February 2, 2018
Court rules that CFPB is constitutional, but wrong on RESPA — The U.S. District Court of Appeals for the District of Columbia issued its much-anticipated en banc opinion in PHH Corporation v. Consumer Financial Protection Bureau on Wednesday, and both sides were able to claim victory. The court ruled that the structure of the CFPB as an independent agency headed by a director serving a five-year term is constitutional, following the 80-year-old precedent of the Federal Trade Commission. The court also ruled, however, that the CFPB’s interpretation of the Real Estate Settlement Procedures Act (RESPA) was incorrect as it applied to PHH’s mortgage insurance and reinsurance transactions.
House approves five financial services bills — This week the House of Representatives passed five bipartisan pieces of legislation to increase access to financial services and reduce unnecessary regulatory burden. H.R. 1457, the Making Online Banking Initiation Legal and Easy (MOBILE) Act, would allow financial institutions to use scanned identification to open accounts for customers online; it passed by a vote of 397-8. H.R. 1426, the Federal Savings Association Charter Flexibility Act, passed by voice vote; it would allow federal savings associations to convert to national banks. H.R. 2255, the Housing Opportunities Made Easier (HOME) Act, would allow for the donation of mortgage appraisal services to nonprofit organizations, and protect whistleblowers in cases of suspected elder abuse; it too passed by voice vote. H.R. 4292, which passed unanimously, would streamline the “living will” requirements for bank holding companies. H.R. 4792, the Small Business Access to Capital After a Natural Disaster Act, would grant small businesses affected by natural disasters the same preferential treatment the Securities Exchange Act provides for women- and minority-owned small businesses; it passed by voice vote as well.
CFPB’s fair lending office loses enforcement authority — The Washington Post reported this week that that the Consumer Financial Protection Bureau (CFPB) is moving its Office of Fair Lending and Equal Opportunity into the director’s office, where it will no longer be responsible for enforcement or day-to-day oversight. Instead, according to an internal agency memo, the Office of Fair Lending and Equal Opportunity will focus on “advocacy, coordination, and education.”
CFPB seeks comment on administrative adjudications — Separately, the CFPB issued a request for information (RFI) about “the benefits and impacts of its use of administrative adjudications, and how its existing process may be improved.” The CFPB has initiated eight administrative adjudication proceedings that were not immediately resolved by consent orders; of these, six were settled, one is pending, and one resulted in a final decision. Comments are due to the CFPB sixty days after the RFI’s publication in the Federal Register, which is expected early next week.
House panel begins fintech hearings — The House Financial Services Subcommittee on Financial Institutions and Consumer Credit began what Chairman Blaine Luetkemeyer (R-MO) said will be a series of hearings on fintech and its regulatory environment on Tuesday. Witnesses representing the industry and academic experts agreed on the need to modernize the legal framework for online lenders, citing the UK as the leader in the field. Nathaniel Hoopes, executive director of the Marketplace Lending Association, said that the Committee should support chartering opportunities for fintech firms, such as the OCC’s proposed fintech charter and the ILC charter.
Bipartisan Policy Center discusses findings on Main Street Finance Challenges — At a roundtable Tuesday on how the financial system can better serve Main Street, members of the Bipartisan Policy Center’s task force, led by former Small Business Administration Administrator Karen Mills, former Senator Olympia Snowe (R-ME), former First Merit CEO Paul Greig, and entrepreneur Mark Walsh, discussed the findings of last December’s report. Rep. Blaine Luetkemeyer (R-MO), Chairman of the House Financial Services Subcommittee on Financial Institutions and Consumer Credit, pointed to overly burdensome regulations on community banks as one factor reducing access to bank credit. Senator Jeanne Shaheen (D-NH), ranking member of the Senate Committee on Small Business, noted that lack of connectivity to high-speed internet limits many small businesses’ access to fintech. The task force is actively soliciting information and suggestions for a report on the subject to be published this summer.
Dodd-Frank reform will benefit foreign banks, nonbanks, Mnuchin says — Replying to questions from ranking member Senator Sherrod Brown (D-OH) at Tuesday’s Senate Banking Committee hearing, Treasury Secretary Steven Mnuchin acknowledged that S. 2155, Chairman Mike Crapo’s bill to roll back certain provisions of Dodd-Frank, would effectively exempt foreign banks and nonbanks from supervision by the Financial Stability Oversight Council. Foreign banks with US assets of less than $250 billion would benefit from the same regulatory relief provisions as US banks of that size, regardless of the size of their parent institutions.
Law enforcement, regulators need more tools to fight trafficking — It is still too easy for human trafficking operations to access payment services through U.S. financial institutions, witnesses told the House Financial Services Subcommittee on Oversight and Investigations on Tuesday. While companies such as Western Union, PayPal, and Venmo have been “immensely helpful” to investigators, New York District Attorney Cyrus Vance said, criminals have turned to gift cards and cryptocurrencies to pay for illicit activities. While banks do a good job of flagging suspicious transactions, witnesses noted that this approach is reactive rather than proactive. Passage of the Corporate Transparency Act, witnesses said, would help identify beneficial ownership.
Hatch warns NCUA on field of membership — Senator Orrin Hatch (R-UT), chairman of the Senate Finance Committee, wrote to the Chairman of the National Credit Union Administration (NCUA) on Wednesday to express his concern “that the credit union industry is evolving in ways that take many credit unions further from their original tax-exempt purpose.” The tax exemption, he noted, is based on the requirement that credit union members share a common bond, which has been “significantly watered down through regulatory interpretations and a dearth of enforcement.” He asked Chairman Mark McWatters to respond by April 6 with information about how the agency verifies the existence of a common bond, and what charter applications have been rejected as too broad.
Powell takes office at Fed, Yellen moves to Brookings — Jerome H. Powell takes over as 16th Chairman of the Federal Reserve System tomorrow, and will be sworn in officially on Monday. The departing chair, Janet Yellen, announced this week that she will join the Brookings Institution’s Hutchins Center on Fiscal and Monetary Policy. Former Fed chairman Ben Bernanke is also a distinguished fellow of the Hutchins Center.
SEC Commissioners staff up — New Securities and Exchange Commissioners Hester Peirce and Robert Jackson have hired staff assistants from within and outside the agency. Commissioner Jackson has recruited attorney Satyam Khanna from the Financial Stability Oversight Council and accountant Marc Francis, who was research coordinator at NYU’s Institute for Corporate Governance and Finance. From within the SEC, he has hired Caroline Crenshaw, who had worked in Commissioner Kara Stein’s office; Prashant Yerramalli, who had worked in the SEC’s asset management unit in New York; and Matt Cain of the SEC’s division of economic and risk analysis. Commissioner Peirce has hired Adam Glazer, who worked for Commissioner Michael Piwowar; Jonathan Carr, of the agency’s enforcement division; and Richard Gabbert, previously with the trading and markets division.
FHFA publishes five-year strategic plan — While the safety and soundness of the Federal Home Loan Bank System will be the agency’s primary strategic goal, the Federal Housing Finance Administration (FHFA) plans to build a new single-family securitization infrastructure within the next five years, with an emphasis on finding ways to bring additional private capital into the system. The FHFA published its strategic plan for 2017-2022 this week, laying out performance metrics for its three strategic goals: ensuring safety and soundness in its regulatory entities; ensuring liquidity, stability and access in housing finance; and managing the ongoing conservatorships, including the construction of a new infrastructure for securitization. The Common Securitization Platform must be “adaptable for use by additional market participants,” the FHFA says.
Next Week in Washington:
February 5 House Committee on Rules will meet to consider the rules on H.R. 1153, the Mortgage Choice Act of 2017, and H.R. 4771, the Small Bank Holding Company Relief Act of 2018. 5:00 p.m., H-313 The Capitol.
February 6 House Committee on Financial Services holds a hearing on “The Annual Report of the Financial Stability Oversight Council.” Secretary of the Treasury Steven T. Mnuchin will be the only witness. 10:00 a.m., 2128 Rayburn House Office Building.
February 6 Senate Committee on Banking, Housing, and Urban Affairs holds a hearing on “Virtual Currencies: The Oversight Role of the Securities and Exchange Commission and the Commodity Futures Trading Commission.” SEC Chairman Jay Clayton and CFTC Chairman J. Christopher Giancarlo will testify. 10:00 a.m., SD-538 Dirksen Senate Office Building.
February 6 Senate Committee on the Judiciary holds a hearing on “Beneficial Ownership: Fighting Illicit International Financial Networks through Transparency.” 10:00 a.m., SD-226 Dirksen Senate Office Building.
February 6 Senate Health, Education, Labor & Pensions Subcommittee on Primary Health and Retirement Security holds a hearing on “Exploring the ‘Gig Economy’ and the Future of Retirement Savings.” 2:30 p.m., SD-430 Dirksen Senate Office Building.
The Ellis Insight. Jim Ellis reports on political news:
New Jersey: After seeing a hung jury result in Sen. Bob Menendez’s (D) bribery trial, the US Justice Department originally announced that they would push forward with further court proceedings but have now reversed course. The new judge dismissing 40% of the pending charges apparently gutted the government’s case on the remaining indictments. In the meantime, wealthy Republican pharmaceutical CEO Bob Hugin continues to move closer toward entering the race giving the GOP what appears to be a viable candidacy. Whether the Menendez legal situation now turning in his favor changes Mr. Hugin’s desire to run remains to be seen.
Tennessee: The Tennessee Star online publication conducted a Triton Research poll for the impending Volunteer State US Senate campaign (1/21-24; 1,003 TN likely general election voters) and found Rep. Marsha Blackburn (R-Brentwood) jumping out to a lead beyond the margin of polling error when paired with former Gov. Phil Bredesen (D). The results found Ms. Blackburn holding a strong 50-39% advantage, but the partisan division within the sampling universe skews Republican. When former Rep. Stephen Fincher (R-Crockett County) was paired with Mr. Bredesen, it was the Democrat who led 41-38%. Considering the polling skew, the former Governor’s edge over Mr. Fincher is likely several points greater.
Utah: Former presidential nominee and ex-Massachusetts Governor Mitt Romney (R) has scheduled an announcement in Salt Lake City for February 15th. It is highly likely that he will be declaring his candidacy for retiring Sen. Orrin Hatch’s (R) seat. Mr. Romney will immediately become the prohibitive favorite to capture the seat, and it’s unlikely he will draw major opposition.
AL-5: With Alabama’s candidate filing deadline fast approaching on February 9th, state Sen. Bill Holtzclaw (R-Madison), who months ago declared a challenge to Rep. Mo Brooks (R-Huntsville), announced at the end of last week that he will discontinue his primary challenge campaign. This leaves businessman Clayton Hinchman as the only Republican candidate organizing to challenge the four-term Congressman. Mr. Hinchman has proven himself the better challenger candidate, but he, too, is a major underdog to the current incumbent.
FL-5: Freshman Rep. Al Lawson (D-Tallahassee) has drawn a Democratic primary challenge, ironically a day after the incumbent Lawson himself unseated two years ago, former Rep. Corrine Brown (D-Jacksonville), reported to prison to begin her sentence for public corruption. Now, former Jacksonville Mayor Alvin Brown made public his intention to challenge Mr. Lawson for re-nomination. The race will again pit the district’s anchor population centers and political bases, Tallahassee and Jacksonville, against each other. The Florida primary is not until August 28th, so this budding primary campaign will consume many months.
IL-4: The Garin-Hart-Yang Research firm released results of their latest poll in this Democratic primary campaign (1/18-21; 400 IL-4 likely Democratic primary voters) and finds Cook County Commissioner Jesus “Chuy” Garcia leading Chicago Alderman Joe Moreno and non-profit executive Sol Flores, 59-8-6%, respectively. After the release, Mr. Moreno decided to end his campaign, virtually conceding the primary nomination to Mr. Garcia. Since, IL-4 is a safely Democratic seat, it appears that he is the Congressman-in-waiting.
MA-3: With already a dozen Democrats vying to replace retiring Rep. Niki Tsongas (D-Lowell), the field shrunk by a candidate this week. Former Cambridge City Councilman Nadeem Mazen (D) decided to end his congressional campaign. His move entering this particular race never made much sense. Mr. Mazen is from a city that is nowhere near the 3rd District, forcing him to compete with more than ten others who at least live in the central population area. The Massachusetts primary is not scheduled until September 4th, so this nomination campaign is merely beginning.
MA-7: Boston at-large City Councilwoman Ayanna Pressley, the first woman of color to win election to the municipal panel, announced a Democratic primary challenge to 10-term veteran Rep. Mike Capuano (D-Somerville). Ms. Pressley was first elected in 2009, and won re-election in 2013 with more votes than anyone else on the ballot for the city position. The 7th District encompasses a large portion of Boston city, with parts of Cambridge, the towns of Somerville, Everett, and Chelsea, and then stretches beyond South Boston to the town of Randolph. The stage is set for an interesting primary.
NJ-11: House Appropriations Committee chairman Rodney Frelinghuysen (R-Morristown) announced this week that he would not seek re-election to a 13th term in the House, thus bringing his 24 year congressional career to an end once the current Congress adjourns. The Congressman’s father, Peter Frelinghuysen, served for 18 years in the House and represented a similar northern New Jersey constituency.
New Jersey’s 11th District was designed to be a safely Republican district, but the electorate has been changing over the last few elections. President Trump carried the 11th by only one percentage point (49-48%), but lost the state, 41-55%. Four years earlier, Mitt Romney won the seat by a close, but more substantial, 52-47%. In the battle to originally challenge Rep. Frelinghuysen, two Democrats have already obtained major funding. Mikie Sherrill, former federal prosecutor and the Democratic establishment’s choice, amassed more than $820,000 in her campaign account through September, while businesswoman Tamara Harris had just under $450,000 in spendable funds. But the two will have to spend a substantial amount of their political capital to win the June Democratic primary.
GOP Assemblyman and former New Jersey Republican Party chairman Jay Webber is moving toward running, among others, so we can expect a hotly contested general election from this region that normally supports the GOP candidate.
Pennsylvania: The state Supreme Court this week struck down the Pennsylvania congressional lines as a political gerrymander under the Pennsylvania Constitution by a 4-3 vote. They have ordered the map re-drawn and enacted by February 15th. But state Senate President Pro Tempore Joe Scarnati (R-Brockway/Wellsboro) says the body will not comply with the order to provide the court with requested data information because the Justices did not state the specific constitutional violations that invalidated the map. US Supreme Court Justice Samuel Alito, who has jurisdiction to review petitions from Pennsylvania and several other Mid-Atlantic states, has not rejected a Republican motion to ask the high court to intervene. Therefore, things will get very interesting here is a short amount of time. The contentious issue is highly important to both parties.
PA-1: Veteran US Rep. Bob Brady (D-Philadelphia) announced his retirement this week, becoming the 16th House Democrat to do so. The Congressman has been facing a legal situation from actions involving paying a previous Brady opponent to exit the race. Several of the Congressman’s campaign staff members have already accepted plea bargain agreements. Democrats will keep the 1st District, but the uncertain redistricting situation could change this seat now that there is no incumbent running.
SC-4: On the same day as Pennsylvania Rep. Bob Brady (D-Philadelphia) announced his retirement, four-term South Carolina Rep. Trey Gowdy (R-Spartanburg) also did so. Mr. Gowdy becomes the 53rd House member to not seek re-election, and the 37th Republican. He is also now the ninth standing committee chairman to publicly declare he will not be returning to the House. Mr. Gowdy is in his first term as Government Reform & Oversight committee chairman. Republicans will keep the northwestern South Carolina district, but we are sure to see a run-off campaign result from what will surely be a crowded Republican primary field.
UT-4: A new Dan Jones & Associates survey (1/15-22; 400 UT-4 registered voters) provides more evidence that Rep. Mia Love (R-Saratoga Springs) has a re-election fight on her hands. According to the Jones’ organization, Rep. Love would hold only a 47-42% advantage over Salt Lake County Mayor Ben McAdams (D). A similar poll taken three months ago, also from DJ & A, found an almost identical 48-42% split.
Alabama: Following Agriculture Commissioner John McMillan’s lead from earlier this month, state Auditor Jim Ziegler (R) announced that he, too, would end his gubernatorial campaign. Mr. McMillan made public statements as early as last May that he would run for Governor, but reversed course in early January only to re-surface in the state Treasurer’s race. Mr. Ziegler’s future plans are not clear, but the Governor’s campaign is coming down to a battle against an interim incumbent who is demonstrating political prowess.
The Ziegler decision is a boon to new Gov. Kay Ivey (R), but she is not yet home free for the Republican nomination. Still in the race is Huntsville Mayor Tommy Battle and state Sen. Bill Hightower (R-Mobile). The Democrats are fielding Tuscaloosa Mayor Walt Maddox and former state Supreme Court Chief Justice Sue Bell Cobb. The state primary is June 5th, with a run-off scheduled for July 17th if no candidate receives an absolute majority in their respective party nomination elections.
Colorado: Hampered by poor fundraising receipts, former US Representative, gubernatorial, and presidential candidate Tom Tancredo (R) announced this week that he is ending his 2018 open seat campaign for the Centennial State’s top political position. Mr. Tancredo was also faring poorly in hypothetical general election pairings with Rep. Jared Polis (D-Boulder), commonly viewed as the Democratic front-runner. Remaining in the GOP race are Attorney General Cynthia Coffman and state Treasurer Walker Stephenson, among many others. Gov. John Hickenlooper (D) is ineligible to seek a third term.
Ohio: A new Buckeye State survey just produced some surprising results. According to Fallon Research, polling for Ohio’s 1984 Society, Attorney General and former US Senator Mike DeWine (R) would open the general election with a huge lead over former Consumer Protection Financial Bureau director and ex-Ohio Attorney General Richard Cordray (D). Fallon projects, in a survey that looks to have a reasonable reliability factor, that DeWine holds a whopping 49-28% advantage over Cordray, a highly unexpected margin at this early juncture in the campaign cycle.
But Public Policy Polling (1/22-23; 585 OH registered voters), conducting a survey for the Ohio Democratic Party, finds DeWine’s lead not 19, but a scant one percentage point, 45-44%. DeWine’s lead expands to 48-37% in this poll if his general election opponent were former US Representative and Cleveland Mayor Dennis Kucinich (D).
Minnesota: Former Minnesota Gov. Tim Pawlenty (R) earlier declined to enter the special US Senate race later this year, but apparently he could still be on the ballot. Looking at the rather weak field of Republican candidates lining up for the open Governor’s race, Mr. Pawlenty has called a February 12th meeting of his key political supporters. The discussion topic is apparently about the former Governor launching a return campaign this year. If he were to enter the race, Mr. Pawlenty would immediately become the Republican front-runner. The general election would be highly competitive, but the ex-Governor carried the state twice. Democrats are fielding six candidates who are currently battling for the party nomination.
Tennessee: The aforementioned Tennessee Star poll (see Tennessee Senate above) also tested the open gubernatorial race. In this polling exercise, former Nashville Mayor Karl Dean was the only Democrat tested against the Republican field. Again understanding that a slight Republican skew exists within this particular respondent group, Mr. Dean loses to every GOP candidate who is still actively running.
Against US Rep. Diane Black (R-Gallatin), Mr. Dean trails, 46-35%. If state House Speaker Beth Harwell were the Republican nominee, the GOP margin would be 42-32%. The spread is 43-34% against entrepreneur Randy Boyd, while state Higher Education Commissioner Bill Lee outpaces Mr. Dean by only four points, 38-34%. Former state Sen. Mae Beavers (R-Juliet) was included in the poll, but has since announced that she is suspending further efforts for the party nomination. In her pairing, she and Mr. Dean were tied with 36% apiece.