Money Matters: This Week in Washington

This Week in Washington for May 26, 2020

May 26, 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 clash between concern over public health and concern over the potential for lasting damage to the economy dominated the news cycle as officials in states around the country struggled to strike the right balance as they begin to reopen. The death toll neared a grim milestone, approaching 100,000, as the President ordered flags at federal buildings be flown at half-staff to honor the victims. Task Force Coordinator Dr. Deborah Birx stressed the continued importance of social distancing, warning there is still “significant circulation” of the virus in some regions, including the D.C. metropolitan area, which has the highest rate of positive cases in the country. On Friday, the President announced he would issue guidance deeming houses of worship as “essential,” in order to allow them to reopen, despite concern over the risk of spread.

Negotiations over the parameters of an additional relief package stalled last week, as the President and Republican leadership expressed confidence that an economic rebound after states begin to reopen would reduce the need for government intervention. Senate Minority Leader Chuck Schumer struck a different tone, warning that the American public would force Congress to act as high levels of unemployment continue to have a domino effect throughout the economy. Treasury Secretary Steven Mnuchin acknowledged another measure would likely be necessary to stabilize the economy. One issue on which there was bipartisan agreement was on technical fixes to the Small Business Administration’s Paycheck Protection Program, although the Senate and House have crafted different proposals to ease PPP restrictions and extend deadlines. The House is expected to vote on their measure this week.

Other highlights of last week include:

• On Sunday, amid a surge of COVID-19 cases in Brazil, the President announced he was moving to restrict travel from the country.

• An additional 2.4 million Americans filed for unemployment last week, bringing the total since the outset of the pandemic to nearly 39 million.

• The President gave notice that he plans to withdraw the United States from the Open Skies treaty, which allows countries to conduct unarmed surveillance flights in a bid to promote trust and transparency, claiming that Russia has violated the terms.

• The Senate voted 49-44 to approve the nomination of Rep. John Ratcliffe to serve as the next Director of National Intelligence. Current Acting Director Richard Grenell announced he would not return to his post as U.S. Ambassador to Germany.

• On a party-line vote, the Senate Homeland Security and Governmental Affairs Committee authorized a subpoena as part of a Republican led probe of Hunter Biden.

LAST WEEK ON THE HILL

HOUSE FINANCIAL SERVICES COMMITTEE

Bipartisan Roundtable on “Reviewing the Impact of the COVID-19 Pandemic on U.S. Housing Markets”: On Friday, the Subcommittee on Housing, Community Development, and Insurance Subcommittee held a virtual roundtable to review the impact of the COVID-19 pandemic on U.S. housing markets.

• Diane Yentel, President and CEO, National Low Income Housing Coalition

• Kristy W. Fercho, Vice Chairman, Mortgage Bankers Association

• Jenny Schuetz, Metropolitan Policy Program Fellow, Brookings Institution

SENATE BANKING COMMITTEE

Hearing on “The Quarterly CARES Act Report to Congress”: On Tuesday, the full Committee held a virtual hearing to receive an update regarding the obligations of the Treasury Department and the Federal Reserve, and transactions entered into, under the CARES Act. Treasury Secretary Steven Mnuchin and Fed Chairman Jerome Powell projected that the Main Street facility and the municipal facility, intended to help midsize businesses and municipalities, would be up and running by the end of the month. Mnuchin told the panel that he had already pledged US$195B of the US$500B allocated under the CARES Act and planned to exhaust the funds to prop up the economy through direct lending, but he urged the reopening of the country, warning “there is the risk of permanent damage” to the economy.

• Steven Mnuchin, Secretary, Department of the Treasury

• Jerome Powell, Chairman, Board of Governors of the Federal Reserve System

ON THE FLOOR

Senate Passes Holding Foreign Companies Accountable Act: On Wednesday, the Senate voted unanimously to pass the Holding Foreign Companies Accountable Act. The measure, first introduced by Senators John Kennedy (R-LA) and Chris Van Hollen (D-MD), would prohibit securities of a company from being listed on any of the U.S. securities exchanges if the company has failed to comply with the Public Company Accounting Oversight Board’s (PCAOB) audits for three years in a row. The bill would also require public companies to disclose whether they are owned or controlled by a foreign government, including China’s communist government. Van Hollen praised the measure’s passage, saying “for too long, Chinese companies have disregarded U.S. reporting standards, misleading our investors. Publicly listed companies should all be held to the same standards.”

LEGISLATION INTRODUCED AND PROPOSED

H.R. 6918: Rep. Pramila Jayapal (D-WA) introduced H.R. 6918, which would direct the Secretary of the Treasury to establish a grant program for employers adversely affected by COVID-19.

H.R. 6934: Rep. Madeleine Dean (D-PA) introduced H.R. 6934, which would amend the CARES Act to require the uniform treatment of nationally recognized statistical rating organizations under certain programs carried out in response to the COVID-19 emergency.

H.R. 6938: Rep. Brett Guthrie (R-KY) introduced H.R. 6938, which would require the Secretary of Commerce and the Federal Trade Commission to conduct a study on blockchain technology.

H.R. 6952: Rep. Bradley Schneider (D-IL) introduced H.R. 6952, which would direct the President to appoint a Medical Supplies Response Coordinator to coordinate the efforts of the Federal Government regarding the supply and distribution of certain supplies and equipment relating to COVID-19.

H.R. 6974: Rep. Anthony Gonzalez (R-OH) introduced H.R. 6974, which would require the Secretary of the Treasury to pursue more equitable treatment of Taiwan at the international financial institutions.

H.R. 6983: Rep. Carolyn Maloney (D-NY) introduced H.R. 6983, which would establish a Pandemic Risk Reinsurance Program.

H.R. 6994: Rep. Dean Phillips (D-MN) introduced H.R. 6994, which would direct the SEC to revise any rules necessary to enable issuers of index-linked annuities to use the securities offering forms that are available to other issuers of securities.

H.R. 7000: Rep. Brad Sherman (D-CA) introduced H.R. 7000, which would mend the Sarbanes Oxley Act of 2002 to require certain issuers to disclose to the SEC information regarding foreign jurisdictions that prevent the PCAOB from performing inspections under that Act.

S. 3793: Sen. Mark Warner (D-VA) introduced S. 3793, which would amend the CARES Act to modify the employee retention tax credit to secure the paychecks and benefits of workers, to provide a refundable credit against payroll taxes for the operating costs of employers, to amend the Internal Revenue Code of 1986 to provide a small business rebate.

S. 3805: Sen. Angus King (I-ME) introduced S. 3805, which would amend the Small Business Act and the CARES Act to modify certain provisions related to the forgiveness of loans under the paycheck protection program, to allow recipients of loan forgiveness under the paycheck protection program to defer payroll taxes.

S. 3814: Sen. Michael Bennet (D-CO) introduced S. 3814, which would establish a loan program for businesses affected by COVID-19 and to extend the loan forgiveness period for paycheck protection program loans made to the hardest hit businesses.

S. 3830: Sen. Dan Sullivan (R-AK) introduced S. 3830, which would amend title 31, United States Code, to authorize the issuance of United States Pandemic Bonds to aid in the funding of relief efforts related to COVID-19.

S. 3834: Sen. Mike Braun (R-IN) introduced S. 3834, which would require the Secretary of the Treasury to provide estimates of the use of taxpayer funds by the United States Government.

S. 3841: Sen. Chuck Grassley (R-IA) introduced S. 3841, which would protect 2020 recovery rebates for individuals from assignment or garnishment.

THIS WEEK ON THE HILL

The Senate is out on Memorial Day recess, and is set to return to Washington on June 1st. The House remains in session and has triggered its proxy and remote procedures.

THE REGULATORS

OCC Finalizes Revisions to Community Reinvestment Act Regulations: On Wednesday, the OCC released a final rule intended to strengthen and modernize the agency’s regulations under the Community Reinvestment Act. The CRA was enacted in 1977 to encourage insured depository institutions to help meet the credit needs in their local communities, including low- and moderate-income neighborhoods. The agency touted that the final rule preserves this important objective but responds to dramatic changes in the banking industry since the law’s enactment and regulatory changes in 1995. The FDIC and Federal Reserve declined to sign onto the final rule. Congressional Democrats were quick to criticize the move as rushed and said the rule would “be harmful for so many communities across the country at a time when they are under severe distress due to the pandemic.” Senate Banking Committee Chairman Sherrod Brown (D-OH) argued, “Comptroller Otting has ignored thousands of thoughtful comments from civil rights leaders, community development advocates, and local leaders and rammed through a [flawed] overhaul.”

Federal Agencies Share Principles for Offering Responsible Small-Dollar Loans: On Wednesday, the Federal Reserve Board, FDIC, NCUA, and OCC issued principles for offering small-dollar loans in a responsible manner to meet financial institutions customers' short-term credit needs. The “Interagency Lending Principles for Offering Responsible Small-Dollar Loans” principles encourage supervised banks, savings associations, and credit unions to offer responsible small dollar loans to customers for consumer and small business purposes.

SEC Staff to Host July 9 Roundtable on Emerging Markets: On Tuesday, the SEC announced July 9 as the date for its staff roundtable to hear the views of investors, other market participants, regulators, and industry experts on the risks of investing in emerging markets, including China.

SEC Announces 2020 Small Business Forum, to Be Held Virtually: On Wednesday, the SEC announced it will virtually host its 39th annual Government-Business Forum on Small Business Capital Formation on the afternoon of June 18. The Forum is a unique event where members of the public and private sectors gather to craft suggestions for policy impacting emerging businesses and their investors, from startups to smaller public companies. The event will feature discussions about women-owned, minority-owned, and rural businesses and their investors, as well as the potential paths for the next generation of publicly-owned companies.

SEC Adopts Amendments to Improve Financial Disclosures about Acquisitions and Dispositions of Businesses: On Thursday, the SEC announced that it has voted to adopt amendments to its rules and forms to improve for investors the financial information about acquired or disposed businesses, facilitate more timely access to capital, and reduce the complexity and costs to prepare the disclosure. The amendments will update rules which have not been comprehensively addressed since their adoption, some over 30 years ago.

SEC Reschedules Virtual Conference on Municipal Securities Disclosure: On Friday, the SEC announced that it has rescheduled its conference entitled “Spotlight on Transparency: A Discussion of Secondary Market Municipal Securities Disclosure Practices” for June 16. The conference will bring together a variety of municipal securities market participants, including issuers and investors, to discuss the state of secondary market disclosure in the municipal securities market, including COVID-19 related disclosure and potential opportunities for regulatory and industry improvement.

CFTC Division of Enforcement Issues Civil Monetary Penalty Guidance: On Wednesday, the CFTC announced that its Division of Enforcement had issued new guidance outlining factors the Division considers in recommending civil monetary penalties (CMPs) to the Commission to be imposed in CFTC enforcement actions. This is the first Division CMP guidance issued publicly since the Commission published its penalty guidelines in 1994. “This new guidance reflects my strong commitment to transparency and to the CFTC’s enforcement mission,” said CFTC Chairman Heath Tarbert, “Clarity about how our statutes and rules are applied is essential to deterring misconduct and maintaining market integrity.”

CFTC to Hold an Open Commission Meeting: On Thursday, the CFTC announced that it will hold an open meeting on Thursday, May 28, at 10:00 a.m. The Commission will consider the following: (1) Proposed Rule: Amending Regulation 3.10(c)(3) - Providing an Exemption from Registration for Foreign Persons Acting As Commodity Pool Operators (CPOs) on Behalf of Offshore Commodity Pools; (2) Interim Final Rule: Amending Regulation 23.161 - Extending the Compliance Schedule for Initial Margin Requirements for Uncleared Swaps in Response to the COVID-19 Pandemic.

CFPB to Provide Additional Extension of Comment Period for Supplemental Notice of Proposed Rulemaking on Time Barred Debt: On Tuesday, the CFPB announced that it will provide an additional 60 days for the public to comment on its Supplemental Notice of Proposed Rulemaking (NPRM) on time-barred debt disclosures. In the NPRM, the Bureau proposes to prohibit collectors from using non-litigation means (such as calls) to collect on time-barred debt unless collectors disclose to consumers during the initial contact and on any required validation notice that the debt is time-barred. The deadline was June 5; the comment period will now close on August 4.

CFPB Releases Video on Consumers Receiving Stimulus Payment on Prepaid Debit Card: On Tuesday, the CFPB released a video to inform consumers that they may receive their Economic Impact Payment (EIP) on a prepaid debit card starting this week. The payments, to provide relief as a result of the COVID-19 pandemic, were made possible by the CARES Act. To assist getting economic impact payments quicker to consumers, the Bureau took action by issuing an interpretive rule last month making it easier for pandemic-relief payments to be made on a prepaid debit card.

**CFPB Takes Action to Help Struggling Homeowners Seeking Loss Mitigation Efforts; Consumers Seeking Small-Dollar Loans: On Friday, the CFPB announced that it issued two No-Action Letter (NAL) Templates under its innovation policies. Using the first NAL Template approved, mortgage servicers seeking to assist struggling borrowers to avoid foreclosure and engage in loss mitigation efforts would be able to apply for their own NAL. To further competition in the small-dollar lending space and facilitate robust competition that fosters access to credit, the Bureau also approved a NAL template that insured depository institutions can use to apply for a NAL covering their small-dollar credit products. The NAL template includes important protections for consumers who seek small-dollar loan products.

Freddie Mac Announces Temporary Purchase and Refinance Eligibility Requirements for Borrowers with Existing Mortgages: On Tuesday, Freddie Mac announced temporary requirements and guidance that apply to borrowers who are currently in forbearance or recently ended their forbearance and wish to take advantage of low mortgage rates to purchase or refinance their home. A borrower with outstanding mortgages, including mortgages in forbearance, may qualify for a new purchase or refinance mortgage that will be eligible for sale to Freddie Mac as long as they have continued to make timely payments on their outstanding mortgages. In addition, a purchase or refinance mortgage may be eligible if the borrower missed payments on the mortgage being refinanced or another outstanding mortgage but subsequently reinstated the mortgage.

FHFA Announces Refinance and Home Purchase Eligibility for Borrowers in Forbearance: On Tuesday, the FHFA announced that Fannie Mae and Freddie Mac (the Enterprises) have issued temporary guidance regarding the eligibility of borrowers who are in forbearance, or have recently ended their forbearance, looking to refinance or buy a new home. Borrowers are eligible to refinance or buy a new home if they are current on their mortgage (i.e. in forbearance but continued to make their mortgage payments or reinstated their mortgage). Borrowers are eligible to refinance or buy a new home three months after their forbearance ends, and they have made three consecutive payments under their repayment plan or payment deferral option or loan modification.

FHFA Releases Re-Proposed Capital Rule for the Enterprises: On Wednesday, the FHFA announced that it is seeking comments on a notice of proposed rulemaking that establishes a new regulatory capital framework for Fannie Mae and Freddie Mac (the Enterprises). The proposed rule is a re-proposal of the notice of proposed rulemaking published in July 2018. The 2018 proposal remains the foundation of the re-proposal. The enhancements in the new proposal preserve the mortgage risk-sensitive framework of the 2018 proposal, while increasing the quantity and quality of the Enterprises' regulatory capital and reducing the pro-cyclicality of the aggregate capital requirements.

EXIM Board Adopts Key Reforms to Increase Transparency and Protect U.S. Taxpayers: On Friday, the Board of Directors of the Export-Import Bank of the United States (EXIM) took unanimous action to reform two important EXIM procedures—economic impact and additionality—following an eleven-month review process. The Board of Directors voted to amend the agency’s economic impact procedures to better assess the potential impacts of its pending transactions on relevant domestic industries. The Board also approved guidelines to strengthen the agency’s determination of “additionality”—the reason why a transaction could not go forward without EXIM financing and therefore requires EXIM support—and a resolution, which underscores “the importance of ensuring that EXIM provides competitive financing to U.S. exporters while supplementing, not competing with, private capital.”

CMS Issues Guidance to Ensure States Have a Plan in Place to Safely Reopen Nursing Homes: On Monday, the Centers for Medicare & Medicaid Services (CMS) announced new guidance for state and local officials to ensure the safe reopening of nursing homes across the country. It details critical steps nursing homes and communities should take prior to relaxing restrictions implemented to prevent the spread of COVID-19, including rigorous infection prevention and control, adequate testing, and surveillance. CMS included a recommendation that nursing homes remain in the current state of highest restriction even when a community begins to relax restrictions for other businesses and should be among the last to reopen within the community, to ensure safety of the residents.

COMINGS AND GOINGS AT THE AGENCIES

Comptroller of the Currency Joseph Otting to Step Down: On Thursday, Comptroller of the Currency Joseph Otting announced he will step down from office on May 29, 2020, after completing his overhaul of the Community Reinvestment Act. First Deputy and Chief Operating Officer Brian Brooks will become Acting Comptroller of the Currency. Mr. Brooks joined the OCC in 2018 following stints at Coinbase and Fannie Mae.

Linda Miller Named as Deputy Executive Director of the Pandemic Response Accountability Committee: On Tuesday, the Pandemic Response Accountability Committee announced that Linda Miller had been appointed Deputy Executive Director. Ms. Miller previously worked at the Government Accountability Office.

THE COURTS

Securities Group Sues SEC over Consolidated Audit Trail Data Collection: On Monday, the American Securities Association filed suit against the SEC in a bid to block the collection of personal information as part of the Consolidated Audit Trail trading database. In a statement, ASA CEO Chris Iacovella said, “The ASA supported the creation of the CAT to surveil the markets, but as we have said repeatedly, this can be accomplished without collecting the personal information of every mom and pop American investor and storing it in a one stop shop for cybercriminals who want to steal their identities.”

OTHER NOTEWORTHY ITEMS

State AGs Call on Congress to Include Pot Banking Reforms in Relief Measures: A bipartisan group of 34 state attorneys general, led by Colorado Attorney General Phil Weiser and North Dakota Attorney General Wayne Stenehjem, wrote to Congress urging them to include protections for banks serving marijuana operations. They argued that “the current predicament of a rapidly expanding national marketplace without access to the national banking systems has resulted in an untenable situation,” adding, “the ability to efficiently collect tax revenue from the marijuana industry, estimated to have generated $15 billion in sales in 2019, will provide critical relief for state and local governments predicting budget shortfalls due to the pandemic.”