Money Matters: This Week in Washington
This Week in Washington for January 14, 2019
By Dina Ellis
THE BIG PICTURE
The partial government shutdown dragged into its third week as the President and congressional leaders were unable reach an agreement. On Tuesday evening President Trump and Democratic leaders Chuck Schumer and Nancy Pelosi delivered competing arguments to the public in back-to-back primetime addresses. The President described the situation at the border as a “growing humanitarian and security crisis,” while the Democrats accused the President of “governing by temper tantrum.” On Wednesday, a meeting held at the White House ended abruptly amidst disagreement over the issue of funding a wall, with the President tweeting afterwards that it had been a “total waste of time.” The President traveled to McAllen, Texas on Thursday and met with border patrol agents. Over the course of the week the President publicly contemplated declaring a national emergency to enable him to divert funds to the project, a move that would likely face an immediate court challenge, but said he’d “rather not do it.” In the meantime, the consequences of the shutdown continue to reverberate around the country as affected federal employees missed their first paycheck, and economists estimate the U.S. economy is losing US$1.2B per week.
Despite the shutdown, the administration reversed course and decided that tax refunds will go out on schedule, in order to make the shutdown “as painless as possible consistent with the law.” Questions remain however, about the legality of summoning currently furloughed IRS employees and issuing the payments.
At the request of seven House Committee chairs, Treasury Secretary Steven Mnuchin provided a classified briefing on the decision to ease sanctions on companies linked to Russian oligarch Oleg Deripaska, an associate of Russian President Vladimir Putin. The decision, which was announced in December, caused some concern among Democrats who questioned whether the move was justified. Secretary Mnuchin relayed that Treasury felt the companies had undergone “significant restructuring” and the move “show[ed] that sanctions can result in positive change.” Speaker Nancy Pelosi was unsatisfied with the Secretary however, calling it “one of the worst classified briefings we’ve received.”
The Democratic field for the 2020 presidential election continues to take shape. On Friday, Hawaii Congresswoman Tulsi Gabbard announced her intention to run, and on Saturday, former HUD Secretary Julian Castro formally announced his candidacy. Meanwhile, speculation continues to swirl around a number of other potential candidates, from Senators Sherrod Brown, Kirsten Gillibrand and Kamala Harris to former Vice President Joe Biden.
Other highlights of last week include:
The President’s former personal attorney, Michael Cohen, has agreed to voluntarily testify before the House Oversight Committee next month in a public hearing.
Supreme Court Justice Ruth Bader Ginsburg was forced to miss oral arguments for the first time since she joined the court in 1993 as she continued to recuperate following cancer surgery. The Court released a statement saying her recovery is on track, and that no further treatment will be needed.
Amid the ongoing shutdown, the President canceled his trip to the World Economic Forum in Davos, Switzerland and Transportation Secretary Elaine Chao announced that she would no longer speak at the CES conference in Las Vegas, where she was set to give a talk about the “future of drones and self-driving technology and how they will revolutionize transportation.”
LAST WEEK ON THE HILL
HOUSE FINANCIAL SERVICES COMMITTEE
No hearings held.
Committee Updates: Rep. Gregory Meeks (D-NY) wrote a letter to Chair Maxine Waters expressing his intent to pursue the Chairmanship of the Subcommittee on Financial Institutions and Consumer Credit. Rep. Meeks also announced he plans to recommend Freshman Democrat Rep. Alexandria Ocasio-Cortez for a seat on the Committee, giving her a greater voice and influence on oversight of Wall Street.
SENATE BANKING COMMITTEE
No hearings held.
ON THE FLOOR
Government Funding: On Friday, the House voted 240-179, with some Republicans crossing the aisle to vote with Democrats, on legislation to reopen the Interior Department, Environmental Protection Agency, and Forest Service, in an attempt to pressure Republicans to end the partial shutdown. Senate Majority Leader Mitch McConnell (R-KY) continued to stick to his position that he will not bring bills up for a vote until an agreement on the issue of the border wall is made with the President. Three bills were passed earlier in the week – one to fund the departments of Transportation and Housing and Urban Development, one to fund the Department of Agriculture, and another to reopen the Treasury Department, IRS, and Small Business Administration.
Backpay for Federal Workers: The House voted 411-7 in favor of legislation that would provide retroactive pay to federal workers once the government shutdown ends. President Trump has told party leaders that he intends to sign the bill into law. Democrats are struggling to find a legislative solution for low-wage contractors who tend to be hit hardest by the shutdown as they are not compensated once the government reopens.
LEGISLATION INTRODUCED AND PROPOSED
H.R. 522: Rep. Grace Meng (D-NY) introduced a bill intended to preclude the President from declaring a national emergency in order to fund a wall on the southern border.
Ensuring Diverse Leadership Bills: Sen. Kamala Harris (D-CA) and Rep. Joyce Beatty (D-OH) re-introduced parallel legislation in their respective chambers entitled the “Ensuring Diverse Leadership Act.” The bill is intended to ensure that at least one minority and one female candidate are interviewed for each vacancy for the presidency of a reserve bank at each of the 12 reserve banks in the Fed. “Bringing greater diversity to the Federal Reserve will ensure that more perspectives are heard as major decisions are being made about our nation’s economic future and will produce better outcomes for the American people,” said Sen. Harris in a statement.
THIS WEEK ON THE HILL
No hearings scheduled.
Regulators Encourage Institutions to Work with Borrowers Affected by Government Shutdown: The Fed, CFPB, FDIC, NCUA, OCC, and the Conference of State Bank Supervisors issued a joint statement encouraging financial institutions to work with consumers who are affected by the partial government shutdown, saying “While the effects of the federal government shutdown on individuals should be temporary, affected borrowers may face a temporary hardship in making payments on debts such as mortgages, student loans, car loans, business loans, or credit cards. As they have in prior shutdowns, the agencies encourage financial institutions to consider prudent efforts to modify terms on existing loans or extend new credit to help affected borrowers.
Rep. Maxine Waters Urges Regulators to Protect Americans Experiencing Financial Hardship during Shutdown: House Financial Services Committee Chair Maxine Waters (D-CA) wrote a letter to key financial regulators urging them to consider the needs of consumers who may be experiencing temporary financial hardship in meeting credit obligations as a result of the partial government shutdown. She argued that it is “important to ensure that customers can meet loan payments and avoid high fees and other penalties that they may otherwise incur through no fault of their own.”
Federal Reserve Chairman Powell Discusses Potential Effects of Shutdown: Speaking at an event in DC on Thursday, Federal Reserve Chairman Jerome Powell noted that while previous shutdowns did not “leave much of a mark on the economy” outside of “personal hardship,” an extended shutdown would hurt the economy and provide a “less-clear picture” by precluding data releases from shuttered departments.
Consumer Financial Protection Bureau Publishes Assessments of Ability-to-Repay and Mortgage Servicing Rules: The CFPB published a report assessing the effectiveness of the Bureau’s Ability to Repay and Qualified Mortgage Rule and a separate report assessing the effectiveness of the Bureau’s mortgage servicing rule issued under the Real Estate Settlement Procedures Act (RESPA). The report detailed that the mortgage-servicing rule resulted in delinquent loans becoming “less likely to proceed to a foreclosure sale” and increased the likelihood of recovery from delinquency.
Federal Reserve Board Invites Public Comment on Proposal to Modify Stress Testing Requirements: On Tuesday, the Federal Reserve Board invited public comment on a proposal that would modify company-run stress testing requirements to conform with the Economic Growth, Regulatory Relief, and Consumer Protection Act. The proposal would raise the threshold requiring state-member banks to conduct their company-run stress tests from US$10B in total consolidated assets to US$250B. Additionally, in place of the current annual cycle, the proposal would generally require firms above the threshold to conduct company-run stress tests once every other year. The proposal also would eliminate the hypothetical “adverse” scenario from company-run stress tests for bank holding companies, state member banks, U.S. intermediate holding companies of foreign banking organizations, and any nonbank financial company supervised by the Board.
Federal Reserve Vice Chair Discusses Inflation Rate: Speaking at NYU on Thursday, Federal Reserve Vice Chairman Richard Clarida said that despite strong economic growth and a low unemployment rate, “it is not yet clear that inflation has moved back to 2 percent on a sustainable basis.” His remarks reinforced comments by others in recent weeks that another interest rate hike is not likely, as the Fed can “afford to be patient.”
Education Department to Ease Income Verification Requirements for Financial Aid: The Education Department announced that they were giving students applying for financial aid more options to document their income and tax information. Students will now be able to provide signed tax returns as proof of income, effective immediately. In a statement, the Department said they hoped the “flexibilities will provide some relief to students and families.”
Comptroller Otting Remains Optimistic Despite Tough Road for CRA Update: Comptroller of the Currency Joseph Otting remains optimistic that he can improve the Community Reinvestment Act, according to comments he made in an interview on Thursday, but acknowledged that it “is a huge, complicated, emotional project to take on” and that “some people say I need my head examined for being willing to take this on.” Last year, Mr. Otting sought public comment on potential improvements without waiting for the Federal Reserve and FDIC to get onboard.
HUD Releases Guidance to Employees During Shutdown: The Department of Housing and Urban Development published guidance on their homepage advising employees of counseling resources that are available to them during the partial government shutdown for individuals who may be experiencing “depression, anxiety, relationship issues, [and] alcohol abuse.”
COMINGS AND GOINGS AT THE AGENCIES
Federal Reserve Nominee Liang Withdraws from Consideration: Economist and financial regulation expert Nellie Liang withdrew her name from consideration for one of the two open seats on the Federal Reserve’s board on Monday. Ms. Liang had previously served as the head of the Federal Reserve’s office of financial stability from 2010-2017.
Ginnie Mae’s Michael Bright Resigns: On Wednesday, Michael Bright who serves as the executive vice president and acting president of Ginnie Mae resigned abruptly, effective January 16. Later this month Mr. Bright will join the Structured Finance Industry Group as its president and CEO.
9th Circuit Finds Fannie Mae Is Not a Reporting Agency Under FCRA: On Wednesday, a divided 9th Circuit panel found that Fannie Mae isn’t a “consumer reporting agency” under the Fair Credit Reporting Act and therefore cannot be held liable for inaccuracies created by software it licenses to lenders.
Justices Appear Split on Issue of Foreclosure Protection: During oral arguments for Obduskey v. McCarthy & Holthus LLP, the Supreme Court justices appeared split on ideological lines on the issue of whether the Fair Debt Collections Practices Act applies to “nonjudicial foreclosures.” The abbreviated foreclosures are permitted in 30 states, and were used in nearly 200,000 cases in 2016.
OCC Seeks Dismissal of Challenge to Fintech Charter: The OCC filed a motion in DC District Court on Monday, seeking to dismiss a suit filed by state regulators which would bar the agency from implementing their plan to issue special purpose bank charters to fintech companies. The OCC argued that the Conference of State Bank Supervisors lacks standing, saying “for the second straight year, CSBS has acted prematurely and has once again filed a lawsuit that should be dismissed due to lack of standing.”
Nonprofit Sues for Records Related to Payday Lender Regulation: Nonprofit group Public Citizen filed a suit to obtain records related to the CFPB’s payday lending rule. The group had filed a FOIA request last spring, requesting communications between OMB and payday lending trade groups. Former Acting Director of the CFPB Mick Mulvaney, who also served as OMB director, had sided with the trade groups in a lawsuit which sought to delay implementation of the CFPB’s payday lending rule.
CATO Institute Sues SEC: The CATO Institute filed suit against the SEC, alleging that the agency’s 1972 gag regulation unconstitutionally restricts free speech. In a statement, CATO argued that “the SEC’s policy of demanding lifetime gag orders as a condition of settlement flouts the First Amendment.”
OTHER NOTEWORTHY ITEMS
World Bank President Jim Yong Kim Resigns: On Monday, World Bank President Jim Yong Kim unexpectedly announced his resignation, effective February 1, in order to “join a firm and focus on increasing infrastructure investments in developing countries.” Mr. Kim was first elected to lead the bank in 2012, and was re-elected in 2017 to another five-year term. World Bank CEO Kristalina Georgieva will take over on an interim basis in February.
Elizabeth Warren Makes First Campaign Swing Through Iowa: Sen. Elizabeth Warren (D-MA) made her first trip to the key state of Iowa as part of her campaign for the presidency. She was greeted with enthusiastic crowds at each stop as she decried the “corrupt” political culture of Washington which she described as “beholden to giant corporations.”
EU Diplomats Support Easing of Sanctions on Russian Firms: EU Ambassador to the U.S. David O’Sullivan joined with other top diplomats in supporting the Treasury’s decision to delist Russian companies associated with Oleg Deripaska. They described the decision to delist as one that will “safeguard …. the livelihoods of 75,000 workers” in the EU. The officials also noted that “close cooperation and coordination with the United States has been and remains the central pillar in achieving a change in Russia’s behavior.”
Wyoming Aims to Become “Delaware of the West”: Wyoming legislators are looking to create a more corporate and fintech friendly environment to compete with Delaware. The state is considering establishing a chancery court, and several bills are planned that center on fintech related issues – including using blockchain technology for a commercial filing system.
European Banking Authority Publishes Assessment of Crypto-Asset Regulation: The top banking regulator of the European Union, the European Banking Authority, issued a report on the “Applicability and Suitability of European Union Law to Crypto-Assets” which found that “crypto-asset activities do not constitute regulated services within the scope of EU banking, payments and electronic money law, and risks exist for consumers that are not addressed at the EU level” and recommended that the European Commission conduct additional analysis on what might constitute an appropriate response.