Financial Services Report

December 7, 2015

Our Take
As we start the first day of Hanukah and are well into the Christmas season, it is worth noting that we are also seeing the height of the annual kabuki ritual that is the congressional appropriations negotiation process. For the uninitiated it goes something like this. The majority party make their first budget offer. The minority party then retort that it is the most offensive thing they have seen and not a serious attempt at negotiation. Both sides continue to talk and eventually reach a deal that infuriates the wings of each party.

Now, fifty weeks into 2015, the first session of the 114^th Congress may wrap up this week as members appear eager to leave town. However, in order to get in before the current funding bill runs out on Friday, a couple of provisions, including riders dealing with reg relief, the DOL Fiduciary rule and a some environmental policy initiatives still need to be worked out.

Looking Ahead

Near Term

Negotiations continue for an Omnibus spending bill to keep the government open through December 11^th with Democrats and Republicans working through various riders, including numerous ones impacting the financial services industry. While the lion share of the media attention has been on provisions related to the DOL Fiduciary rule and how some Democrats are willing to include language that would give industry a win, there are numerous other issues in play, including the remaining portions of Senator Shelby’s reg relief bill. It is unclear how the inclusion of other regulatory relief provisions in the transportation bill (see more below) will impact the Administration and Minority’s interest in including additional relief in the omnibus.
Negotiations also continue on the so-called “Extenders” package with negotiators working through the weekend trying to get a deal. Prior to the weekend there were concerns that the cost of the deal – rumored to be around $800 billion – could sink it if conservatives and liberals joined together. That fear may be coming true, as recent reports indicate a potential crumbling of support for the bigger deal by some Senate Democrats.
On Tuesday, the House Financial Services Committee will hold a hearing on the Financial Stability Oversight Council (FSOC). All members of the Council, except Treasury Secretary Lew and SEC Chair White will be in attendance.
Also on Tuesday, the House Financial Services Committee will mark up a series of bills including:

H.R. 2187, the “Fair Investment Opportunities for Professional Experts Act”
- Note that an Amendment in the Nature of a Substitute to this bill is expected to be offered by Mr. Schweikert.
H.R. 2205, the “Data Security Act of 2015”
Note that an Amendment in the Nature of a Substitute to this bill is expected to be offered by Mr. Neugebauer.
H.R. 2287, the “National Credit Union Administration Budget Transparency Act”
Note that an Amendment in the Nature of a Substitute to this bill is expected to be offered by Mr. Luetkemeyer.
H.R. 3700, the “Housing Opportunity Through Modernization Act of 2015”
H.R. 3784, the “SEC Small Business Advocate Act of 2015”
H.R. 3791, To raise the consolidated assets threshold under the small bank holding company policy statement, and for other purposes.
H.R. 4168, the “Small Business Capital Formation Enhancement Act;” and the
Task Force to Investigate Terrorism Financing Resolution of 2016

Further Out

State of Union January 12

The Past Week

Legislative Branch

House
Ed and Workforce Holds Hearing on Fiduciary Rule
On Wednesday the House Education and the Workforce Subcommittee on Health, Employment, Labor, and Pensions held a hearing titled, “Principles for Ensuring Retirement Advice Serves the Best Interest of Working Families and Retirees.” The hearing focused on the bipartisan set of legislative principles that were developed as a possible legislative solution to the DOL conflict of interest proposal. Witnesses at the hearing were comprised of a broad swath of the retirement planning industry, though no one from the Department of Labor was present. As expected, support for, and opposition to, DOL’s pending fiduciary rule was offered by the usual suspects.

Financial Services Examines Small Capital Formation Bills
On Wednesday, the House Financial Services Committee's Subcommittee on Capital Markets and Government Sponsored Enterprises held a hearing entitled “Legislative Proposals to Improve the U.S. Capital Markets.” The hearing focused on five pieces of legislation:

H.R. 3784, the SEC Small Business Advocate Act;
H.R. 3798, the Due Process Restoration Act;
The Helping Angels Lead Our Startups (HALOS) Act;
The Fostering Innovation Act; and
The Small Business Capital Formation Enhancement Act.

Senate
Senate Passes Highway Bill
Lawmakers beat a December 4 deadline to act on transportation funding as the conference report to the bipartisan highway funding bill (H.R. 22) passed the Senate on Thursday by a vote of 83-16 after sailing through the House by a count of 359-65. President Obama quickly signed the measure Friday, which is the first long-term national transportation spending package in a decade and has been a priority this year for both the Obama administration and Republican leaders in Congress. The five-year, $305 billion measure reauthorizes the collection of the 18.4 cents per gallon gas tax that is typically dedicated to the Highway Trust Fund and adds $70 billion in miscellaneous pay-fors, including tapping surplus funds from the Federal Reserve and eliminating an annual dividend banks get for owning shares of Fed regional banks.

Significant riders were included in the package, most notably a renewal of the Export-Import Bank’s charter through the 2019 fiscal year, ending a months-long debate over the bank after its charter expired in June. Measures designed to provide regulatory relief for small banks were also worked into the bill, including a measure that allows more banks to be eligible for an 18-month examination cycle rather than the typical 12-month process. Other regulatory reform measures incorporated into the highway bill include the creation of a petition process for areas to be designated as rural for the purpose of consumer financial laws, therefore qualifying for special treatment under CFPB rules, and the elimination of a requirement that banks must mail customers annual privacy notices explaining information-sharing practices.

Yellen Testifies Before Joint Economic Committee
On Thursday, Federal Reserve Chair Janet Yellen testified before the Joint Economic Committee and whatever doubt she left that the Fed is preparing to raise interest rates for the first time in seven years at its December meeting were shattered by Friday’s report of another 211,000 jobs being added to economy. However, Yellen was also careful to emphasize her plan for a gradual pace of rate increases, citing concerns over the strong dollar and tepid growth overseas. Yellen also used the hearing as an opportunity to sharply criticize legislation (H.R. 3189) that would impose reforms on the Fed, as well as the use of the Fed surplus funds to help pay for the recently-passed transportation package.

Select Highlights from the Administration

Consumer Financial Protection Bureau (CFPB)
CFPB Releases Report on CARD Act
On Thursday, the CFPB released a report detailing how the Bureau believes the CARD Act has helped consumers avoid more than $16 billion dollars in fees related to card transactions. Among the items in the report is how the CARD Act has changed how over-limit fees, late fees as well as reduced the total cost of credit by roughly 2%. The report also highlighted areas that the CFPB sees as concerning, including deferred interest promotions, reward programs, and subprime credit.

Securities and Exchange Commission (SEC)
SEC to Vote on More Dodd Frank Rules
The SEC announced that it would be meeting on December 11^th to vote on rules required under Section 1504 of the Dodd Frank Act. That section requires the SEC to propose a rule requiring publicly traded companies disclose payments they make to foreign governments to help develop oil, natural gas or mineral resources. This is the second attempt by the SEC to issue these rules, as their first effort was voided by the courts in 2013. The Commission is also expected to propose a rule dealing with how mutual funds use derivatives. This proposal will be the third of five steps that Chair White outlined in December of last year as ways the SEC could improve its oversight of the asset management industry.

Next Week’s Schedule

On Tuesday, December 8^th at 10:00 AM in 2128 Dirksen, the full House Financial Services Committee will be having a hearing entitled “Oversight of the Financial Stability Oversight Council.”
On Tuesday, December 8^th, at 2:00pm in 2128 Rayburn, the Financial Services Committee will meet to mark-up various bills.
On Wednesday, December 9^th at 1:00pm in 2154 Rayburn the House Oversight and Government Reform Committee will hold a hearing entitled, “A Casino in Every Smartphone – Law Enforcement Implications.”