Money Matters: This Week in Washington

This Week in Washington for June 8, 2020

June 08, 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

The movement for social justice sparked by the death of George Floyd continued to spread, as protests against racism and police brutality took place across the country. Massive demonstrations occurred in several cities drawing thousands to the streets. While the majority of the demonstrators were peaceful, acts of looting and rioting occurred, resulting in clashes with police. Destruction near the White House led the President to mobilize federal forces in a bid to restore order, against the wishes of District Mayor Muriel Bowser. On Tuesday, the decision to use tear gas to clear protestors from Lafayette Park to facilitate the President’s visit to St. John’s Church drew widespread criticism. The President urged states to “dominate” and threatened to invoke the Insurrection Act to deploy military forces to cities; though military leaders cautioned that their involvement should be a last resort, and reiterated the first amendment rights of citizens.

Coronavirus cases neared two million in the US, as states cautiously began to reopen. The protests have raised concern over the potential for a COVID-19 resurgence, as public health officials struggled to balance the importance of social justice reform on long-term health in minority communities with current social distancing and disease mitigation efforts. The timeline for additional relief legislation remains uncertain, as Congress waits to see how the economy fares as workers begin to return to work. The President reportedly anticipates that an additional US$1T stimulus measure will be needed, but discussions have been delayed as Senate Majority Leader Mitch McConnell has no plans to take up any bill before the July 4th recess. A bipartisan group of 41 Senators have joined forces to demand the inclusion of additional assistance for community health centers in the next package.

The location of the August Republican National Convention remains in limbo, after the administration and officials in North Carolina disagreed over the scale of the gathering given coronavirus concerns. The RNC’s plan for a full-fledged arena event was rejected by Governor Rory Cooper who argued that a scaled down version with proper social distancing measures would be necessary due to the continued spread of the virus. Florida and Georgia have both offered their states as alternative locations, and RNC officials are reportedly mulling a multi-city event in lieu of a standard convention.

Other highlights of last week include:

• Former Vice President Joe Biden formally clinched the Democratic presidential nomination after securing over 1991 delegates. Former Secretary of State Colin Powell, who served under George W. Bush, announced his plan to vote for Biden, saying President Trump has “drifted away” from the constitution.

• The stock market surged after an unexpectedly positive May jobs report, which showed the unemployment rate falling to 13.3% and a gain of 2.5 million jobs.

• Controversial Rep. Steve King (R-IA) was defeated in a primary challenge by State Sen. Randy Feenstra. King faced frequent criticism for his inflammatory remarks on race and immigration issues.

LAST WEEK ON THE HILL

Rubio, Cardin Urge Treasury and SBA to Provide Data Reporting to Congress and the Public on Small Business Relief Programs: On Wednesday, Senators Marco Rubio (R FL) and Ben Cardin (D-MD), Chairman and Ranking Member of the Senate Committee on Small Business and Entrepreneurship, sent a letter to Treasury Secretary Steven Mnuchin and SBA Administrator Jovita Carranza, urging the agencies to provide additional data and reporting on the Paycheck Protection Program (PPP), Economic Injury Disaster Loan program (EIDL), and Small Business Debt Relief programs as enacted and expanded by the CARES Act. The Senators wrote, “Given the grave nature of this crisis and the unprecedented level of funding that has been appropriated, it is critical that the public and Congress have timely and complete information about where these funds are going, and the committee expects an increased level of transparency and accountability from the SBA.”

Bipartisan House and Senate Committee Leaders Urge HHS to Disperse COVID 19 Relief Funds to Medicaid Providers: On Wednesday, the Chairmen and Ranking Members of the Committees of jurisdiction over the Medicaid program sent a letter to HHS Secretary Alex Azar expressing concern over prolonged delays in disbursing funds from the Public Health and Social Services Emergency Fund (PHSSEF) for Medicaid-dependent providers. “We are concerned that the delay in disbursing funds from the [PHSSEF] for Medicaid-dependent providers could result in long term financial hardship for providers who serve some of our most vulnerable populations,” the lawmakers wrote, “It could also severely hamper their ability to continue to serve as essential providers amid the COVID 19 pandemic and beyond. We write regarding the need for a dedicated distribution from the PHSSEF for providers who rely on Medicaid and to share our serious concerns with the ongoing delay of funding.”

HOUSE FINANCIAL SERVICES COMMITTEE

Hearing on “Promoting Inclusive Lending During the Pandemic: Community Development Financial Institutions and Minority Depository Institutions”: On Wednesday, the Subcommittee on Consumer Protection and Financial Institutions held a hearing to explore existing efforts undertaken and challenges faced by CDFIs and MDIs, and proposals to enhance the work of CDFIs and MDIs to ensure underserved communities and minority-owned businesses are supported during this critical time.

• Lisa Mensah, President and Chief Executive Officer, Opportunity Finance Network

• Michael Pugh, President, Chief Executive Officer and Board Member, Carver Federal Savings Bank

• Samuel Scott, Chairman, Black Chicago Tomorrow, and Co-Chair, American Business Immigration Coalition

• James Sills III, President and Chief Executive Officer, M&F Bank, on behalf of the Independent Community Bankers of America

SENATE BANKING COMMITTEE

Hearing on “Implementation of Title IV of the CARES Act”: On Tuesday, the full Committee held a hearing to receive testimony on the impact of the US$500B provided under Title IV through 13(3) facilities have had on the economy, what the policy trade-offs are of expanding or restricting the term sheets of the 13(3) facilities, how the unused funds from Title IV should be prioritized or leveraged, and an overall focus on Title IV implementation. Sen. Elizabeth Warren (D-MA) used the hearing to raise the issue of worker safety and the need for enforceable federal workplace safety guidelines, arguing “keeping workers safe is the only way we’re going to reopen this economy, and to do that we need to implement good safety standards that we apply across the board.”

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

• Dr. Douglas Holtz-Eakin, President, American Action Forum

• Dr. Heidi Shierholz, Senior Economist and Director of Policy, Economic Policy Institute

Hearing on “Crisis in Hong Kong: A Review of U.S. Policy Tools”: On Thursday, on the 31st anniversary of China’s deadly crackdown in Tiananmen Square, the full Committee held a hearing to assess what options it may have to inject some leverage or restraint into an escalating political and human rights crisis in Hong Kong.

• Eric Lorber, Senior Director, Center on Economic and Financial Power, Foundation for Defense of Democracies

• Peter Harrell, Adjunct Senior Fellow, Center for a New American Security

• Dr. Michael Martin, Specialist in Asian Affairs, Asia Section, Foreign Affairs, Defense and Trade Division, Congressional Research Service

• Lee Cheuk Yan, General Secretary of the Hong Kong Confederation of Trade Unions, the Vice Chairman of the Hong Kong Labour Party

OTHER COMMITTEES

Senate Homeland Security Committee Hearing on “Nominations”: On Tuesday, the full Committee held a hearing to consider the nominations of Mr. Russell “Russ” Vought, to be the Director of the Office of Management and Budget, and Mr. Craig Leen, to be the Inspector General of the Office of Personnel Management. Ranking Member Gary Peters (D-MI) pressed Vought on whether under his leadership OMB would “fully and promptly cooperate with all GAO requests for meetings and information.”

ON THE FLOOR

Senate Confirms Brian Miller as Special Inspector General for Pandemic Recovery: On Tuesday, the Senate voted 51-40 to confirm Brian Miller as the Special Inspector General for Pandemic Recovery. In this role, Miller will be responsible for overseeing the US$500B provided in the CARES Act, as well as trillions in related lending by the Federal Reserve.

Paycheck Protection Program Tweaks Approved: On Wednesday, the Senate passed by unanimous consent the House’s Paycheck Protection Flexibility Act, which will give small businesses more time and flexibility to use the forgivable loans they have received due to the COVID-19 crisis. The first attempt at passage was blocked by Sen. Ron Johnson (R-WI), but after assurances from leadership, he dropped his objections. On Friday, the President signed the measure into law.

LEGISLATION INTRODUCED AND PROPOSED

H.R.7064: Rep. Jim Banks (R-IN) introduced H.R. 7064, which would prohibit financial investment by a United States person in foreign industrial defense corporations with substantial contracts with, ties to, or support from, the Chinese military and affiliated entities.

H.R. 7067: Rep. Ted Budd (R-NC) introduced H.R. 7067, which would amend the Securities Act to expand the ability to use testing the waters and confidential draft registration submissions.

H.R.7073: Rep. John Garamendi (D-CA) introduced H.R. 7073, which would amend the Social Security Act to include special districts in the coronavirus relief fund and direct the Secretary to include special districts as an eligible issuer under the Municipal Liquidity Facility.

H.R.7076: Rep. Pramila Jayapal (D-WA) introduced H.R. 7076, which would ensure ethical and accountable use of COVID-19 relief funds to prevent corruption and bias in the disbursement and supervision of those funds.

H.R.7083: Rep. Brad Sherman (D-CA) introduced H.R. 7083, which would impose sanctions with respect to foreign persons involved in the erosion of certain obligations of China with respect to Hong Kong.

H.R.7084: Rep. Maxine Waters (D-CA) introduced H.R. 7084, which would authorize emergency rental voucher assistance.

H.R. 7103: Rep. Dan Kildee (D-MI) introduced H.R. 7103, which would direct the Neighborhood Reinvestment Corporation with respect to the establishment of a national land bank network.

S. 3859: Sen. Kelly Loeffler (R-GA) introduced S. 3859, which would extend the covered period for the paycheck protection program.

THIS WEEK ON THE HILL

Tuesday, June 9

Senate Banking Committee Hearing on “Oversight of Housing Regulators”: 10:00 AM in Dirksen Senate Office Building room G50.

Wednesday, June 10

House Financial Services Committee (Subcommittee on Housing, Community Development, and Insurance) Hearing on “The Rent Is Still Due: America's Renters, COVID-19 and an Unprecedented Eviction Crisis”: 12:00 PM via WebEx.

Thursday, June 11

House Financial Services Committee Hearing (Task Force on Financial Technology) on “Inclusive Banking During a Pandemic: Using FedAccounts and Digital Tools to Improve Delivery of Stimulus Payments”: 12:00 PM via WebEx.

THE REGULATORS

Agencies Issue Host State Loan-to-Deposit Ratios: On Tuesday, the Federal Reserve Board, FDIC, and OCC issued the host state loan-to-deposit ratios that they will use to determine compliance with section 109 of the Riegle-Neal Interstate Banking and Branching Efficiency Act. These ratios replace the prior year's ratios, which were released on May 28, 2019.

OCC Issues Warning about Effects of COVID-19 Lockdowns on Banking System: On Monday, Acting Comptroller of the Currency Brian Brooks expressed concerns about the effects of regional and local responses to COVID-19 on the federal banking system in letters to the National League of Cities, the U.S. Conference of Mayors, and the National Association of Governors. Brooks urged mayors and governors to consider the adverse impact of long term regional economic shutdown on the nation's banks when making their decisions arguing, “Certain aspects of these local orders potentially threaten the stability and orderly functioning of the financial system the OCC is charged by law to protect.”

OCC Requests Comment on Proposals: On Thursday, the OCC released two issuances for public comment. The OCC published a Notice of Proposed Rulemaking for public comment to update its rules for national bank and federal savings association activities and operations. The agency also released an Advance Notice of Proposed Rulemaking seeking comment on rules on national banks’ and federal savings associations’ (banks) digital activities.

Brown Raises Concerns to SEC over Regulation Best Interest: On Monday, Sen. Sherrod Brown (D-OH), Ranking Member of the Senate Banking Committee, wrote to SEC Chair Jay Clayton expressing concern about the implementation of Regulation Best Interest (Reg. BI), which takes effect on June 30, 2020. Brown urged the SEC to provide robust oversight of brokers and dealers and thorough enforcement of Reg. BI to protect savers, retirees, and workers as they navigate fundamental spending and investment decisions, during and after the coronavirus pandemic.

CFTC Unanimously Approves Final Rule at Open Meeting: On Thursday, the CFTC unanimously approved a final rule prohibiting persons from seeking to claim a Commodity Pool Operator (CPO) registration exemption who have, or whose principals have, incurred any of the relevant statutory disqualifications listed in the Commodity Exchange Act (CEA). Chairman Heath Tarbert praised the final rule for closing a loophole that permitted “bad actors” to manage “other people's money and positions in the derivatives markets.”

Consumer Financial Protection Bureau Takes Action to Help Consumers Receive Relief from Credit Card Issuers: On Wednesday, the CFPB took action to help consumers receive relief during the pandemic more quickly from their credit card issuer. Regulation Z requires that creditors provide written disclosures to consumers for account-opening and temporary rate or fee reduction. During the pandemic, consumers may seek to open a new account or request a temporary reduction in APR or fees for an existing account or a low-rate balance transfer. The Bureau is providing temporary and targeted flexibility for credit card issuers regarding electronic provision of certain disclosures required to be in writing during this pandemic.

State Regulators Blast CFPB’s Preemption Inquiry: In a comment letter responding to an RFI issued by the CFPB’s Taskforce on Federal Consumer Financial Law focused on “harmonizing, modernizing, and updating the federal consumer financial laws,” Conference of State Bank Supervisors’ President and CEO John Ryan expressed concern that “the inclusion of outcome oriented questions focused on expanding preemption of state authority raises serious questions regarding the objectivity and mission of the Taskforce.”

CFPB Takes Steps to Facilitate LIBOR Transition: On Thursday, the CFPB took steps to facilitate the transition away from LIBOR for consumers and regulated entities. The Bureau released an updated Consumer Handbook on Adjustable Rate Mortgages to help consumers better understand adjustable rate mortgage loan products. The Bureau also released a Notice of Proposed Rulemaking concerning the anticipated discontinuation of LIBOR, including proposing examples of replacement indices that meet Regulation Z standards. Additionally, the Bureau is issuing guidance on other important LIBOR transition topics that do not require amendments to Regulation Z.

EXIM's Chairwoman Highlights COVID-19 Relief Measures: On Wednesday, Export Import Bank of the United States (EXIM) President and Chairman Kimberly Reed appeared on a pre recorded panel, moderated by Managing Director and Co-Founder of TXF Dan Sheriff, along with four other Export Credit Agency heads to discuss the global export market. Chairman Reed underscored EXIM's commitment to supporting U.S. businesses as they face challenges from the COVID-19 pandemic. She also discussed EXIM's new Program on China and Transformational Exports, established in EXIM's historic 7-year reauthorization, which is intended to help level the playing field for U.S. exporters and workers by directly neutralizing export subsidies for competing goods and services offered by the People's Republic of China.

THE COURTS

Justice Sotomayor Blocks Order to Move Inmates: In a one sentence opinion, at the request of the administration, Supreme Court Justice Sonia Sotomayor temporarily blocked a lower court’s order that would have resulted in hundreds of prison inmates being moved from a facility where nine have died from complications of the coronavirus until the matter can be taken up by the appeals court. The administration argued that “the wide-scale inmate transfers ordered by the district court as a means to combat the Covid-19 pandemic are highly disruptive of sound prison administration, and would be all the more so if other courts imposed similar orders.”

OTHER NOTEWORTHY ITEMS

NYDFS and France ACPR Sign Memorandum of Understanding to Boost International Fintech Cooperation: On Wednesday, the New York State Department of Financial Services (DFS) announced it signed a Memorandum of Understanding (MOU) with France’s Autorité de Contrôle Prudentiel et de Résolution (ACPR) to ease entry for fintech innovators into the New York and French markets, furthering New York and France as innovation hubs for financial services technology. DFS is the first U.S. financial services regulator to sign a MOU with the ACPR.

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