Financial Services Report

Looking Ahead

Near Term

• All eyes will be on the CBO this week as the non-partisan agency is expected to release its analysis of the House Republican’s health care proposal.  
• The White House is expected to release its FY18 Budget, possibly as soon as Wednesday.  Based on what has been shared to date, the budget is expected to propose significant decreases in domestic discretionary spending while providing massive increases for military spending.
• The Banking Committees in both chambers continue their work on passing Flood Insurance Reform.   With a September 30^th deadline, efforts to pass a long term replacement have overtaken the push for Dodd-Frank reform.  
• The Fed is meeting this week and is widely expected to announce an interest rate increase.  

Further Out

• The Hearing for Department of Labor Nominee Alexander Acosta will now take place on March 22^nd. 
• Senate Banking will hold SEC Nominee Jay Clayton’s hearing on March 23^rd and then have a hearing on the role of Financial companies in fostering economic growth.

The Past Week

Legislative Branch
House
Republicans Ask OCC to Delay Fintech Charter Guidance
Late Friday afternoon, Politico reported that Republicans on the House Financial Services Committee were circulating a letter to go to Comptroller of the Currency Tom Curry asking for a delay in the Office of the Comptroller of the Currency’s (OCC) special purpose charters.   These charters are expected to be used by financial technology (FinTech) firms looking avoid state by state registrations.    According to the article, the letter will ask the OCC to “not rush this decision” and “provide a full and fair opportunity for stakeholders to see the details of the special charter.”  It is unclear whether this letter will have the effect of delaying the OCC’s announcement which was expected to occur before the end of the month.   It is also worth noting that President Trump is currently expected to replace the current Comptroller when Curry’s term ends in mid-April.
 
House Financial Services Panel Advances Securities Bills
In tandem with their Senate colleagues, the House Financial Services Committee advanced a slate of securities deregulation bills in a markup Thursday that were supported by members of both parties. None of the six bills advanced by the committee met any significant opposition and three were passed unanimously.
 
Senate
Senate Banking Committee Clears Series of Securities Bills
On Thursday, the Senate Banking Committee held a markup and approved five bipartisan bills that would ease regulations for investors. The bills are among the first significant deregulatory efforts passed in the new Congress, but are unrelated to any effort to adjust the provisions of the 2010 Dodd-Frank financial reform law. Only two Democratic senators voted against the bills, Sens. Elizabeth Warren (D-MA) and Jack Reed (D-RI).
 
Brown Introduces Bill to Allow Wells Fargo Victims to Avoid Arbitration
On Tuesday, Senate Banking Committee Ranking Member Sen. Sherrod Brown (D-OH) introduced a bill that would allow victims of the Wells Fargo fake accounts scandal to sue the bank instead of being forced into mandatory arbitration. The bill builds on a recent rule from the Consumer Financial Protection Bureau (CFPB) that would eliminate arbitration in many contracts going forward by applying it retroactively for Wells Fargo customers. Eighteen Democratic senator have cosponsored the bill and Rep. Brad Sherman (D-CA) has introduced a companion version in the House.
 
Heller, Tester Re-Introduce Flood Insurance Modernization Bill
On Wednesday, in advance of a hearing this week on the issue, a bipartisan pair of Senators, Jon Tester (D-MT) and Dean Heller (R-NV), re-introduced a bill to modernize the nation’s flood insurance program. Specifically, the bill would define acceptable private flood insurance as a policy that provides coverage and is approved by the insurance regulator of the state. It aims to clarify ambiguity with the program about the validity of privately-issued flood insurance.  
 
Select Highlights from the Administration
The White House
Trump White House Recommits to Restoring Glass-Steagall
White House Press Secretary Sean Spicer recommitted to a Trump campaign promise of restoring the barrier between commercial and investment banking, as erected in the Depression-era Glass-Steagall Act, in a press conference last week. The policy, which was repealed during the Clinton Administration, has been supported by Treasury Secretary Steven Mnuchin and some Democrats have also expressed support for the move after the 2008 financial crisis.
 
Remaining US Attorney’s Asked to Resign
On Friday, the White House, apparently abruptly, asked the remaining 46 US Attorneys who had been appointed during the Obama Administration to tender their resignations.  Including among the list was Preet Bharara, Attorney for the Southern District of New York, whose responsibilities included enforcing criminal prosecutions of Wall Street and other public corruption cases.
 
Consumer Financial Protection Bureau
CFPB Propose Six Month Delay to Prepaid Card Rule
Last week, the Consumer Financial Protection Bureau responded to industry outcry over the CFPB’s prepaid card rule, announcing a delay of its original implementation by six months to April 1, 2018.  In addition, the proposal indicated that the CFPB would be open to assessing whether any changes to the rule are necessary.  Industry advocates had spoken out strongly against the rule, including its original one-year timeline for implementation, which was originally published in October 2016, and the CFPB noted that part of this delay was to help the industry comply with some of the logistics related to complying with the packaging requirements of the rule.   While the rule itself is still under threat from disapproval resolutions in Congress under the provisions of the Congressional Review Act (CRA), it would seem that this announcement has deflated the urgency for Congress to take up a CRA on the rule. 
 
Office of the Comptroller of the Currency
Curry Defends Fintech Charter at Online Lending Conference
On Monday, Comptroller of the Currency Tom Curry spoke to an online lending conference defending the regulator’s decision to offer a special purpose charter to financial technology firms providing banking services. Critics have charged that the expansion of the charter process will erode consumer protections, but Curry insisted last week that the OCC will not give charters to any firms that offer products with “predatory or abusive features.” As he has noted in previous remarks, Curry said that firms will be expected to offer details on “how they will support the needs of the communities they serve and promote financial inclusion” as part of their charter applications. [Note, see above about House GOP efforts to delay the Charter].
 
Department of Justice
DOJ Considers Challenge on CFPB Constitutionality
Reports last week emerged suggesting that the Department of Justice – now led by Attorney General Jeff Sessions – may work against the Consumer Financial Protection Bureau (CFPB) in the rehearing of a court case challenging its constitutionality. The Justice Department may file a brief in the case explaining that the White House’s view differs from that of the CFPB. The original ruling in the case, PHH vs. CFPB, declared that CFPB Director Richard Cordray could be removed by the President without cause, but the consumer watchdog successful appealed for the case to be heard again later this year.
 
Department of Commerce
ZTE Fined for Sanctions Violations
On Tuesday, the Department of Commerce and Department of Treasury announced that they had fined Chinese telecommunications firm ZTE $1.19 billion for violating sanctions against Iran and North Korea. The fine is the largest ever levied by the U.S. against a foreign firm in an export control case, and both Commerce Secretary Wilbur Ross and Treasury Secretary Steven Mnuchin signaled it should be viewed as a warning shot to other potential violators.
 
Department of Labor
U.S. Economy Adds 235,000 Jobs in February
The Labor Department reported Friday that the economy added 235,000 jobs in February, beating analysts’ projections in President Trump’s first full month in office. The unemployment rate dropped by a tenth of a percent to 4.7 percent and wages rose six cents.   Later that afternoon, the White House offered its fullest support for the veracity of this data.
 
Department of Treasury
Mnuchin Says U.S. Beginning to Use ‘Extraordinary Measures’ as Debt Ceiling Deadline Looms
The Congressional Budget Office has estimated that Congress will need to act to raise the nation’s debt ceiling this fall in order to prevent the U.S. from slipping into default on its debt payments. The debt limit is due to resume on March 16 after being suspended as part of a budget deal reached in 2015. Treasury Secretary Steven Mnuchin will then begin using ‘extraordinary measures’ to help the U.S. make payments for another few months, although the exact deadline for the limit may move depending on the government’s expenditures and tax receipts.