July 14, 2017

July 14, 2017

They don’t actually call it “Bastille Day” in France. It’s just the national day, or the feast of July 14th. So vive la France, and vive la République, and any excuse for a glass of Champagne is just fine with us.

CFPB bans arbitration clauses; OCC pushes back — The week began with an announcement from the Consumer Financial Protection Bureau that banks and financial companies may no longer bind customers to mandatory arbitration clauses. The ban makes it possible for customers to form groups to file class actions. Dodd-Frank required the CFPB to study mandatory arbitration clauses, and authorized the Bureau to issue regulations “in the public interest.” Acting Comptroller of the Currency Keith A. Noreika responded immediately with a cordial letter asking to see the data the CFPB used in developing this rule. “We feel obligated to communicate our safety and soundness concerns,” Noreika wrote, noting that the rule “may force institutions to confront ‘potentially ruinous liability,’ and settle unmeritorious claims to mitigate the significant costs and risks associated with class-action lawsuits.”

House Appropriations votes out bill to repeal Volcker Rule, rein in CFPB — The House Appropriations Committee voted along party lines yesterday to approve a funding package for Treasury, the judiciary, the Small Business Administration, the SEC, and several other financial agencies. The bill slashes funding to the IRS and wipes out the SEC “slush fund” created by Dodd-Frank. It also incorporates several provisions of the Financial CHOICE Act. It would subject the CFPB, the FDIC, the OCC, and the supervisory arm of the Federal Reserve to the appropriations process. It would also roll back the new CFPB rule against mandatory arbitration, curb the CFPB’s regulatory authority over payday and title lenders, and limit its power to act against “unfair, deceptive, and abusive practices.”

House panel hears testimony on fiduciary rule repeal — Witnesses testified yesterday before the House Financial Services Subcommittee on Capital Markets, Securities, and Investment on Rep. Ann Wagner’s bill to repeal the Department of Labor’s fiduciary rule. Rep. Wagner’s bill would replace the fiduciary rule with a “workable best interest standard” for broker-dealers, and would move the authority for this rule from the Department of Labor to the SEC. Witnesses agreed on the need for the SEC to assert itself on this subject, with only one witness, the AARP’s Cristina Martin Firvida, arguing that the SEC’s role should complement DOL’s rather than replace it.

House hearing seeks bipartisan ground on regulatory burden relief — Both Republican and Democratic members of the House Subcommittee on Financial Institutions and Consumer Credit agreed on the need to adjust regulatory requirements for smaller and community-based lenders at a hearing on Wednesday. Representatives of community banks and credit unions testified on nine bills designed to ease regulatory burden on several fronts, from raising minimums for reporting requirements to making it easier to apply for deposit insurance. Appraisal requirements are especially burdensome for rural institutions, witnesses said, and small banks struggle with Bank Secrecy Act requirements.

House subcommittee looks at fixed income market structure — While legislators tend to pay more attention to equity markets, the fixed income market is nearly twice as large, and the House Financial Services Subcommittee on Capital Markets held a hearing on its status this morning. Chairman Bill Huizenga (R-MI) called for greater transparency and enhanced use of technology to improve the market’s operations, and he endorsed the proposal to create an SEC advisory committee on fixed income market structure. In response to a question from Rep. Jim Himes (D-CT), witnesses disagreed on whether the Volcker Rule is affecting liquidity; Randy Snook, Executive Vice President of the Securities Industry and Financial Markets Association, said that it is, and that it constrains dealers’ ability to build the inventory necessary for market-making.

Clayton announces eight principles for SEC regulation — In his first public remarks as Chairman of the Securities and Exchange Commission, Jay Clayton laid out eight principles that will guide his activities. He emphasized the need for the SEC to stick to its three-part mission of protecting investors; maintaining fair, orderly, and efficient markets; and facilitating capital formation. The agency’s analysis will focus on the long-term interests of the Main Street investor. While he said that the SEC’s overall structure for regulation is sound, he voiced concern about the cumulative effects of regulatory changes, and about the roughly 50% decline in publicly traded companies over the past 20 years. Clayton called for greater coordination among regulatory agencies, especially in response to cybersecurity concerns.

Congressmen renew plea to SEC to block Chinese acquisition of Chicago Stock Exchange — With a new SEC Chairman in place, Reps. Robert Pittenger (R-NC) and Peter DeFazio (D-OR) led a bipartisan group of 11 Congressmen in a letter urging the agency to deny a Chinese investor group’s application to buy the Chicago Stock Exchange. “[T]he Chinese government dominates all sectors of society and consistently fails to abide by international agreements,” the legislators wrote. The SEC has announced that it will rule on the application by August 9.

Randal Quarles named to Fed supervision post — The White House announced Monday that it will nominate Randal K. Quarles to the Federal Reserve Board, to complete a term that expires in January 2018 and to a consecutive 14-year term that will expire in 2032. Quarles was also named to a four-year term as Vice Chairman for Supervision. Quarles served as Under Secretary of the Treasury for Domestic Finance under President George W. Bush, and was previously Assistant Secretary of Treasury for International Affairs and U.S. Executive Director of the International Monetary Fund. He served in the administration of President George H.W. Bush as Deputy Assistant Secretary of the Treasury for Financial Institutions Policy. He was a longtime partner in The Carlyle Group before founding The Cynosure Group, a Salt Lake City-based equity investment firm.

Senate confirms Rao to OMB regulatory job — The Senate voted 54-41 on Monday to confirm law professor Neomi Rao as Administrator of the Office of Information and Regulatory Affairs within the Office of Management and Budget. Rao, who founded the Center for the Study of the Administrative State at George Mason University’s Antonin Scalia School of Law, may be best known for her critiques of the Chevron doctrine, which defers to federal agencies’ interpretations of their own enabling statutes.

OCC report finds looser credit underwriting, continued high risk — Banks continue to face high levels of strategic, operational and compliance risk, according to the Office of the Comptroller of the Currency’s Semiannual Risk Perspective for Spring 2017. While the banking system remains healthy and credit risk is stable, “We continue to see more banks easing underwriting practices across commercial and retail products as they strive for growth amid heavy competition,” said Acting Comptroller Keith A. Noreika. The agency is keeping a particularly watchful eye on commercial real estate, as concentrations in that area increase, especially among community and midsize banks.

FDIC wants comment on process for approving new deposit insurance applications — The Federal Deposit Insurance Corporation published a draft of a new procedures manual to help FDIC staff evaluate new applications for deposit insurance. FDIC Chairman Martin Gruenberg said he hoped the manual would clarify the process for applicants and others interested in forming de novo institutions. The manual is open for public comment until September 8.

Mark Van Der Weide to succeed Scott Alvarez as Fed general counsel — The Federal Reserve Board announced last week that Fed veteran Mark Van Der Weide will become the Fed’s General Counsel in later this summer, following the retirement of Scott G. Alvarez. Van Der Weide joined the Fed in 1998, after two years in private practice. In 2009-10, he was detailed to the Treasury Department to work on implementing financial reform legislation. He currently serves as Deputy Director of the Fed’s Division of Supervision and Regulation.

 

Next Week in Washington:

July 18            Senate Committee on Finance holds a hearing on “Comprehensive Tax Reform: Prospects and Challenges.” 9:00 a.m., SD-219 Dirksen Senate Office Building.

July 18            House Financial Services Subcommittee on Capital Markets, Securities, and Investment holds a hearing on “The Cost of Being a Public Company in light of Sarbanes-Oxley and the Federalization of Corporate Governance.” 10:00 a.m., 2128 Rayburn House Office Building.

July 18            House Ways & Means Subcommittee on Trade holds a hearing on modernization of the North American Free Trade Agreement (NAFTA). 10:00 a.m., 1100 Longworth Office Building.

July 18            Senate Committee on Banking, Housing, and Urban Affairs holds a hearing on the nominations of J. Paul Compton, Jr. to serve as General Counsel of the Department of Housing and Urban Development; Anna M. Farias to serve as Assistant Secretary of HUD for Fair Housing and Equal Opportunity; Neal J. Rackleff to serve as Assistant Secretary of HUD for Community Planning and Development; Richard Ashooh to serve as Assistant Secretary of Commerce for Export Administration; Elizabeth Erin Walsh to serve as Assistant Secretary of Commerce for Global Markets and Director General of the United States and Foreign Commercial Service; and Christopher Campbell to serve as Assistant Secretary of the Treasury for Financial Institutions. 10:00 a.m., SD-538 Dirksen Senate Office Building.

July 18            House Financial Services Subcommittee on Terrorism and Illicit Finance holds a hearing on “Managing Terrorism Financing Risk in Remittances and Money Transfers.” 2:00 p.m., 2128 Rayburn House Office Building.

July 19            House Financial Services Subcommittee on Oversight and Investigations holds a hearing on “Congressional Oversight of Independent Regulatory Agencies.” 10:00 a.m., 2128 Rayburn House Office Building.

July 19            House Committee on Small Business holds a hearing on “Reversing the Entrepreneurship Decline.” Witnesses will include Joe Schocken of Broadmark Capital. 11:00 a.m., 2360 Rayburn House Office Building.

July 19            House Financial Services Subcommittee on Monetary Policy and Trade holds a hearing on “Restricting North Korea’s Access to Finance.” 2:00 p.m., 2128 Rayburn House Office Building.

July 20            Senate Banking Committee holds a hearing on “Housing Finance Reform: Maintaining Access for Small Lenders.” 10:00 a.m., SD-538 Dirksen Senate Office Building.

 

The Ellis Insight. Jim Ellis reports on political news:

Senate

Alabama:  With the special Senate primary election fast approaching on August 15th, the campaign action is starting to create political tension. The Senate Republican Leadership Fund, loosely associated with Senate Majority Leader Mitch McConnell (R-KY), launched an ad against Rep. Mo Brooks (R-Huntsville) accusing him of not supporting President Trump, which the ad copy says aligns him with House Minority Leader Nancy Pelosi and Sen. Elizabeth Warren (D-MA).

According to Alabama sources, Mr. Brooks has an unreleased internal poll that finds former state Supreme Court Chief Justice Roy Moore leading appointed Sen. Luther Strange, 31-23%, with Rep. Brooks in striking range at 21 percent. If no candidate receives an absolute majority in the special primary, the top two finishers will advance to a September 26th run-off vote. The special general election is scheduled for December 12th.

Missouri:  A new Remington Research poll (7/7-8; 928 MO registered voters) finds two-term Senator Claire McCaskill (D) in political trouble despite Rep. Ann Wagner (R-St. Louis County) deciding not to challenge her next year. According to the Remington data, US Reps. Blaine Luetkemeyer (R-St. Elizabeth/Jefferson City), Vicky Hartzler (R-Harrisonville/Columbia), and Jason Smith (R-Salem/Cape Girardeau) all lead the Senator from between four and seven points. Of the group, Rep. Hartzler appears most likely to run. State Treasurer Eric Schmitt, the only statewide elected official tested, is staked to a 49-45% edge when paired with Sen. McCaskill. Curiously, Attorney General Josh Hawley, the man most Republican leaders want to run including Vice President Mike Pence who placed a recruitment call to him this week, was not tested.

Virginia:  Republicans have their first announced US Senate candidate, as Prince William County Board chairman Corey Stewart fresh from an unexpectedly close loss in the Governor’s race, just declared his intention to challenge Sen. Tim Kaine (D) next year. Though Mr. Stewart may well capture the Republican nomination – former presidential candidate Carly Fiorina and radio talk show personality Laura Ingraham are less likely to enter the race the more time passes – he is unlikely to definitively press Sen. Kaine. Mr. Stewart’s ideological brand of campaigning, while salient for a Republican primary, probably will not sell in a state that has been decidedly trending toward the Democrats since the turn of the century.

West Virginia:  Attorney General Patrick Morrisey (R) announced his Senate candidacy this week and will face two-term Rep. Evan Jenkins (R-Huntington) in the GOP primary before one of the two challenges incumbent Sen. Joe Manchin (D). Mr. Morrisey immediately came out swinging against Rep. Jenkins, already running digital ads attempting to establish himself as part of President Trump’s team while his opponent is portrayed as being associated with Hillary Clinton.

The Morrisey ad is in reference to Mr. Jenkins only becoming a Republican in 2013, largely to run against Rep. Nick Rahall (D-Beckley) in the 2014 election, a campaign in which the former easily won. Jenkins opened himself up to such a comparison when he, in announcing for Senate, immediately attacked Sen. Manchin for twice supporting President Obama but neglected to say that he did so, as well, as a sitting Democratic member of the state legislature. The West Virginia campaign will feature both an intriguing Republican primary and general election contest.

House

CA-49:  Rep. Darrell Issa (R-Vista) was re-elected with 50.3% of the vote last November, the closest race in the United States between two contenders. Now, more Democrats are coming forth in hopes of knocking out 2016 nominee Doug Applegate, the retired Marine colonel who almost succeeded in unseating the veteran Congressman. Real estate investor Paul Kerr (D) joined the field of candidates this week, though he will likely trail both Applegate and attorney Mike Levin (D), who both declared for the seat months ago. Under the California primary law, the top two finishers, regardless of political party affiliation, advance to the general election. With three Democrats now in the race, Rep. Issa is virtually guaranteed to finish first as the lone Republican. He will be able to carry that momentum into the general election. This is likely a toss-up general election campaign.

FL-1:  Though Rep. Matt Gaetz (R-Ft. Walton Beach) just came to Congress in November, political speculation suggests that he is already looking to leave. The Congressman is said to be considering entering the open race for state Attorney General, something that Mr. Gaetz neither will confirm nor deny.

MN-8:  Rep. Rick Nolan (D-Crosby/Duluth) has survived two razor-thin elections in consecutive campaigns, but this time may face an opponent other than businessman Stewart Mills (R). St. Louis County Commissioner and former Hermantown City Councilman Pete Stauber (R) announced his congressional campaign this week, even while Mr. Mills maintains he may yet run for the third consecutive time. In any event, Rep. Nolan can expect another close re-election fight regardless of who may be his eventual opponent.

NV-3:  Former 4th District Rep. Cresent Hardy (R-Mesquite) confirms that he is considering hopping into the open swing 3rd District now that Rep. Jacky Rosen (D-Las Vegas) has declared for the Senate. Republican Party leaders may welcome Mr. Hardy into the 3rd CD, an individual with the capacity to deny businessman Danny Tarkanian the GOP nomination. As was the case in 2016 and in three other various elections, Mr. Tarkanian was able to win the Republican primary but could not secure the general election, losing to Ms. Rosen by one percentage point even while President Trump was carrying the 3rd District. Despite obviously never having represented anyone in the 3rd District, this new option may be a better one for Mr. Hardy than trying to re-capture his former seat in a district that leans more Democratic.

NV-4: Republican state Sen. Scott Hammond has already declared his intention to run in the 3rd District rumors persist that he might switch into the 4th CD if former Rep. Cresent Hardy (R-Mesquite) moves to CD-3. His current state Senate seat is almost fully contained in the 4th, so the run there makes more sense even if the seat is more Democratic. To complicate matters even more, Las Vegas City Councilman Stavros Anthony (R) also declared his 4th District candidacy. Should a primary transpire, the winner will face freshman Rep. Ruben Kihuen (D-Las Vegas) who unseated Rep. Hardy last November.

NM-2:  With Rep. Steve Pearce (R-Hobbs) jumping into the open Governor’s race, this southern New Mexico congressional district will host a competitive campaign. Last week, retired pharmaceutical company executive and US Army veteran Tony Martinez announced his candidacy, joining attorney David Baake, healthcare company executive Ron Fitzherbert, Coast Guard veteran Madeline Hildebrandt, and 2016 nominee Merrie Lee Soules in the race. On the heels of Rep. Pearce’s announcement, state Rep. Yvette Harrell (R-Alamogordo) quickly announced her congressional candidacy, becoming the first Republican to do so.

NC-3:  Rep. Walter Jones, Jr. (R-Farmville/Jacksonville) is no stranger to primary challenges, and he has drawn another one. His opposition to the House Republican leadership makes him a tempting target, but the challengers have never gained a deep foothold against him. Craven County Commissioner Scott Dacey became the latest Republican hopeful to declare a primary challenge to the twelve-term veteran Congressman. Despite being outspent in some of his primaries, Mr. Jones has normally won comfortable re-nomination election victories. His closest call was in 2014, when his win margin fell to only 51-45%. He rebounded to score 67% against the same primary opponent in 2016, however.

PA-16:  Non-profit organization executive Christina Hartman (D) is back for a re-match. She lost 54-43% to state Sen. Lloyd Smucker (R-Lancaster) last November, and the new Congressman should be well enough ensconced that he won’t have much trouble in dispensing with her again. Ms. Hartman did raise over $1 million for the 2016 race, and appears capable of being able to do more in this election. The redistricting lawsuit making its way to the state Supreme Court is looming large over all of the Pennsylvania congressional races. Should the Democrats win the lawsuit thus leading to a re-draw of many districts, the entire state political situation could turn into a free-for-all.

WV-2:  Democratic businesswoman and former political staff member Talley Sergent announced her congressional candidacy with the hope of challenging Rep. Alex Mooney (R-Charles Town) in the general election. Ms. Sergent boasts of her West Virginia roots and contrasts them to Rep. Mooney who moved to the state only in 2013, but she grew up in Huntington, which is in the adjacent 3rd CD. Currently, she lives in Charleston, which is in the 2nd District, but her hometown base to which she references is not.

Governor

Colorado:  US Rep. Ed Perlmutter (D-Golden) officially withdrew from the open Governor’s race earlier in the week, just three months after he announced his statewide candidacy. Reports coming from his campaign team say that the Congressman feels no “joy in campaigning” anymore, and will return to private life. Rep. Perlmutter reiterated that he will not seek re-election to his House seat, thus leaving this latter political position in open status. Without Perlmutter in the Governor’s race, US Rep. Jared Polis (B-Boulder), former state Treasurer Cary Kennedy, and businessmen Noel Ginsburg and Adam Garrity are the remaining Democrats. Regional District Attorney George Brauchler appears to be the top Republican candidate. Gov. John Hickenlooper (D) is ineligible to seek a third term.

Illinois:  Despite venture capitalist J.B. Pritzker (D) running a recent $8 million statewide media ad buy, a new Garin-Hart-Yang Research poll (6/26-29; 602 IL likely Democratic primary voters) finds businessman Chris Kennedy, son of former US Senator and Attorney General Robert F. Kennedy (D), still leading the Democratic gubernatorial primary. According to the GHY data, Kennedy maintains a 44-38% margin. Though the poll is much closer than previously released polling data has shown Mr. Kennedy has not yet made any serious expenditure. The primary winner faces Gov. Bruce Rauner (R) in what will likely be a wire-to-wire toss-up campaign.

New Mexico:  US Rep. Steve Pearce (R-Hobbs) this week announced that he will again leave the House to run statewide. In 2008, the Congressman vacated his district to run unsuccessfully for US Senate. He would return to Congress in 2010, taking out the House Democrat who succeeded him, one-term Rep. Harry Teague (D-Hobbs). After Rep. Pearce announced for Governor this week, an individual thought of as a potential opponent, Lt. Gov. John Sanchez (R), immediately endorsed Rep. Pearce and indicated that he is leaning toward challenging Sen. Martin Heinrich (D). Gov. Susana Martinez in ineligible to seek a third term. The leading Democratic candidate is Rep. Michelle Lujan Grisham (D-Albuquerque).

South Carolina:  Kevin Bryant (R), who the legislature elected as Lt. Governor to succeed Henry McMaster (R) when the latter ascended to the Governorship after incumbent Nikki Haley (R) was appointed Ambassador to the United Nations, confirms that he is considering challenging the new Governor in next year’s GOP primary. In the Republican race are former state Labor Secretary Catherine Templeton and ex-Lt. Gov. Yancey McGill. Gov. McMaster is expected to run for a full term.

Wisconsin:  Gov. Scott Walker (R) drew his first potential Democratic opponent during the week, and another is considering joining the fray. Businessman Andy Gronik (D) declared his candidacy, and then sent conflicting messages as to whether he would self-fund his campaign effort. Mahlon Mitchell, the president of the Professional Fire Fighters of Wisconsin association and a former Lt. Governor candidate, said he, too, is considering entering the Governor’s race. Gov. Scott Walker (R) is expected to seek a third term, and will be favored to win again.