINGS AT THE AGENCIES

President Trump Nominates Comptroller of Currency: On June 6th, President Trump nominated Joseph Ottingbas Comptroller of the Currency. Otting is former CEO of OneWest, the bank founded by Treasury Secretary Steven Mnuchin. The nomination has received significant backlash from Democrats, with Senator Elizabeth Warren (D-MA) saying that “Mr. Otting has no experience as a bank supervisor, but he has helped lead a bank that illegally foreclosed on working families and paid a multimillion dollar fine for defrauding the government.” Senate Banking Committee Ranking Member Sherrod Brown (D-OH) has also spoken out against the nomination.

CFTC Fintech Adviser Leaving Agency: On June 5th, Jeffrey Bandman announced that he is leaving the CFTC. Bandman was special adviser on fintech and headed up a three-month review of fintech at the agency. The CFTC expects to name a replacement by early July, according to CFTC Chief of Staff Mike Gill.

New Executive Vice President at Ginnie Mae: Michael Bright is expected to be appointed as Executive Vice President and Chief Operating Officer at Ginnie Mae. Bright is currently director of the Milken Institute’s Center for Financial Markets. He formerly served as vice president at investment firm BlackRock.

Thin Bench of Political Appointees at Department of Treasury: Treasury Secretary Steven Mnuchin is currently the only Senate-confirmed official at Treasury, with many posts yet to be filled. His choice for deputy secretary, wealth manager Jim Donovan, dropped out. Two undersecretary positions are held up in the Senate, and one has yet to be named. Instead of relying on traditional leadership, Mnuchin has assembled a small group of “counselors” that do not require confirmation.

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