Money Matters: This Week in Washington

This Week in Washington for June 25, 2018

June 25, 2018

Dina Ellis

THE BIG PICTURE

President Trump signed an Executive Order to halt the separation of migrant children from their parents at the U.S.-Mexico border. The separations had occurred as fallout from the “zero tolerance” program which refers everyone caught crossing the border for criminal prosecution, and had drawn increasing backlash across the country. Earlier in the week, administration officials, including DHS Secretary Kirstjen Nielsen, had said that there was no official policy of family separation, and that only Congress could act to end the practice. It remains to be seen when the children who have already been separated from their parents will be reunited with them.

On Thursday, the Administration issued a wide-ranging proposal for reorganizing the federal government, featuring the elimination, combination, and privatization of various programs. Among the changes detailed in the report are:

• Merging the Departments of Education and Labor into a new cabinet-level agency named the Department of Education and the Workforce

• Renaming the Department of Health and Human Services the Department of Health and Public Welfare, bringing oversight of food stamps into its portfolio

• Shifting the management of rural housing assistance into the purview of the Department of Housing and Urban Development

• Privatizing Fannie Mae and Freddie Mac

OMB Director Mick Mulvaney touted the plan as “the biggest piece[] so far of our plan to drain the swamp,” and championed it as an effort to increase efficiency in a federal government he views as “bloated, opaque, bureaucratic, and inefficient.”

The House had planned votes on two separate immigration bills last week, but ultimately only held one. On Thursday, the more conservative measure, sponsored by Rep. Bob Goodlatte (R-VA) failed to garner enough votes, and House Speaker Paul Ryan delayed the second vote on the “compromise” bill for this week. Neither bill was supported by the Democratic Caucus and had little chance of passage in the Senate. President Trump weighed in on Twitter, urging congressional Republicans to “stop wasting their time” and insisting: “We can pass great legislation after the Red Wave!”

The Farm Bill was narrowly passed by the House on its second try, with a final vote tally of 213-211. Democrats unanimously opposed the bill in both votes, due to the inclusion of additional work requirements that would be imposed on adults to receive SNAP benefits. While in the first go around the conservative House Freedom Caucus had withheld support to gain leverage on an immigration vote, this time House Speaker Paul Ryan was able to round up just enough support to secure the bill’s passage. The Senate will vote on its own version, which does not include the same strict work requirements as the House bill.

Other highlights of last week include:

• The Senate voted 85-10 to pass the US$716B National Defense Authorization Act last week, which included an amendment that would undo the recent agreement between the Commerce Department and Chinese telecom company ZTE, and reinstate a sales ban. The bill will now enter reconciliation with the House version, which does not include the ZTE provision.

• The Senate voted 48-50 to reject the President’s plan to claw back US$15B in spending, with Republican Senators Richard Burr (NC) and Susan Collins (ME) joining the Democrats in opposition. Sen. Collins said of the move: “My belief ... is that it’s the job of Congress to comb through these accounts and that’s what we do on the appropriations committee.”

LAST WEEK ON THE HILL

HOUSE FINANCIAL SERVICES COMMITTEE

Hearing entitled “Empowering a Pro-Growth Economy by Cutting Taxes and Regulatory Red Tape”: On Wednesday, the full committee held a hearing entitled “Empowering a Pro-Growth Economy by Cutting Taxes and Regulatory Red Tape.” The purpose of the hearing was to examine the effects of the Tax Cuts and Jobs Act (P.L. 115-97) on the overall economy, such as employee wages, bonuses, and retirement contributions; business optimism; consumer demand; business expansion and investment; and American competitiveness. Additionally, the Committee explored issues of access to investment capital and credit and their relationship to innovation, growth, and job creation.

• Ms. Karen Kerrigan, President and Chief Executive Officer, Small Business & Entrepreneurship Council

• Ms. Lori Miles-Olund, President and Chief Executive Officer, Miles Fiberglass & Composites, Inc., on behalf of the National Association of Manufacturers

• Mr. Ford Sasser III, President and Chief Executive Officer, Rio Bank, on behalf of the Texas Bankers Association

• Mr. Damon A. Silvers, Policy Director and Special Counsel, American Federation of Labor and Congress of Industrial Organizations

• Mr. Paul Schott Stevens, President and Chief Executive Officer, Investment Company Institute

Hearing entitled “Illicit Use of Virtual Currency and the Law Enforcement Response”: On Wednesday, the Terrorism and Illicit Finance Subcommittee held a hearing entitled “Illicit Use of Virtual Currency and the Law Enforcement Response.” The purpose of the hearing was to learn more about law enforcement’s response to the illicit use of VCs, including whether they are properly equipped to handle this trend, and an examination of their efforts to combat the terrorist and illicit use of VCs. Ranking Member Congresswoman Maxine Waters (D-CA) used the hearing as an opportunity to question Mr. Nevano and “share [her] concerns about the human rights abuses occurring on our border at President Trump’s direction, and … find out what ICE’s role is in this issue.”

• Mr. Gregory Nevano, Deputy Assistant Director, Illicit Trade, Travel, and Finance Division, Homeland Security Investigations

• Mr. Robert Novy, Deputy Assistant Director, Office of Investigations, United States Secret Service

• Mr. Thomas Ott, Associate Director, Enforcement Division, Financial Crimes Enforcement Network

Hearing entitled “Oversight of the U.S. Securities and Exchange Commission”: On Thursday, the full committee held a hearing entitled “Oversight of the U.S. Securities and Exchange Commission.” The purpose of the hearing was to receive the testimony of SEC Chairman Jay Clayton, and to examine the SEC’s efforts to preserve, promote, and protect the U.S. capital markets as the preferred venue for capital formation; to prevent the further erosion of the materiality standard; and to ensure that all investors have a wide array of securities in which to invest.

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

Markup of H.R. 5970, H.R. 6130 and H.R. 6139: On Thursday, the full committee met in open session to consider H.R. 5970, H.R. 6130 and H.R. 6139, ultimately advancing all three measures.

• H.R. 5970 (Rep. Ann Wagner R-MO), the “Modernizing Disclosures for Investors Act” was agreed to by a vote of 56-0.

• H.R. 6130 (Rep. Keith Rothfus R-PA), the “Helping Startups Continue to Grow Act” was agreed to by a vote of 32-24.

• H.R. 6139 (Rep. Bill Huizenga R-MI), the “Improving Investment Research for Small and Emerging Issuers Act” was agreed to by a vote of 58-0.

SENATE BANKING COMMITTEE

Hearing entitled “Combating Money Laundering and Other Forms of Illicit Finance: How Criminal Organizations Launder Money and Innovative Techniques for Fighting Them”: On Wednesday, the Subcommittee on National Security and International Trade and Finance held a hearing on “Combating Money Laundering and Other Forms of Illicit Finance: How Criminal Organizations Launder Money and Innovative Techniques for Fighting Them.” During the hearing Chairman Senator Ben Sasse (R-NE) said that the current Anti-Money Laundering regime “falls short in many regards,” adding that we “can and must do better.” Witness Dennis Lormel urged that “when we consider enhancements to Bank Secrecy Act reporting we must ensure we get it right.”

• Mr. Dennis Lormel, President and CEO, DML Associates (and former Chief, FBI Financial Crimes Program);

• Ms. Tracy S. Woodrow, Senior Vice President and BSA Officer/Anti-Money Laundering Director, M & T Bank;

• Mr. Chip Poncy, President and Co-Founder, Financial Integrity Network

SENATE APPROPRIATIONS COMMITTEE

Hearing entitled “Full Committee Markup of the State & Foreign Ops, Homeland Security, and Financial Services Appropriations Bills for FY2019”: On Tuesday, the Subcommittee on Financial Services and General Government held a hearing entitled “Markup of the FY2019 Financial Services and General Government Appropriations Bill.” The Subcommittee advanced a US$23.7B budget for FY2019 which includes US$281.5M for the CFTC and US$1.695M for the SEC. On Thursday, the full committee met and approved the funding.

LEGISLATION INTRODUCED AND PROPOSED

H.R. 6102: Rep. Maxine Waters (D-CA) introduced the Homeowner Mortgage Servicing Fairness Act of 2018, a bill which is intended to protect homeowners against foreclosure and increase the Federal Housing Finance Agency’s (FHFA) oversight of mortgage servicers that conduct business with Fannie Mae and Freddie Mac. Rep. Waters said the bill would, “implement common-sense reforms to ensure that servicers are giving borrowers every possible opportunity to avoid foreclosure.”

THIS WEEK ON THE HILL

Tuesday, June 26

House Financial Services Committee (Subcommittee on Housing and Insurance) Hearing entitled “Oversight of the Federal Government’s Approach to Lead-Based Paint and Mold Remediation in Public and Subsidized Housing”: 10 AM in 2128 Rayburn House Office Building

House Financial Services Committee (Subcommittee on Financial Institutions and Consumer Credit) Hearing entitled “International and Domestic Implications of De-Risking”: 2 PM in 2128 Rayburn House Office Building

Senate Banking Committee Hearing entitled “Legislative Proposals to Increase Access to Capital”: 10 AM in 538 Dirksen Senate Office Building

Wednesday, June 27

House Financial Services Committee Hearing entitled “Oversight of the Department of Housing and Urban Development”: 10 AM in 2128 Rayburn House Office Building

Thursday, June 28

Senate Banking Committee Hearing entitled “Legislative Proposals to Examine Corporate Governance”: 10 AM in 538 Dirksen Senate Office Building

THE REGULATORS

Federal Reserve Chairman Discusses Interest Rate Setting: Speaking at a forum in Portugal on Wednesday, Federal Reserve Chairman Jerome Powell noted that “with unemployment low and expected to decline further, inflation close to our objective, and the risks to the outlook roughly balanced, the case for continued gradual increases in the federal funds rate is strong.”

Federal Reserve Releases Results of Supervisory Bank Stress Tests: The nation’s largest bank-holding companies are strongly capitalized and would be able to lend to households and businesses during a severe global recession, according to the results of supervisory stress tests released Thursday by the Federal Reserve Board. “Despite a tough scenario and other factors that affected this year’s test, the capital levels of the firms after the hypothetical severe global recession are higher than the actual capital levels of large banks in the years leading up to the most recent recession,” Vice Chairman Randal K. Quarles said.

SEC Publishes Draft Strategic Plan Focusing on Investors, Innovation, and Performance: On Tuesday, the SEC published a draft strategic plan that focuses on investors, innovation, and performance as the top strategic goals in coming years. The SEC is seeking public comment on the proposed draft that will guide the SEC’s priorities through FY 2022. The plan highlights the SEC’s commitment to serving the long-term interests of Main Street investors; becoming more innovative, responsive, and resilient to market developments and trends; and leveraging staff expertise, data, and analytics to bolster performance.

FDIC’s McWilliams Pledges “Fresh Eye”: Jelena McWilliams, the newly sworn-in Chair of the FDIC, said that she was beginning her tenure with a “fresh eye” on interagency regulatory initiatives. She also expressed her commitment to transparency, saying that “when you can’t question your government, then people try to find ways to circumnavigate the system and find shortcuts, and we don’t want to get there.” Ms. McWilliams also indicated that she has told her staff to “look at de novo charters for banks very seriously.”

Treasury’s Forthcoming Fintech Report May Include Regulatory Sandbox Recommendation: Craig Phillips, counselor to Treasury Secretary Steven Mnuchin, said a forthcoming report would include over 100 recommendations for fostering innovation in fintech firms, adding that “it’s critical that … regulators help accelerate innovation.” Mr. Phillips also said the report may include a recommendation for the creation of a regulatory sandbox to give companies space to innovate without overly aggressive regulators.

COMINGS AND GOINGS AT THE AGENCIES

Kimberly Reed Nominated to Head Export-Import Bank: On Wednesday, President Trump announced his nominee to lead the Export-Import Bank, Kimberly Reed. His original pick, former Rep. Scott Garrett, was blocked by the Senate Banking Committee. Ms. Reed had previously been approved by the Senate Banking Committee to serve as the Export-Import Bank’s Vice President. Her path forward remains unclear, as Sen. Pat Toomey (R-PA) currently has placed a hold on three other pending Export-Import nominees. Sen. Sherrod Brown (D-OH), Ranking Member of the Senate Banking Committee issued a statement “urg[ing his] colleagues to move quickly on Ms. Reed’s nomination as well as confirming the other EXIM Bank Board Members [because] the Bank hasn’t been fully operational for nearly three years” emphasizing that this period, in which the bank has lacked a quorum, amounts to “years of lost jobs and lost contracts for American manufacturers.”

Sen. Elizabeth Warren Puts Hold on Kathy Kraninger’s CFPB Nomination: Senator Elizabeth Warren (D-MA) announced that she will put a hold on President Trump’s nominee to head the CFPB, Kathy Kraninger, until she turns over any documents relating to her role in separating migrant children from their parents at the border, saying “the American people deserve to know what role [she has] played in developing and implementing this appalling process.”

Daniel Wadley Named as Regional Director of SEC’s Salt Lake Office: On Tuesday, the SEC announced it had selected Daniel Wadley as Regional Director of its Salt Lake office. Mr. Wadley succeeds Richard R. Best, whom the agency named Regional Director of its Atlanta office in January. Mr. Wadley, who served as acting Regional Director after Mr. Best’s move to Atlanta, began at the SEC in 2010 as a trial counsel in the Salt Lake office. He also has served as counsel to the Co-Directors of the Division of Enforcement.

Rae Oliver Davis Nominated to be HUD Inspector General: On Friday, President Trump announced that he has nominated Rae Oliver Davis to serve as HUD’s next inspector general. Ms. Davis currently serves as the acting inspector general for the Office of Special Inquiry.

Dino Falaschetti Tapped to Lead Office of Financial Research: On Tuesday, President Trump announced that he has nominated Dino Falaschetti, who currently services as the chief economist for the House Financial Services Committee, to serve as Director of the Office of Financial Research.

Rodney Hood Nominated for a Seat on NCUA Board: On Tuesday, President Trump announced that he will nominate Rodney Hood to fill a seat soon to be vacated by Democrat Rick Metsger on the NCUA board. A third seat on the board has remained vacant since 2016.

THE COURTS

Supreme Court Rules in South Dakota v. Wayfair: On Thursday the Supreme Court released its ruling in South Dakota v. Wayfair, finding that states are able to require out-of-state retailers to collect sales tax on purchases their residents make. The split was 5-4, although not on ideological lines, with Justices Kennedy, Alito, Gorsuch, and Thomas joined by Ginsburg in the majority, and Justice Roberts joining Breyer, Kagan, and Sotomayor in opposition.

Supreme Court Finds SEC Use of In-House Administrative Law Judge Unconstitutional: The Court ruled 7-2 in Lucia v. SEC that an SEC administrative law judge was improperly appointed, and therefore the ruling would be “wiped off the books,” and Mr. Lucia, a financial adviser who was barred for life from the profession, would be afforded a new hearing with a properly appointed judge.

Supreme Court Rules Police Need Warrant for Cellphone Tracking: In a 5-4 decision, the Supreme Court held that police are generally required to obtain a warrant before accessing cell-tower records that can provide phone location tracking information. Chief Justice John Roberts joined with the four liberal justices, writing that “Here the progress of science has afforded law enforcement a powerful new tool to carry out its important responsibilities. At the same time, this tool risks government encroachment of the sort the Framers, after consulting the lessons of history, drafted the Fourth Amendment to prevent.”

Structure of Consumer Financial Protection Bureau Found to be Unconstitutional by SDNY Judge: U.S. District Court Judge Loretta Preska ruled that the CFPB is “unconstitutionally structured because it is an independent agency that exercises substantial executive power and is headed by a single Director,” and advised that Title X of Dodd-Frank, which created the agency, be cut “in its entirety.” Earlier this year the D.C. Circuit Court of Appeals upheld the constitutionality of the CFPB’s structure.

OTHER NOTEWORTHY ITEMS

HUD Seeks Public Comment on Disparate Impact: On Monday, HUD published a notice of proposed rulemaking, inviting public comment on possible amendments to HUD’s 2013 final rule implementing the Fair Housing Act’s disparate impact standard, as well as the 2016 supplement to HUD’s responses to certain insurance industry comments made during the rulemaking. HUD is reviewing the final rule and supplement to determine what changes, if any, are appropriate following the Supreme Court’s 2015 ruling in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc., which held that disparate impact claims were cognizable under the Fair Housing Act, and discussed standards for, and the constitutional limitations on, such claims.

Industry Group Urges FHFA to Do More on GSE Capital Restoration: Nine civil rights and industry groups wrote a letter to FHFA Director Mel Watt, arguing that the proposed new capital requirements for Fannie Mae and Freddie Mac did not do enough, saying “ten years in conservatorship is quite enough. FHFA is obligated to ensure liquidity, sustainability, and affordability in the mortgage market. Accordingly, FHFA is statutorily granted great latitude in achieving these goals administratively.”