THE BIG PICTURE

It was a busy week for the Senate. The chamber voted late on October 19 on a budget resolution that is expected to be a significant procedural step towards tax reform, with the President calling the vote the “first step towards massive tax cuts.” In addition to unlocking a mechanism that will allow Republicans to rewrite the tax code without any Democratic votes, the budget resolution allows the tax bill to lower projected revenue by up to US$1.5T over a decade.

With all that the Senate needs to get done, Majority Leader Mitch McConnell (R-KY) is reported to be preparing for longer workweeks, including Fridays and possibly some weekends. On the tax front in the House, the Ways and Means Republicans have scheduled lengthy meetings for this week to discuss the details of their tax bill. The House Freedom Caucus has said that they will support the legislation if it is marked up next week and brought to the House Floor the first week in November. Leadership has called this timetable virtually impossible.

Controversy surrounded the White House last week when the President’s silence on the four military deaths in Niger resulted in President Trump’s incorrect claim on October 16 that President Obama did not call Gold Star families who lost relatives killed in action. Several military families came forward as the week continued to comment on how President Trump treated them after they lost loved ones.

President Trump gave the federal government a “10” for its response to hurricane devastation in Puerto Rico. According to the President, the effort was “probably the most difficult when you talk about relief, when you talk about search, when you talk about all the different levels, and even when you talk about lives saved. You look at the number. I mean, this was—I think it was worse than Katrina.” Senator Elizabeth Warren called for the cancellation of Puerto Rico’s existing debt at a rally on October 18, while the President noted that any new debt for Puerto Rico reconstruction had to be senior to existing debt.

On the healthcare front, Senators Lamar Alexander (R-TN) and Patty Murray (D-WA) reached an agreement on a bipartisan healthcare deal that would fund the subsidy program that President Trump unilaterally cut earlier this month through an executive order. The deal would fund Obamacare’s cost-sharing program for two years. The deal also would allow states to use Obamacare waivers to approve insurance plans with “comparable affordability” to Obamacare plans. President Trump expressed opposition to such deal on Twitter on October 18 claiming it benefitted insurance companies.

President Trump’s third try at a travel ban received another blow last week. U.S. District Court Judge Derrick Watson in Hawaii granted a temporary restraining order, blocking the ban. According to Judge Watson, the ban is contrary to federal immigration law as it “plainly discriminates based on nationality.” A second court in Maryland also blocked the third ban.

According to a Republican official, Ohio Representative Pat Tiberi (R-OH) will not seek reelection and will retire early. Tiberi represents Ohio’s 12th District, which is solidly Republican.

In sports news, the Commissioner of the NFL Roger Goodell said on October 18 that he believes that all players “should” stand for the national anthem. The NFL owners, however, go so far as to impose a rule requiring the players to stand.

LAST WEEK ON THE HILL

SENATE BANKING COMMITTEE

Committee Holds Hearing on Data Security: The Senate Banking Committee conducted a hearing entitled, “Consumer Data Security and the Credit Bureaus.” The hearing was a follow-up to the Committee’s hearing on the Equifax data breach and focused on the protection of consumer data at credit bureaus. In his opening statement, Chairman Mike Crapo (R-ID) said that he has “long been concerned about the ever increasing amounts of ‘big data’ collected by companies and the government.” Witnesses included:

  • Mr. Andrew M. Smith, Partner, Covington & Burling LLP, on behalf of the Consumer Data Industry Association;
  • Mr. Marc Rotenberg, President, Electronic Privacy Information Center; and
  • Mr. Chris Jaikaran, Analyst in Cybersecurity Policy, Congressional Research Service

LEGISLATION INTRODUCED AND PROPOSED

Senator David Perdue Introduces PROTECT Act: On October 18, Senator David Perdue (R-GA) introduced the “Promoting Responsible Oversight of Transactions and Examinations of Credit Technology Act of 2017,” or the PROTECT Act. The legislation would phase out the use of Social Security numbers by credit-monitoring businesses, as well as simplify the process for consumers to freeze their credit. The legislation is a companion to a House bill introduced by Rep. Patrick McHenry (R-NC), but there are some differences between the two bills regarding supervision of credit reporting firms.

THIS WEEK ON THE HILL

Tuesday, October 24

House Financial Services Committee, Hearing, “The Federal Government’s Role in the Insurance Industry,” 10:00AM, 2128 Rayburn House Office Building

Senate Banking Committee, Nomination Hearing, 10:00AM, 538 Dirksen Senate Office Building

  • The Honorable David J. Ryder, of New Jersey, to be Director of the United States Mint;
  • Ms. Hester M. Peirce, of Ohio, to be a Member of the Securities and Exchange Commission; and
  • Mr. Robert J. Jackson, Jr., of New York, to be a Member of the Securities and Exchange Commission.

Wednesday, October 25

House Financial Services Committee, Hearing, “Sustainable Housing Finance: Private Sector Perspectives on Housing Finance Reform,” 10:00AM, 2128 Rayburn House Office Building

House Financial Services Committee, Continuation of Hearing, “Examining the Equifax Data Breach,” 2:00PM, 2128 Rayburn House Office Building

Thursday, October 26

Senate Banking Committee, Nomination Hearing, 10:00AM, 538 Dirksen Senate Office Building

  • The Honorable Brian D. Montgomery, of Texas, to be Assistant Secretary for Housing – Federal Housing Commissioner, U.S. Department of Housing and Urban Development;
  • Mr. Robert Hunter Kurtz, of Virginia, to be Assistant Secretary for Public and Indian Housing, U.S. Department of Housing and Urban Development; and
  • Ms. Suzanne Israel Tufts, of New York, to be Assistant Secretary for Administration, U.S. Department of Housing and Urban Development.

THE REGULATORS

Consumer Financial Protection Bureau (CFPB) Outlines Principles for Consumer-Authorized Financial Data Sharing and Aggregation: On October 18, the CFPB outlined principles aimed to protect consumers when they authorize third party companies to access their financial data to provide certain financial products and services. The principles are “intended to help foster the development of innovative financial products and services, increase competition in financial markets, and empower consumers to take greater control of their financial lives.” The principles relate to data access, data scope and usability, control of the data and informed consent, payment authorizations, data security, transparency on data access rights, data accuracy, accountability for access and use, and disputes and resolutions for unauthorized access.

Government Accountability Office (GAO) Says Leveraged Lending Guidance Could be Challenged: On October 19, the GAO said that the Interagency Guidance issued by the Office of the Comptroller of the Currency (OCC), the Federal Reserve, and the Federal Deposit Insurance Corporation qualifies as a rule that can be challenged by the Congressional Review Act. This decision by the GAO means that Congress now has the opportunity to overturn the guidance on leveraged lending, which relates to loans to firms perceived as risky. The guidance was issued in March of 2013.

National Economic Council (NEC) Director Gary Cohn “Agitated” by Risk Posed by Derivatives Clearinghouses: Speaking at the G-30’s annual international banking seminar, NEC Director Gary Cohn expressed concern that the government has created systemic risk by requiring extensive amounts of derivatives to be cleared through central counterparties (CCP). According to Cohn, “we have expanded the limits of [clearinghouses] probably farther beyond their useful existence.”

On another note, Director Cohn also gave a statement earlier in the week about raising the US$50B asset threshold at which banks face increased regulation. Speaking at the American Bankers Association’s annual conference, he said he expects the final number to be at least US$200B, and could go as high as US$250B.

Commodity Futures Trading Commission’s LabCFTC Releases Primer on Virtual Currencies: On October 17, the CFTC’s LabCFTC released, “A CFTC Primer on Virtual Currencies.” This primer is the first of a series that LabCFTC will release to provide information about fintech innovation. This first primer provides an overview of virtual currencies and their potential use cases, helps outline the CFTC’s role and oversight of virtual currencies, and cautions investors and users of the potential risks involved with virtual currencies.

Speaking at a Georgetown University fintech event on October 19, CFTC Commissioner Brian Quintenz said that digital currencies “may actually transform at some point from something that starts off as a security and transforms into a commodity.”

OCC Head Keith Noreika Denies that Agency is Considering Bank Charters for Nonfinancial Firms: Speaking at the same event on October 19, Acting Comptroller of the Currency Keith Noreika defended his position that commercial companies could be considered as banks, however, he denied that the OCC is currently considering granting bank charters to such companies. According to Noreika, “the folks who suggest that the OCC is considering granting charters to nonfinancial companies are wrong, and the more sophisticated ones know it.”

Feud Continues between OCC and CFPB: Comptroller Noreika accused CFPB Director Richard Cordray of playing politics with respect to the arbitration rule the CFPB issued earlier this year. Noreika said the rule prohibiting mandatory arbitration clauses in financial products benefits lawyers and politicians who get money from lawyers, as well as big banks.

Noreika’s Term as Acting Comptroller Questioned: Noreika also spoke on the issue of his appointment as Acting Comptroller, in response six Democratic Senators who sent a letter accusing Noreika of staying in his position for an impermissible length of time. He is currently classified as a “special government employee,” which allowed him to avoid Senate confirmation, but the classification limits his service in his role to 130 days. Noreika said that the Senate Democrats are “stuck with him” until they get around to confirming his successor, nominee Joseph Otting.

Securities and Exchange Commission Proposes Rules to Implement FAST Act Mandate to Modernize and Simplify Disclosure: On October 11, the SEC voted to propose amendments to modernize and simplify disclosure requirements for public companies, investment advisers, and investment companies and to implement a mandate under the Fixing America's Surface Transportation (FAST) Act. The proposed amendments would make adjustments to update, streamline, or otherwise improve the Commission's disclosure framework. "The FAST Act has given the Commission the opportunity to update our rules, simplify our forms, and utilize technology to make disclosure more accessible," said SEC Chairman Jay Clayton.

European Commission Recommends the Continuation of Privacy Shield: On October 18, the European Commission recommended the continuation of the U.S.-E.U. Privacy Shield agreement in a report marking the data-transfer deal’s first annual review. E.U. Justice Minister Věra Jourová said in a statement that the Commission’s “first review shows that the Privacy Shield works well, but there is some room for improving its implementation.” The report found that one of the improvements should be more aggressive oversight on the American side of whether companies are complying with the agreement’s requirements.

Credit Union and Bank Group Urge Housing Agency to Let Fannie and Freddie Keep Capital: The National Association of Federally-Insured Credit Unions and the Independent Community Bankers of America sent a letter to the Federal Housing Finance Agency (FHFA), asking the regulator to allow mortgage companies Fannie Mae and Freddie Mac to hold capital to cover quarterly losses. As part of a deal with the Treasury Department, the companies will have reduced their capital reserves to nothing by January.

Also on the Fannie and Freddie front, it was reported last week that mortgage fees fell last year as the two companies competed for business. Average ongoing guarantee fees fell from 42 basis points in 2015 to 40 basis points in 2016.

Finally, the FHFA announced last week that it would require lenders selling loans to Fannie and Freddie to ask prospective borrowers their preferred language. The new requirement is part of an effort to encourage homeownership among people with limited English proficiency.

Federal Reserve Governor Jerome Powell Frontrunner for Chair: According to Trump Administration officials, current Fed Governor Jerome Powell is the leading candidate to become Chair of the Federal Reserve. The President, however, has yet to make a final decision, though he did say he will make a decision within a “very short period of time.”

NOMINATIONS, COMINGS AND GOINGS AT THE AGENCIES

SEC Names Brett Redfearn as Director of the Division of Trading and Markets: On October 18, the SEC announced that Brett Redfearn has been named Director of the agency's Division of Trading and Markets. The SEC's Division of Trading and Markets “establishes and maintains standards for fair, orderly, and efficient markets.” Redfearn was most recently head of equity market structure strategy at JPMorgan Securities.

OTHER NOTEWORTHY ITEMS

National Association of Home Builders (NAHB) Urges “Homeownership” Tax Credit: The National Association of Home Builders is encouraging Congress to replace the current mortgage-interest deduction with a homeownership tax credit. According to NAHB Chief Executive Officer Jerry Howard, if the “credit is structured properly, it would be available to more people, particularly middle-income people, and be a true incentive for them to become homeowners.”

Conference of State Bank Supervisors (CSBS) Names Fintech Advisory Panel: On October 19, the Conference of State Bank Supervisors named its fintech advisory panel members, including 33 companies ranging from start-ups to national brands. According to CSBS, the panel “brings together state regulators and industry leaders, who will identify ways to help modernize the state regulatory system.”

Five Companies Launch IPOs that Could Raise Up to US$1.3B: BP Midstream Partners LP, National Vision Holdings Inc., ForeScout Technologies, Inc., Merchants Bancorp Inc., and Chinese lender Hexindai Inc. are planning to launch IPOs in the near future that could total up to US$1.3B. BP Midstream Partners LP is the largest, with an estimated US$850M public offering. It is expected to price its offering around October 25.