Legislative Activity

New Year, New Look for Senate Banking and House Financial Services Committees

With the new Congress officially under way, both the Senate Banking and House Financial Services Committees have announced new Committee members. Joining Chairman Mike Crapo (R-ID) on the Senate Banking Committee are fellow Republican Senators David Perdue (R-GA), Thom Tillis (R-NC), and John Kennedy (R-LA). On the Democrat side, Senators Brian Schatz (D-HI), Catherine Cortez Masto (D-NV), and Chris Van Hollen (D-MD) will join Ranking Member Sherrod Brown (D-OH) as new additions to the Committee. Kicking off the year, last week the Committee held its first hearing to consider the nomination of Dr. Ben Carson to be Secretary of the Department of Housing and Urban Development (HUD). The Committee was generally friendly and welcoming to Dr. Carson, whose nomination to lead HUD has been questioned by some due to his lack of government experience and housing policy credentials. Dr. Carson repeatedly suggested that his vision for HUD integrates government assistance programs with “holistic” solutions spurred by greater involvement of the business community. He called on the private sector to play a larger role in addressing poverty and systemic inequities, investing in “human capital” to both increase quality of life and profits. Both Republican and Democratic Senators agreed to work with Dr. Carson and expressed a general sense of support for his confirmation.

On the other side of the Capitol, House Financial Services Committee Chairman Jeb Hensarling (R-TX) announced 10 new Republican members who will serve on the committee, including Representatives Lee Zeldin (R-NY), Dave Trott (R-MI), Barry Loudermilk (R-GA), Alex Mooney (R-WV), Tom MacArthur (R-NJ), Warren Davidson (R-OH), Ted Budd (R-NC), David Kustoff (R-TN), Claudia Tenney (R-NY), and Trey Hollingsworth (R-IN). New Democrats joining the Committee include Representatives Josh Gottheimer (D-NJ), Vicente Gonzalez (D-TX), Charlie Christ (D-FL), and Ruben Kihuen (D-NV). Additionally, the Chairman Hensarling has established the Subcommittee on Terrorism and Illicit Finance, an area of focus previously addressed through the Task Force to Investigate Terrorism Financing. Representative Steve Pearce (R-NM) will serve as the Subcommittee’s Chairman and take the lead in implementing the recommendations included in the Task Force’s report released at the end of last year.

Notably, the House last week took up and passed several pieces of deregulatory legislation, marking the beginning of what is expected to be two years of strict scrutiny on the current financial services regulatory landscape. Among the bills passed include H.R. 79, Helping Angels Lead Our Startups Act (HALOS Act), which directs the Securities and Exchange Commission (SEC) to amend Regulation D within six months to make the prohibition against general solicitation inapplicable in certain circumstances. The House also voted on H.R. 78, SEC Regulatory Accountability Act, which, among other provisions, directs the SEC to: (1) review its existing regulations periodically to determine if they are outmoded, ineffective, insufficient, or excessively burdensome; and (2) modify, streamline, expand, or repeal such regulations. Additionally, the House voted on H.R. 238, Commodity End-User Relief Act, which would reauthorize the Commodity Futures Trading Commission (CFTC), while at the same time imposing certain restrictions, including a cost-benefit analysis.

Regulatory Activity

CFPB Director May Be in Trump’s Sights for Removal

Last week, Trump Administration spokesman Sean Spicer announced that President-Elect Trump is considering former Representative Randy Neugebauer (R-TX) to replace current Consumer Financial Protection Bureau (CFPB) Director Richard Cordray. According to some, President-Elect Trump may be building a case to remove Director Cordray “for cause” – current the only way a President can remove the Director of the CFPB (at least until the PHH case is resolved). The potential fight with Director Cordray – who has suggested he will not resign until his term ends next year – comes amid the Bureau’s efforts to finalize several pending rulemakings, including its debt collection proposal on which the Bureau last week issued a report.

US-E.U. Finalize Insurance Agreement

Last week, after more than a year of negotiations, the Treasury Department sent the terms of its insurance regulatory agreement (covered agreement) with the European Union to Congress. The covered agreement was drafted to address the current difference between the insurance regulation in the EU and U.S. In particular, the agreement with address the application of EU rules under its “Solvency II” regulations and the oversight of reinsurers. Pursuant to the terms of the covered agreement, certain EU Solvency II requirements will not apply to the worldwide operations of U.S. insurers (with the exception of those firms’ European operations). Instead, U.S. states will continue to serve as the primary regulators of the domestic insurance industry, though these regulators will need to update rules that apply to EU reinsurers. After three and a half years, if any states have failed to comply with the terms of the covered agreement, Treasury’s Federal Insurance Office may determine to preempt state laws that are inconsistent with the agreement.

Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), the covered agreement, which was negotiated on the U.S. side by the Treasury Department and U.S. Trade Representative (USTR), the agreement will come into force 90 calendar days after it has been submitted to Congress. Of course, EU governments will have to approve the agreement as well, after which it would need to be approved by the European Commission as well as the European Parliament. Notably, in the U.S., both Members and state insurance regulators have thus far seemed to withhold judgment on the agreement pending further review.

OCC FinTech Charter Faces Unexpected Opposition

After the Office of the Comptroller of Currency’s (OCC) announcement last month that it would begin accepting applications from certain FinTech companies (i.e., those which participate in one of the three core banking functions: lending money, paying checks, or receiving deposits) seeking to obtain a federal bank charter, the proposal has received somewhat unexpected pushback from leading Democrats. Expressing several concerns about the OCC’s plan, Senate Banking Committee Members Sherrod Brown (D-OH) and Jeff Merkley (D-OR) argued that the proposal “could also allow predatory alternative financial services providers to spread more quickly given the blessing of the federal government and elimination of state-based protections for working class Americans.” Going further, the Senators questioned the underlying authority of the OCC to issue such a charter, suggesting that it could lead to “charter shopping” and allow these companies to sidestep certain requirements imposed on traditional banks. These remarks were echoed by the Conference of State Bank Supervisors, which submitted a comment letter criticizing the OCC’s proposal. Together, such opposition may indicate that the road ahead for the OCC’s proposal may be bumpier than had previously been expected.

Patrick Kirby is co-author of this article.