THE BIG PICTURE
Republicans Retain Two House Seats in Special Elections: Republicans retained the two open seats on June 20, one in Georgia’s Sixth Congressional District and the other in South Carolina’s Fifth. The race in Georgia was a heated one, with Democrats hopeful they may eke out a victory in the heavily Republican district, but they fell short with Republican Karen Handel taking 51.9 percent of the vote and Democrat Jon Ossoff earning 48.1. Many are saying that this is a wake-up call for Democrats, and that they need to come up with a better platform than simply “we’re not Trump.”
Senate Republicans Release Obamacare Repeal Bill: On June 22, Senate GOP leaders released their Obamacare repeal-and-replace bill. The bill eliminates Obamacare’s mandate to purchase coverage and repeals billions of dollars in taxes that were used to raise money for the coverage expansion. The bill also includes deep cuts to Medicaid and fundamentally restructures the program from an open-ended government commitment to a system of capped federal payments. The bill has received mixed reactions from Republicans, with some saying that it doesn’t go far enough to repeal Obamacare or lower healthcare costs. Senate Majority Leader Mitch McConnell hopes to bring the bill to the Senate floor before recess for the Fourth of July.
Senate GOP Plans July Debt Ceiling Vote: According to some senators and aides, Senate Republicans are planning for a July vote to raise the debt ceiling. Though it’s unclear what the bill will look like, members of both sides of the aisle are interested in a spending deal that will avoid large budget cuts of sequestration. However, a clean spending bill may be difficult to get past the fiscal conservatives in a GOP-majority Congress.
McHenry Steps in as Majority Whip: As Majority Whip Steve Scalise (R-LA) recovers after the shooting on June 14, Rep. Patrick McHenry (R-NC), who serves as Chief Deputy Majority Whip, will temporarily take over as Majority Whip. McHenry will have his work cut out for him, with some contentious votes coming down the pike, including raising the debt ceiling, the Senate Obamacare replacement, as well as passing a 2018 budget.
In response to the shooting and increasing security concerns, legislation is being drafted in the House that would allow Members of Congress to spend money from their office accounts on personal security expenses.
ALSO ON THE HILL LAST WEEK
HOUSE FINANCIAL SERVICES COMMITTEE
Committee Finishes Marking Up Flood Insurance Bills: On June 21, the House Financial Services Committee finished marking up its bills reauthorizing the National Flood Insurance Program (NFIP). The legislation had mixed bipartisan support and would make several changes to the program, such as the way the program handles claims, the way premium rates are calculated, the way flood maps are developed, and the way the program purchases private reinsurance. These bills are expected to be consolidated into a single piece of legislation that the House expects to vote for in the next month.
The next step for NFIP, which expires at the end of September, will be the release of legislation from the Senate Banking Committee. The legislation marked up on the 21st in the House Committee includes:
- H.R. 2875, the ““National Flood Insurance Program Administrative Reform Act of 2017” agreed to by a recorded vote of 58 ayes and 0 nays (FC-64). (Section-by-Section)
- H.R. 1558, the “Repeatedly Flooded Communities Preparation Act" agreed to, as amended, by a voice vote. (Section-by-Section)
- An amendment offered by Edward Royce (R-CA) was agreed to by a voice vote.
- An amendment to the amendment offered by Edward Royce offered by Carolyn Maloney (D-NY) was agreed to by a voice vote.
- An amendment offered by David Scott (D-GA) was agreed to by a voice vote.
- H.R. 1422, the “Flood Insurance Market Parity and Modernization Act” agreed to, as amended, by a recorded vote of 58 ayes and 0 nays (FC-65). (Section-by-Section)
- H.R. 2565 a bill to require the use of replacement cost value in determining the premium rates for flood insurance coverage under the National Flood Insurance Act, and for other purposes, agreed to, as amended, by a recorded vote of 34 ayes and 25 nays (FC-66). (Section-by-Section)
- An amendment offered by Blaine Luetkemeyer (R-MO) was agreed to by a voice vote.
- H.R. 2246, the “Taxpayer Exposure Mitigation Act of 2017” agreed to, as amended, by a recorded vote of 36 ayes and 24 nays (FC-67). (Section-by-Section)
- An amendment offered by Blaine Luetkemeyer (R-MO) was agreed to by a voice vote.
Housing Reform Coming After August Recess: Speaking at a Financial Services Roundtable event, Rep. Blaine Luetkemeyer (R-MO) said that the House Financial Services Committee would begin talking about housing reform after the August recess, but likely would not consider a bill until next year. Luetkemeyer said that housing reform needed to be “done right” in order to not “screw up the market.” House Financial Services Committee Chairman Jeb Hensarling (R-TX) has said that the best vehicle for housing finance reform would be the PATH Act, a bill the Committee approved in 2013 that would eliminate Fannie Mae and Freddie Mac and establish a new housing finance system. These statements make it unclear when the Committee and the House will move on legislation.
Rep. Emanuel Cleaver (R-MO) Asks Online Lenders for Information on Small-Business Loans: Rep. Emanuel Cleaver, a member of the House Financial Services Committee sent letters to several online lenders asking the fintech companies for more information on their lending practices. According to Cleaver, “FinTech companies geared toward lending to small businesses by using certain biased algorithms for creditworthiness have the potential of charging disproportionately higher rates to minority-owned businesses.”
Committee Democrats Sent Letter to Housing and Urban Development (HUD) About Conflicts of Interest: On June 23, Congresswoman Maxine Waters (D-CA), Ranking Member of the Committee on Financial Services, and Congressman Al Green (D-TX), Ranking Member of the Subcommittee on Oversight and Investigations, sent a letter to the Acting Inspector General of the U.S. Department of HUD, expressing concerns about President Trump’s conflicts of interest with regard to Starrett City, a federally-subsidized, multifamily, affordable, housing development, and calling for answers to questions about HUD’s handling of Trump conflicts.
SENATE BANKING COMMITTEE
Committee Holds Hearing on Economic Growth from Regulator Perspective: On June 22, the Senate Banking Committee held a hearing entitled “Fostering Economic Growth: Regulator Perspective.” Testifying at the hearing were:
The regulators spoke about the current regulatory landscape and proposed changes. Fed Governor Jerome Powell and Acting Comptroller Keith Noreika said that they supported changing the $50B asset threshold that subjects banks to heightened scrutiny by the Federal Reserve. They also said that they want to reconsider implementation of the Volcker Rule, which prohibits proprietary trading and investing in covered funds. Chairman Gruenberg told the Committee that the changes to a backup capital requirement proposed in the report released by the Treasury Department would weaken the U.S. banking system. While the regulator panel did not seem to support a total dismantling of Dodd-Frank, they seemed to support exploring some changes that would help banks of all sizes. According to Powell, rather than “broad deregulation,” they want to “mak[e] regulation more efficient.” Regarding stress testing, Powell said that the Fed still plans to add an extra capital requirement for global systemically important banks to its annual stress tests.
Noreika also appeared to take swipes at the Consumer Financial Protection Bureau during the hearing, saying that it was not providing sufficient oversight of the smaller banks it regulates. He said that other banking regulators have been filling the gap with their “backup authority.” According to Noreika, “what we’re seeing in practice is the CFPB is not enforcing those rules against those mid-size banks.”
During the hearing, Senator Chris Van Hollen (D-MD) asked Noreika if he would sign the administration’s ethics pledge, but Noreika said that his position did not require it. Noreika stated that it was President Obama’s policy that the Trump administration is following.
LEGISLATION INTRODUCED AND PROPOSED
Senator John Cornyn (R-TX) to Introduce Legislation to Address China’s Investment Threat: Senate Majority Whip John Cornyn said on June 22 that he plans to introduce a bill that would give the Committee on Foreign Investment in the United States (CFIUS) an expanded role to consider deals that are not currently under its authority. The legislation is aimed to prevent the loss of the United States’ “military technology edge” by responding to the military threat posed by China’s investment in the U.S. Gary Peters (D-MI) is the leading Democrat on the legislation.
THIS WEEK ON THE HILL
Tuesday, June 27
House Financial Services Subcommittee on Capital Markets, Securities, and Investment, Hearing, “U.S. Equity Market Structure Part I: A Review of the Evolution of Today’s Equity Market Structure and How We Got Here,” 10:00am, 2128 Rayburn House Office Building
House Agriculture Committee, Hearing, “Clearing the Next Crisis: Resilience, Recovery, and Resolution of Derivative Clearinghouses,” 10:00am, 1300 Longworth House Office Building
Senate Appropriations Committee, Hearing, “Review of the FY2018 Budget Requests for the SEC & CFTC,” 10:00am, 138 Dirksen Senate Office Building
Wednesday, June 28
House Financial Services Subcommittee on Monetary Policy and Trade, Hearing, “The Federal Reserve’s Impact on Main Street, Retirees, and Savings,” 10:00am, 2128 Rayburn House Office Building
House Financial Services Subcommittee on Financial Institutions and Consumer Credit, Hearing, “Examining the BSA/AML Regulatory Regime,” 2:00pm, 2128 Rayburn House Office Building
Thursday, June 29
Senate Banking Committee, Hearing, “Principles of Housing Finance Reform,” 10:00am, 538 Dirksen Senate Office Building
- David H. Stevens, President and Chief Executive Officer, Mortgage Bankers Association;
- Mr. Edward J. DeMarco, President, Housing Policy Council of the Financial Services Roundtable;
- Mr. Michael D. Calhoun, President, Center for Responsible Lending.
Thirty-four Big Banks Clear Stress Test Hurdle: Thirty-four of the largest banks in the U.S. cleared a Federal Reserve stress test of their ability to withstand economic shocks. Each bank tested exceeded minimum thresholds in the annual tests’ first phase. The stress tests were started after the 2008 crash and evaluate how banks would handle turmoil. According to Fed Governor Jerome Powell, “This year's results show that, even during a severe recession, our large banks would remain well capitalized. This would allow them to lend throughout the economic cycle, and support households and businesses when times are tough.” There has been chatter that Republicans will use the successful stress tests as a rationale for loosening up restrictions on financial institutions.
Powell Comments on Clearinghouse Stress Testing: Powell also said on June 23 at a symposium hosted by the Chicago Fed that regulators should consider conducting stress tests on clearinghouses that factor in liquidity risk. He called the stress tests performed on five major clearinghouses last year “innovative and necessary work” that focused on credit risk.
Administration Officials Discuss Volcker Rule with Industry: At a meeting on June 22 between business leaders and Trump Administration officials, the group discussed changing the Volcker Rule to allow banks to invest small amounts of cash in venture capital funds. Currently the Volcker Rule, which was included in the 2010 Dodd-Frank regulatory overhaul, prohibits banks from investing in certain funds.
Commodity Futures Trading Commission (CFTC) Acting Chairman Chris Giancarlo Says that U.S. Still Committed to EU Clearing Deal: Speaking at a Market Risk Advisory Committee meeting, CFTC Acting Chairman Chris Giancarlo said that the U.S. is committed to the agreement between the CFTC and the European Commission regarding central clearing counterparties, a deal that took more than three years to complete. Giancarlo said that Brexit would not have an effect on the agreement, stating “whatever the outcome of the Brexit negotiations and the EU’s internal discussions about how to supervise CCPs, we do not contemplate any change to the CFTC-EC Equivalence Agreement.”
CFTC Acting Chairman Giancarlo is Committed to “Position Limits” Rule: Speaking after his Senate Agriculture Committee confirmation hearing, Acting CFTC Chairman Giancarlo said that he is committed to finalizing the “position limits” rule to cap speculation in energy markets. A new version of the rule, which was initially proposed in 2011, was proposed in December 2016. Giancarlo is committed to “getting position limits done, but done right.”
Giancarlo also said at the hearing that his push to ease regulatory burdens at the agencies won’t water down Dodd-Frank reform. He will proceed with his “Project KISS,” standing for “keep it simple, stupid.”
Securities and Exchange Commission (SEC) Chairman Jay Clayton Speaks About IPO Decline: SEC Chairman Jay Clayton, speaking on June 22 to the SEC Investor Advisory Committee, reiterated his concerns about the decline in IPOs. He stated that some companies have shifted capital-raising activities to the private markets, and others are going public at a later stage, after much of the early growth has been achieved. This, he said, results in “fewer opportunities for Main Street Americans to share in our economy’s growth.”
CFPB Launching Campaign to Address Public Service Loan Forgiveness Issues: The CFPB issued a report on June 22 highlighting complaints from borrowers about student loan services mishandling Public Service Loan Forgiveness. The Public Service Loan Forgiveness program provides people in public service jobs with a path to debt forgiveness after 10 years. Borrowers report that servicers delay or deny access to loan forgiveness through wrong information about their loans, flawed payment processing, and bungled job certifications.
Republican Senator Expresses Concern Over EU Regulatory Overhaul: Senator Thom Tillis (R-NC) sent a letter to SEC Chairman Jay Clayton, asking about the agency’s preparations for the “Markets in Financial Instruments Directive (MiFID) II, the European Union’s big regulatory overhaul for stock markets. According to Tillis, the overhaul, scheduled to start in January 2018, “could have detrimental impacts” on U.S. financial firms. MiFID regulates financial institutions that offer stocks, bonds, and derivatives to clients.
France Warns About Regulatory Rollback: According to Bank of France Governor Francois Villeroy de Galhau, U.S. plans to roll back banking regulations are “worrying” and could potentially undermine the years of work that went into preventing another financial crisis. According to de Galhau, “unilateral deregulation would be a lose-lose game that would have serious consequences for the stability of the world financial system and the terms of the competition between U.S. and European banks.” De Galhau was speaking in Paris on June 16 about the issue.
Federal Communications Commission (FCC) Proposes $120M Fine Against Robocaller: The FCC has proposed a $120M fine against Adrian Abramovich, who is accused of making over 96 million robocalls through fake marketing companies. This is the first time the FCC is taking enforcement action against a large-scale spoofing operation under the Truth in Caller ID Act.
Trade Groups Urge Bipartisan Commission at Consumer Financial Protection Bureau: Twenty-two trade groups representing large and small businesses, banks, tech companies, and real estate groups sent a letter to Congressional appropriators on June 22, urging lawmakers to replace the CFPB’s single director with a five-person, bipartisan commission. According to the letter, “A Senate-confirmed, bipartisan commission will provide a balanced and deliberative approach to supervision, regulation, and enforcement.” Groups signing onto the letter included, among others, the American Bankers Association, the National Association of Realtors, the Credit Union National Association, the Financial Services Roundtable, and the National Black Chamber of Commerce.
NOMINATIONS, COMINGS AND GOINGS AT THE AGENCIES
Senate Confirms Top Treasury Officials: On June 21, the Senate overwhelmingly confirmed Sigal Mandelker as Treasury Undersecretary for Terrorism and Financial Crimes. Mandelker was confirmed by a vote of 96-4. On June 22, the Senate voted 65-35 to confirm Marshall Billingslea as Assistant Secretary for Terrorist Financing at the Treasury Department. Twelve Democrats joined with Independent Angus King (I-ME) to confirm Billingslea.
Department of Education Secretary Betsy DeVos to Appoint A. Wayne Johnson to Head the Federal Student Aid Office: Education Secretary Betsy Devos has tapped A. Wayne Johnson to head up the Federal Student Aid Office, which oversees the government’s $1.3T student lending operation. Johnson is the Chief Executive Officer and President of Reunion Financial Services, a company that refinances private student loans. Former Chief Operating Officer of Federal Student Aid James Runcie resigned last month after a dispute with Secretary DeVos.
President Trump May Reappoint Federal Reserve Chair Janet Yellen: Speaking on Bloomberg TV, Treasury Secretary Steven Mnuchin left open the door for President Trump to renominate Federal Reserve Chair Janet Yellen, saying they “haven’t made any decisions yet on a Fed chair, whether [they’re] going to have a new one or not a new one.”
Likely SEC Nominee Opposes Fiduciary Duty Rule: President Trump is expected to select Hester Peirce, a Republican think-tank scholar, to serve on the Securities and Exchange Commission. Peirce’s nomination stalled last Congress. If confirmed, Chairman Jay Clayton would get an ally in opposing the Department of Labor’s Fiduciary Duty Rule, which Peirce wrote is “flawed” and “undermines investor protection.”
CFTC Commissioner Sharon Bowen to Resign: On June 20, Commissioner Sharon Bowen of the CFTC announced that she will soon resign. Bowen cited “intolerable” gridlock that has been created by the extended vacancies on the commission. According to Bowen, “Having just two commissioners makes routine business difficult, but makes important policy decisions almost impossible.” Her resignation may put pressure on the White House and Congress to move more quickly on Democratic nominees.
Treasury Secretary Mnuchin to Leave Some Posts Unfilled: On CNBC June 20, Treasury Secretary Steven Mnuchin said that he believes that some posts at Treasury are redundant. Secretary Mnuchin stated that “there’s three or four positions that frankly we don’t think we need to fill, that are overlap in government and just unnecessary.” He added that they have “virtually the entire [26 jobs that require appointment] picked or already in the process.”
OTHER NOTEWORTHY NEWS
European Trade Groups Tell Regulators to Back Off Blockchain: European financial firms and trade groups have sent 226 letters to regulators at the European Commission, saying that there is no need for bloc regulators to create new laws dealing with innovations like blockchain and artificial intelligence.
Law Enforcement Using Cryptocurrency to Fight Crime: Law enforcement agencies are using blockchain in tracking everything from financial crimes to drug trafficking. The open and accessible nature of a public blockchain is attractive to law enforcement, as there is no need for a subpoena or search warrant to access it.
Paul Hastings’ Government Relations team is monitoring these issues. We help our clients craft strategies to address federal legislative and regulatory matters. Please reach out to us if your organization needs assistance with congressional or regulatory relations.