Money Matters: This Week in Washington

This Week in Washington for May 11, 2020

May 11, 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

Despite mitigation efforts, cases of COVID-19 continued to increase across the country with over 1.3 million cases and 80,000 deaths reported thus far. The virus struck close to the President’s inner circle, after one of his valets and the Vice President’s spokeswoman both tested positive, prompting a review of safety measures in the West Wing. The President, Vice President, and other top staffers will now be tested daily as part of an enhanced screening protocol. In many areas of the country, the focus has shifted to considerations of how to ease social distancing measures and safely allow sectors of the economy to reopen. While early in the week there were reports that the Coronavirus Task Force would be disbanded, the President indicated the group would continue indefinitely, but would evolve and focus on therapeutic treatments, vaccine development, and reopening the country.

Negotiations and posturing over the parameters of an additional relief package continued over the course of the week. Democratic leadership promised they would soon unveil a multitrillion relief measure that is “Rooseveltian” in scope. Republicans, however, focused on “smart, targeted” proposals to support a pivot to phased reopening plans, with Senate Majority Leader Mitch McConnell continuing to stress his commitment to the inclusion of a liability shield for employers. The President’s preference for payroll and capital gains tax cuts failed to gain traction among Senate Republicans. On Friday, the President indicated he is in “no rush” to finalize the details of any additional measures, making it likely that negotiations will continue over the coming days and weeks.

The Small Business Administration continued to process applications and distribute the second tranche of Paycheck Protection Program funding. As of May 1, the average loan size had dropped to US$79,000, suggesting that more mom-and-pop shops were receiving funds. After an initial mad dash to submit applications, the pace has slowed considerably, and nearly US$100B remains available. SBA Inspector General Mike Ware released a report showing that the agency’s guidelines had diverged from Congressional intent, and warned the stringent requirements could “result in an unintended burden to the borrowers.” Industry groups continued lobbying efforts to tweak certain restrictions on the use of PPP funds and make the program more accessible to smaller businesses.

Other highlights of last week include:

• The Justice Department dropped charges against former National Security Advisor Mike Flynn, who pleaded guilty to lying to the FBI in 2017 about his dealings with the Russian ambassador.

• The U.S. economy lost 20.5 million jobs in April, while the unemployment rate soared to 14.7%—levels of economic hardship not seen since the Great Depression. The President’s economic adviser warned the next report could show levels above 20% as an additional 3.17 million Americans filed for unemployment last week.

• Supreme Court Justice Ruth Bader Ginsburg was hospitalized to undergo a procedure for a benign gallbladder condition, participating in Wednesday’s telephonic oral arguments from the hospital.

LAST WEEK ON THE HILL

Senate Dems Urge the CFPB to Halt Work on the Payday Rule and Restart the Rulemaking Process: On Monday, a group of 12 Senate Democrats wrote to CFPB Director Kathy Kraininger, urging her to immediately halt work on the Payday Rule. The Senators cited press reports that extensively detail improper interference and manipulation of the rulemaking process for the Payday Rule by political appointees at the Bureau. The Senators made clear that the CFPB must halt the rulemaking process immediately to restore the agency’s integrity and protect consumers from grievous harm, arguing that the reports, “if true, flagrantly violate the Administrative Procedure Act’s requirements.”

Klobuchar, Warren Lead Colleagues in Letter to Federal Trade Commission Calling for Protections against Scams Targeting Small Businesses: On Wednesday, Senators Amy Klobuchar (D-MN) and Elizabeth Warren (D-MA) led a group of their colleagues in expressing concern to FTC Chairman Joseph Simons about the recent increase in scams targeting small businesses and requesting information on measures the FTC is taking to address the issue to better protect small businesses. The Senators urged Simons to “take bold action” in responding to coronavirus-related scams.

House Minority Leader McCarthy Announces China Task Force: On Thursday, House Minority Leader Kevin McCarthy announced the formation of the China Task Force, which will be chaired by Rep. Mike McCaul (R-TX). He indicated the Task Force would aim to bring together select members from key committees to help reinforce Congressional efforts to counter current and emerging cross-jurisdictional threats from China.

Republicans Named to House Coronavirus Oversight Panel: On Thursday, House Minority Leader Kevin McCarthy reiterated his concern the Select Committee on the Coronavirus Crisis was overly partisan, redundant and a waste of resources. Despite these concerns he announced his selection of Steve Scalise (R-LA), to serve as Republican lead, along with Representatives Mark Green (R-TN), Jim Jordan (R-OH), Blaine Luetkemeyer (R-MO), and Jackie Walorski (R-IN).

HOUSE FINANCIAL SERVICES COMMITTEE

Waters and Subcommittee Chairs Hold Mortgage Servicers Accountable during COVID 19: On Monday, Committee Chairwoman Maxine Waters (D-CA), along Subcommittee Chairs Gregory Meeks (D-NY), Wm. Lacy Clay (D-MO), and Al Green (D-TX), sent letters to the nation’s largest mortgage servicers requesting information related to their communications about relief available to borrowers with federally-backed mortgages under the CARES Act. In the letters, the Committee Members outlined the various borrower protections Congress included in the CARES Act and the emphasized important role mortgage servicers play in implementing these protections saying, “It is critical that you communicate consistent and accurate information regarding the options available to borrowers who are unable to make their mortgage payments due to financial hardship that is directly or indirectly related to the pandemic.”

SENATE BANKING COMMITTEE

Hearing on “Nominations”: On Tuesday, the full Committee held a hearing on the nominations of Brian Miller to be Special Inspector General for Pandemic Recovery, U.S. Department of the Treasury; and Dana Wade to be Assistant Secretary, U.S. Department of Housing and Urban Development. Miller, who in his role as a White House aide participated in the President’s impeachment defense, faced tough questioning from Democrats on the panel over his ability to act independently. He pledged to bring “fairness and impartiality” to his work if confirmed.

• Brian Miller, to be Special Inspector General for Pandemic Recovery, U.S. Department of the Treasury

• Dana Wade, to be Assistant Secretary, U.S. Department of Housing and Urban Development

LEGISLATION INTRODUCED AND PROPOSED

H.R. 6652: Rep. Don Bacon (R-NE) introduced H.R. 6652, the Flexibility for Localities and Eligibility Expansion Act of 2020, which would amend title VI of the Social Security Act to expand the permissible use of funds under the Coronavirus Relief Fund.

H.R. 6659: Rep. Gregory Steube (R-FL) introduced H.R. 6659, the Obstructing Monetary Allocations to Relatives (OMAR) Act, which would prohibit a candidate for election to federal office from using amounts contributed to the candidate's campaign to make payments to vendors owned or controlled by an immediate family member of the candidate.

H.R. 6704: Rep. Cindy Axne (D-IA) introduced H.R. 6704, which would authorize additional funding for housing counseling services.

H.R. 6706: Rep. Jim Banks (R-IN) introduced H.R. 6706, which would place temporary restrictions on acquisitions by the People's Republic of China.

H.R. 6714: Rep. Adriano Espaillat (D-NY) introduced H.R. 6714, which would provide assistance to pay off rental arrearages of low- and moderate-income households accruing during the public health emergency relating to coronavirus.

H.R. 6776: A bipartisan group of representatives led by Rep. Stephanie Murphy (D-FL) introduced H.R. 6776, the Jumpstarting Our Businesses’ Success Credit (JOBS Credit) Act of 2020, which would provide for improvements related to the employee retention tax credit.

S. 3612: Sen. John Cornyn (R-TX) led a bipartisan group of Senators in introducing S. 3612, the Small Business Expense Protection Act, which would clarify the Small Business Administration’s Paycheck Protection Program, so small businesses can deduct expenses paid with a forgiven PPP loan from their taxes.

Coronavirus Relief Fund Flexibility Act: A bipartisan group of Senators led by Sen. Dan Sullivan (R-AK) introduced the Coronavirus Relief Fund Flexibility Act, which would allow Coronavirus Relief Fund payments to be used to replace revenue shortfalls resulting from COVID-19.

COVID-19 International Response and Recovery Act: Sen. Bob Menendez (D-N.J.), Ranking Member of the Senate Foreign Relations Committee, led a group of Democratic Senators in introducing the COVID-19 International Response and Recovery Act, which would restore U.S. funding to the World Health Organization among a number of other reforms.

Coronavirus Emergency Borrower Defense (E-BD) Act: Senate Democratic Whip Dick Durbin (D-IL), Rep. Mark Takano (D-CA), Sen. Sherrod Brown (D-OH), Rep. Pramila Jayapal (D-WA), and Sen. Elizabeth Warren (D-MA) announced a proposal, the Coronavirus Emergency Borrower Defense (E-BD) Act, which would grant full student loan discharges to three specific emergency categories of defrauded student borrowers. The plan would require eligible loans to be discharged within 30 days of enactment and provides timelines for the Department of Education to take other steps—such as correcting borrowers’ credit reporting.

Emergency Rental Assistance and Rental Market Stabilization Act of 2020: Sen. Sherrod Brown (D-OH), ranking member of the Senate Banking Committee, Rep. Maxine Waters (D CA), Chairwoman of the House Financial Services Committee, and Rep. Denny Heck (D WA) announced new legislation, the Emergency Rental Assistance and Rental Market Stabilization Act of 2020, which would establish an Emergency Rental Assistance program to provide US$100B in emergency rental assistance to help families and individuals pay their rent and remain housed during and after the Coronavirus COVID-19 crisis.

THIS WEEK ON THE HILL

Tuesday, May 12

Senate Banking Committee Hearing on “Oversight of Financial Regulators”: 10:00 AM, to be held remotely.

Wednesday, May 13

House Financial Services Committee Virtual Roundtable on “Update from Prudential Regulators”.

THE REGULATORS

Federal Bank Regulatory Agencies Modify Liquidity Coverage Ratio for Banks Participating in Two Facilities: On Tuesday, in order to support the flow of credit to households and businesses, the Federal Reserve Board, FDIC, and OCC announced an interim final rule that modifies the agencies' Liquidity Coverage Ratio (LCR) rule to support banking organizations' participation in the Federal Reserve's Money Market Mutual Fund Liquidity Facility and the Paycheck Protection Program Liquidity Facility. In particular, the interim final rule facilitates participation in these facilities by neutralizing the LCR impact associated with the non-recourse funding provided by these facilities. The rule does not otherwise alter the LCR or its calibration.

Agencies Extend Two Resolution Plan Deadlines: On Wednesday, the Federal Reserve Board and FDIC announced two extensions to upcoming resolution plan deadlines due to challenges arising from the coronavirus response. First, the agencies extended the submission date by 90 days, to September 29, for the resolution plans from four banks. The plans were required to remediate certain weaknesses previously identified by the agencies. And second, the agencies extended the submission date by 90 days, to September 29, for the targeted resolution plans from the large foreign and domestic banks in Category II and Category III of the agencies' large bank regulatory framework.

Federal Financial Regulatory Agencies Issue Interagency Policy Statement on Allowances for Credit Losses and Interagency Guidance on Credit Risk Review Systems: On Friday, the Federal Reserve, FDIC, NCUA, and OCC approved a policy statement on allowances for credit losses. The statement will promote consistency in the interpretation and application of the Financial Accounting Standards Board's credit losses accounting standard, which introduces the current expected credit losses (CECL) methodology. The interagency policy statement describes the measurement of expected credit losses using the CECL methodology and updates concepts and practices detailed in existing supervisory guidance that remain applicable. The agencies also finalized interagency guidance on credit risk review systems. The guidance presents principles for establishing a system of independent, ongoing credit risk review in accordance with safety and soundness standards.

New York Fed Releases Additional Information on Primary Market and Secondary Market Corporate Credit Facilities: On Monday, the Federal Reserve Bank of New York released an expanded set of Frequently Asked Questions regarding the Primary Market and Secondary Market Corporate Credit Facilities. The Primary Market Corporate Credit Facility (PMCCF) was established to support credit to large employers for bond and syndicated loan issuance, while the Secondary Market Corporate Credit Facility (SMCCF) was established to support credit to large employers by providing liquidity for outstanding corporate bonds. Per the FAQs, the SMCCF is expected to begin purchasing eligible ETFs in early May. The PMCCF is expected to become operational and the SMCCF is expected to begin purchasing eligible corporate bonds soon thereafter.

SEC Provides Temporary, Conditional Relief to Allow Small Businesses to Pursue Expedited Crowdfunding Offerings: On Monday, the SEC announced that it is providing temporary, conditional relief for established smaller companies affected by COVID-19 that may look to meet their urgent funding needs through a Regulation Crowdfunding offering. The actions, which follow suggestions made by members of the SEC's Small Business Capital Formation Advisory Committee, will expedite the offering process for eligible companies by providing relief from certain rules with respect to the timing of a company's offering and the financial statements required. To take advantage of the temporary rules, a company must meet enhanced eligibility requirements and provide clear, prominent disclosure to investors about its reliance on the relief. The relief will apply to offerings launched between the effective date of the temporary rules and Aug. 31, 2020.

SEC Directs Equity Exchanges and Financial Industry Regulatory Authority to Improve Governance of Market Data Plans: On Wednesday, the SEC issued an order directing the equity exchanges and the Financial Industry Regulatory Authority to submit a new National Market System plan with a modernized governance structure for the production of public consolidated equity market data and the dissemination of trade and quote data from trading venues. This “action reflects careful analysis and deliberation on modernizing and improving access to equity market data,” said SEC Chairman Jay Clayton, adding that the move was “based on extensive input from a broad range of investors and market participants and reflects the commitment of . . . the SEC to fairness in our markets and the interests of investors.”

SEC Investor Advisory Committee to Meet Virtually: On Thursday, the SEC announced it would hold a public meeting on May 21, by remote means. The committee will hold two panel discussions: a discussion regarding index funds and a discussion regarding credit rating agencies.

CFTC’s Global Markets Advisory Committee to Meet on May 19: On Wednesday, the CFTC announced that the Global Markets Advisory Committee will hold a public meeting on Tuesday, May 19. The meeting will be held via conference call in accordance with the agency’s implementation of social distancing due to the COVID-19. At this meeting, the GMAC will hear presentations from (1) CFTC’s Office of International Affairs Director Suyash Paliwal, on international coordination efforts in the time of COVID-19, and (2) the GMAC Subcommittee on Margin Requirements for Non-Cleared Swaps on its report and recommendations regarding the implementation of initial margin requirements for non-cleared swaps.

FHFA Announces Tools to Help Renters Find Out If They Are Protected from Eviction: On Monday, the Federal Housing Finance Agency (FHFA) announced that Fannie Mae and Freddie Mac (the Enterprises) have created online multifamily property lookup tools to help renters find out if they are protected from evictions during the COVID-19 national health emergency. Under the CARES Act, renters living in a property with an Enterprise-backed mortgage are covered by a temporary eviction moratorium. Landlords with Enterprise-backed mortgages can enter forbearance if their tenants cannot pay rent due to COVID-19 loss of income. The agency reiterated that renters are still expected to pay their rent during the eviction moratorium period, if they can. Those experiencing financial hardship were advised to reach out to their landlord to discuss their situation and potential solutions.

HUD Increases and Expands Flexibility of Funds for Public Housing Authorities to Fight COVID-19: On Tuesday, HUD Secretary Ben Carson announced the allocation of US$380M in supplemental administrative fee funding to all Public Housing Authorities (PHA), including Moving to Work (MTW) PHAs. The two months of additional funding may be used for traditional administrative fees as well as for new costs related to protecting assisted families and employees throughout this coronavirus pandemic.

COMINGS AND GOINGS AT THE AGENCIES

David Trulio Appointed as Counselor to the Chairman and Senior Vice President for EXIM’s New Program on China and Transformational Exports: On Tuesday, of the Export Import Bank of the United States announced the appointment of David Trulio as Counselor to the Chairman and Senior Vice President for the Program on China and Transformational Exports. Mr. Trulio is being detailed to EXIM from the Department of Defense, where he was Senior Advisor and Chief of Staff to the Under Secretary of Defense for Policy.

THE COURTS

Supreme Court Denies Request to Lift Pennsylvania’s Stay-at-Home Order: A challenge to Pennsylvania Governor Tom Wolf’s executive order closing nonessential businesses brought by a group of businesses was denied by the Court on Wednesday without comment.

OTHER NOTEWORTHY ITEMS

GAO Finds Congressional Action Is Essential to Enable a Sustainable Business Model for U.S. Postal Service: In a report released on Thursday, the Government Accountability Office found that while the U.S. Postal Service is critical to the national economy, it has lost over US$78B in recent years due to declining mail volumes and rising costs. The report recommended that Congress consider the extent to which USPS should be financially self-sustaining and what changes to law would be appropriate, the level of universal postal service the nation requires, and the most appropriate institutional structure for USPS.

FCA Launches Digital Sandbox to Tackle Challenges Caused by Pandemic: On Monday, the UK’s Financial Conduct Authority announced they would collaborate with strategic partners to pilot a “digital sandbox” to provide enhanced regulatory support to innovative firms tackling challenges caused by the coronavirus pandemic. While considerations for a digital sandbox pre date the pandemic, they decided to accelerate their plans in order to encourage innovative firms to test and develop proofs of concept and enable greater collaboration to solve complex industry wide problems.