February 9, 2018

February 9, 2018

While you were (probably) sleeping — The federal government shut down at 12:01 this morning, after an extended protest by Senator Rand Paul (R-KY) against a compromise bill that would increase federal government spending by approximately $300 billion. The Senate did finally pass that bill just before 2:00 a.m., and the House approved it at 5:30. Among other provisions, the bill suspends the debt limit for about a year; extends the Children’s Health Insurance Program for another four years; provides $84 billion in disaster relief for victims of hurricanes and wildfires; and extends several expired tax provisions. It did not include language to address the Deferred Action for Childhood Arrivals (DACA) program, as House Minority Leader Nancy Pelosi (D-CA) had demanded. President Trump signed the bill into law this morning.

Dodd-Frank risk retention rule doesn’t apply to CLO managers, court rules — The U.S. Court of Appeals for the District of Columbia ruled today that firms that serve as investment managers of collateralized loan obligations (CLOs) are not subject to the risk retention requirements established by Dodd-Frank. The court agreed with the Loan Syndications and Trading Association’s assertion that “given the nature of the transactions performed by CLO managers, the language of the statute . . . does not encompass their activities.” The LSTA had asked the court to review the SEC’s rule in 2016, but the court transferred the suit to the U.S. District Court, which upheld the SEC’s treatment of CLOs as “securitizers.” The Appeals Court agreed that CLOs are not securitizers, so managers need not retain any credit risk.

House approves Mortgage Choice Act — The House voted yesterday to approve H.R. 1153, the Mortgage Choice Act of 2017, introduced by Rep. Bill Huizenga (R-MI). The bill clarifies that neither escrow charges for insurance nor affiliated title charges will count toward “points and fees” for the purpose of determining whether a loan is a “high-cost mortgage.” House Financial Services Committee Chairman said the bill was necessary to correct the CFPB’s “flawed and problematic definition that grossly miscalculates points and fees.”

No systemic risk to exempting ILC owners from Volcker Rule, Mnuchin says — Appearing before the House Financial Services Committee on Tuesday, Secretary of the Treasury Steven Mnuchin said that exempting nonbanks that own industrial loan companies from the Volcker Rule would pose no systemic risk. Mnuchin voiced support for Rep. French Hill’s bill, H.R. 4790, which would give the Federal Reserve sole rulemaking authority over the Volcker Rule, and exempt banks with assets of less than $10 billion. Mnuchin also said that Treasury would soon be releasing a report and recommendations for changes to the orderly liquidation authority (OLA) established by Dodd-Frank.

FinCEN rule on beneficial ownership is not enough, says DOJ — The Senate Judiciary Committee heard testimony on Tuesday from representatives of the Department of Justice and the private sector about whether and how collecting information about beneficial ownership can help fight money laundering and the financing of illicit activities. Kendal Day, appearing for the Department of Justice, said that the FinCEN rule taking effect on May 11, which requires financial institutions to identify the natural people owning 25% or more of the equity interest in a company or property, does not go far enough, because it does not require information about incorporation. As other countries implement their own beneficial ownership regimes, Day said, the US risks becoming a haven for criminals. Brian O’Shea, testifying for the U.S. Chamber of Commerce, said that the bipartisan TITLE Act co-sponsored by Senators Sheldon Whitehouse (D-OH), Dianne Feinstein (D-CA), and Charles Grassley (R-IA) would impose unacceptable burdens on small business, and raise serious privacy concerns.

Senate panel discusses new retirement strategies for the gig economy — As more and more Americans turn to temporary work and self-employment, the structure and incentives for retirement savings need to change, witnesses told the Senate HELP Subcommittee on Primary Health and Retirement Security on Tuesday. Expanding the availability of open multiple employer plans (MEPs) would make it easier for workers to find suitable retirement programs, witnesses said. Single participant retirement plans (“solo (k)s”) are an attractive option that may not get as much attention as IRAs, the panel heard, and Social Security needs to be modernized and expanded to keep up with changes in employment structures.

CFPB seeks comment on enforcement processes — As expected, the Consumer Financial Protection Bureau (CFPB) issued a Request for Information (RFI) this week about the efficiency and effectiveness of its enforcement processes. The CFPB asks for specific feedback about enforcement processes that should be changed, and processes that should not be changed. Areas to be considered include how the Bureau communicates with the subjects of its investigations, the length of these investigations, the way institutions and individuals are allowed to respond, the method of calculating civil money penalties, the standards for consent orders, and the way the Bureau coordinates with other regulators. Comments are due to the Bureau by mid-April.

SEC announces examination priorities for 2018 — Critical market infrastructure tops the Securities and Exchange Commission’s examinations priorities for this year, the agency announced this week. The agency will examine “clearing agencies, national securities exchanges, and transfer agents, focusing on certain aspects of their operations and compliance with recently effective rules.” Other priorities for 2018 include retail investors, including seniors and retirement savers, with particular attention to cryptocurrencies and ICOs; FINRA and MSRB; cybersecurity, including data loss prevention and vendor management; and anti-money laundering programs.

Rettig named to head IRS — President Trump announced yesterday that he will nominate California tax attorney Charles P. “Chuck” Rettig to serve the remainder of the unexpired term as Commissioner of the Internal Revenue Service. Rettig chaired the IRS Advisory Council, and has served for almost 20 years as a member of the Advisory Board of the California Franchise Tax Board. He is also a former chair of the taxation section of the California Bar Association, and serves as vice chair for administration of the American Bar Association’s taxation section. He holds an LL.M. in taxation from the School of Law at New York University, a J.D. from Pepperdine University, and a bachelor’s degree from UCLA.

Senate Banking confirms McWilliams, Goodfriend, Workman — The Senate Committee on Banking, Housing, and Urban Affairs voted yesterday on the nominations of Jelena McWilliams to chair the Federal Deposit Insurance Corporation (FDIC), Marvin Goodfriend to serve as a Governor of the Federal Reserve System, and Thomas Workman to represent insurance regulators on the Financial Stability Oversight Council (FSOC). McWilliams’ nomination passed by voice vote, with Senator Elizabeth Warren (D-MA) asking that her vote be recorded as “no.” Workman’s nomination passed by unanimous voice vote. Goodfriend’s nomination passed on a party line vote of 13-12, raising doubts about whether the nomination will succeed on the Senate floor unless Senators John McCain (R-AZ) and Thad Cochran (R-MS) are present to vote.

Garrett will go to SEC — The Wall Street Journal reported Wednesday that former U.S. Rep. Scott Garrett (R-NJ), whose nomination to head the Export-Import Bank was rejected by the Senate, is joining the SEC as an advisor to Chairman Jay Clayton. Garrett had chaired the House Financial Services Subcommittee on Capital Markets and Government Sponsored Enterprises; an attorney by training, he served six terms in the New Jersey General Assembly before being elected to Congress in 2002.

Rabobank pleads guilty in money-laundering case, agrees to $369 million in fines — Rabobank N.A., a California-based subsidiary of the Dutch bank holding company, pleaded guilty to one charge of obstructing regulators this week, avoiding a formal admission of illegal money-laundering activities. Rabobank forfeited $369 million, which includes $360 million in illicit transactions across the U.S.-Mexico border. Rabobank Group’s chairman, Wiebe Draijer, said that “The violations that took place are serious, regrettable and unacceptable.”

Next Week in Washington:

February 13  House Committee on Rules meets to consider several bills, including H.R. 3978, the TRID Improvement Act of 2017, which also now includes the texts of H.R. 1645, the Fostering Innovation Act of 2017; H.R. 4546, the National Securities Exchange Regulatory Parity Act; H.R. 3948, the Protection of Source Code Act; H.R. 2948, to provide a temporary license for loan originators transitioning between employers; and H.R. 4061, the Financial Stability Oversight Improvement Act of 2017. The Committee will also discuss H.R. 3299, the Protecting Consumers’ Access to Credit Act of 2017. 5:00 p.m., H-313 The Capitol.

February 14  House Financial Services Subcommittee on Financial Institutions and Consumer Credit holds a hearing on “Examining the Current Data Security and Breach Notification Regulatory Regime.” 10:00 a.m., 2128 Rayburn House Office Building.

February 14  House Science, Space, and Technology Subcommittees on Oversight and Research & Technology hold a joint hearing on “Beyond Bitcoin: Emerging Applications for Blockchain Technology.” 10:00 a.m., 2318 Rayburn House Office Building.

February 14  Senate Committee on Finance receives testimony from Secretary of the Treasury Steven T. Mnuchin on the President’s Fiscal Year 2019 Budget. 10:30 a.m., SD-215 Dirksen Senate Office Building.

February 14  House Committee on Small Business will hold a hearing on “Job Creation, Competition, and Small Business’s Role in the U.S. Economy,” featuring a discussion of new research conducted by Goldman Sachs on the effect of access to capital on small firms’ growth and expansion. 11:00 a.m., 2360 Rayburn House Office Building.

February 14  House Financial Services Subcommittee on Capital Markets, Securities, and Investment holds a hearing on “Legislative Proposals Regarding Derivatives.” 2:00 p.m., 2128 Rayburn House Office Building.

February 14  Senate Finance Committee hears testimony from The Honorable David J. Kautter, Acting Commissioner of the Internal Revenue Service and Assistant Secretary of the Treasury for Tax Policy, on the President’s Budget for FY2019. 2:30 p.m, SD-215 Dirksen Senate Office Building.

February 15  Senate Finance Committee hears testimony from Secretary of Health and Human Services Alex M. Azar II on the President’s Budget for FY2019. 9:00 a.m., SD-215 Dirksen Senate Office Building.

February 15  House Committee on Ways and Means receives testimony from Secretary of the Treasury Steven T. Mnuchin on the President’s FY2019 Budget Proposals. 10:00 a.m., 1100 Longworth House Office Building.

February 15  House Financial Services Subcommittee on Financial Institutions and Consumer Credit holds a hearing on “Examining De-risking and its Effect on Access to Financial Services.” 10:00 a.m., 2128 Rayburn House Office Building.

February 15  House Financial Services Subcommittee on Terrorism and Illicit Finance holds a hearing on “Exploring the Financial Nexus of Terrorism, Drug Trafficking, and Organized Crime.” 2:00 p.m., 2128 Rayburn House Office Building.

February 16  House Financial Services Subcommittee on Monetary Policy and Trade holds a hearing on “Evaluating CFIUS: Administration Perspectives.” 9:00 a.m., 2128 Rayburn House Office Building.

The Ellis Insight. Jim Ellis reports on political news:

Senate

Florida:  A trio of polls was released during the week, all showing a close contest between incumbent Sen. Bill Nelson (D) and Gov. Rick Scott (R). Florida Atlantic University (2/1-4; 750 FL registered voters; 375 on-line; 375 via automated telephone system) surprisingly finds Gov. Scott leading Sen. Nelson by ten percentage points, 44-34%, but this result seems unsubstantiated. The University of North Florida’s survey (1/29-2/4; 619 FL registered voters via live telephone interview) draws almost the opposite conclusion in finding Sen. Nelson ahead, 48-42%. Mason-Dixon Polling & Strategy (1/30-2/1; 625 FL registered voters) places the two in a virtual dead heat, 45-44% in Nelson’s favor. Gov. Scott has not yet announced his candidacy, but it is clear that he will enter the race. This could become the nation’s premier Senate race.

House

AL-2:  One-term Democratic US Rep. Bobby Bright, also a former Mayor of Montgomery, announced yesterday that he will challenge the woman who unseated him eight years ago, Rep. Martha Roby (R-Montgomery). This time, however, the two will do battle in the Republican primary. Mr. Bright, who had been an Independent prior to becoming a Democratic congressional candidate in 2008, has now switched to the Republicans as he attempts to make a political comeback eight years since his defeat for re-election. The state primary is June 5th. If no candidate secures a majority vote, the top two finishers will run-off on July 17th. The seat will remain Republican.

AZ-8:  OH Predictive Insights again went into the field in Arizona, this time testing the AZ-8 special election. The poll (1/29; 400 AZ-8 likely Republican special primary election voters) finds the race largely developing into a two-way contest. According to the results, state Senate President Pro Tempore Debbie Lesko (R-Peoria) and state Senator Steve Montenegro (R-Litchfield Park) are tied at 21% apiece. Former state Rep. Phil Lovas places third with 12%, followed by former state Corporation Commissioner Bob Stump at 10 percent. The special primary election is February 27th, with the related general vote scheduled for April 24th. Republicans are heavy favorites to retain the seat.

HI-1:  Several weeks ago, Attorney General Doug Chin announced that he would enter the open 1stDistrict Democratic primary and that he would resign his appointed position in March. Now, he accepts the Lt. Governor’s appointment since incumbent Shan Tsutsui (D) resigned to take a position in the private sector. But, Mr. Chin will only serve on an interim basis and continue in his campaign for Congress. Gov. David Ige (D) first offered the Lt. Governor’s office to both state Senate President Ron Kouchi (D), and then state House Speaker Scott Saiki (D) but each declined to accept.

MN-1:  Though Minnesota is not technically a convention state, most candidates abide by the pre-primary delegate endorsement process. State Sen. Carla Nelson (R-Rochester) said yesterday, however, that she will take the campaign to a primary regardless of the convention outcome. The action suggests she believes the party regulars will back 2016 nominee Jim Hagedorn, who scored 49.7% of the vote against Rep. Tim Walz (D-Mankato). The state conventions will occur in June. Any succeeding primary campaign will be decided on August 14th.

NE-2:  Democrat Brad Ashford was elected to the US House in 2014, but Republican Don Bacon (R-Papillion) ousted him two years later. This year, Mr. Ashford is attempting his own political comeback. But, him winning the Democratic nomination may be more difficult that first thought. Non-profit executive Kara Eastman is showing some political strength. This week she received endorsements from Omaha City Council President Ben Gray and Douglas County Democratic County chair Crystal Rhodes, who is also a Nebraska Public Service Commissioner. The Nebraska primary is May 15th, and this one may be one to watch.

NJ-11:  Assemblyman Jay Webber (R-Parsippany) announced his congressional candidacy this week, in the seat from which House Appropriations Committee chairman Rodney Frelinghuysen (R-Morristown) is retiring. Mr. Webber is quickly rounding up key party endorsements and support to the point that state Sen. Joe Pennacchio (R-Montville) was forced to the political sidelines. Now, it remains unclear as to whether state Assemblyman Tony Bucco (R-Randolph) will enter the race. Late this week, rumors were beginning to swirl that former New York Jets’ Center Nick Mangold was about to become an 11th District candidate, but then he quickly announced that he would not run. Democrats feature two candidates who have done well on the fundraising circuit: attorney Mikie Sherrill and businesswoman Tamara Harris.

NY-19:  Television actress Diane Neal, best known for her recurring appearances on the “Law & Order: Special Victims Unit” program, announced that she will challenge freshman Rep. John Faso (R-Kinderhook) this year, but not as a Democrat. With already six Democrats in the race for the party nomination, Ms. Neal says she will run as an Independent, and could certainly compete for one of the many party ballot lines that New York features. The move could actually help Rep. Faso. Because Ms. Neal comes from the left of the ideological spectrum; therefore, a potential three-way race would likely split some of the liberal/libertarian/anti-Faso vote, which could allow him to win re-election with only a plurality.

NC-10:  Chief Deputy Majority Whip Patrick McHenry (R-Lake Norman) is no stranger to repelling Republican primary challenges. He has defended himself in three consecutive primaries, and will do so again this May. Anti-Trump activist Gina Collias announced her candidacy this week, joining two other Republicans as intra-party challengers to the veteran Congressman. With a total of three Republicans on the ballot, Rep. McHenry should have an easy run for re-nomination. Under North Carolina election law, a candidate is nominated once he or she reaches just 40% of the vote in the first nomination election. The Tar Heel State primary is May 8th. If a run-off becomes necessary, it will occur on July 18th.

Pennsylvania: With Democratic Gov. Tom Wolf pledging to veto whatever the legislature presents to comply with the state Supreme Court striking down the PA congressional map as a political gerrymander, while the Justices already appointed a special master from Stanford University to draw the map, it appears the judiciary is successfully usurping the legislature’s redistricting role.

Considering the state Supreme Court’s action, majority state House Republicans may soon be considering a motion to impeach some of the Justices. Sponsoring state Rep. Cris Dush (R-Punxsutawney) says the court’s redistricting ruling violates specific state constitutional articles relating to separation of powers among the judicial, executive, and legislative branches of the Pennsylvania state government. Since impeachment only requires a majority vote in the House to move to a Senate trial, this move appears more than symbolic.

TN-1:  While nine standing committee chairman are not seeking re-election to the House this year, one who will is Tennessee Rep. Phil Roe (R-Johnson City), chairman of the Veterans Affairs Committee. Mr. Roe had been on retirement watch because he originally promised to limit himself to ten years in office, which will occur at the end of the present term. Yesterday, the veteran lawmaker confirmed, however, that he will seek a sixth term and is in strong political position. His biggest threat would likely come from another Republican, similar to how he unseated then-Rep. David Davis back in the 2008 GOP primary. At this point only retired Army Sergeant and Iraq War veteran Todd McKinley is an announced primary challenger. The candidate filing deadline is April 5th for the August 2nd state primary.

TX-2:  Businesswoman and conservative activist Kathaleen Wall continues to make strides in her quest to succeed retiring Rep. Ted Poe (R-Atascocita/Humble) in the Houston suburbs. This week, Sen. Ted Cruz (R) announced his endorsement of Ms. Wall’s campaign, following Gov. Greg Abbott (R) doing so in late January. The first-in-the-nation Texas primary is March 6th. If no candidate receives majority support, the top two finishers advance to a May 22nd run-off election. The eventual Republican nominee becomes a prohibitive favorite in the general election.

VA-10:  The Virginia Democratic Party is not short on candidates to challenge two-term Rep. Barbara Comstock (R-McLean), but they now have one fewer. Former Fairfax County educator and teachers’ union leader Kimberly Adams announced that she is ending her campaign. The Adams decision reduces the Democratic primary field to ten candidates. Whether others start to follow Ms. Adams’ lead because the number of competitors makes it difficult to gain significant political oxygen remains to be seen. Hillary Clinton carrying this district by almost ten percentage points suggests that this race will become a toss-up campaign once the Democrats settle on a nominee.

Governor

California:  The Policy Analysis for California Education organization hired two pollsters, Tulchin Research, a Democratic firm, and Moore Information, a Republican counterpart to conduct their latest issue and political poll. Together, the firms surveyed the California electorate (1/21-28; 2,500 CA registered voters) with an extensive online poll that included a ballot test question about the upcoming open Governor’s campaign. According to the results, which were consistent with previous polling, Lt. Gov. Gavin Newsom (D) leads the field of candidates with 29% of the jungle primary vote. In second place is former Los Angeles Mayor Antonio Villaraigosa (D) who secured 11%, and is closely followed by Republican businessman John Cox at 10%.

The Public Policy Institute of California also ran an extensive statewide poll (1/21-30; 1,705 CA adult residents; 1,194 via cell phone, 511 on land lines), and presents a much different picture. For the jungle primary, the PPIC finds Lt. Gov. Newsom holding only a 23-21% lead over former Mayor Villaraigosa, with state Treasurer John Chiang in third place with 9% and Republican Assemblyman Trent Allen polling 8 percent. In California, the top two finishers in the primary election, regardless of political party affiliation, advance to the general election.

Florida:  Mason-Dixon Polling & Strategy released a new Florida Governor’s survey (1/29-2/1; 500 FL Democratic primary voters; 500 FL Republican primary voters) to determine how the two partisan primary campaigns are currently unfolding. Though the filing deadline is May 4, the candidate fields seem to be relatively set for both parties. The Florida primary is not until August 28th.

According to the M-D data, a tight early race is forecast for both Democrats and Republicans, as will be the case for the general election. For the Dems, former US Rep. Gwen Graham (D-Tallahassee), the daughter of ex-Governor and US Senator Bob Graham (D), leads Miami Beach Mayor Philip Levine, 20-17%. Tallahassee Mayor Andrew Gillum breaks into double-digits at 10%, and businessman Chris King lags behind with 4% support. On the GOP side, Agriculture Commissioner and former US Rep. Adam Putnam remains in first place, leading Rep. Ron DeSantis (R-Palm Coast/Daytona Beach) by a 27-23% margin, with House Speaker Richard Corcoran (R-Land O’ Lakes/Pasco County) trailing at 7 percent. Gov. Rick Scott (R), a likely US Senate candidate, is ineligible to seek a third term.

Iowa:  Selzer & Company, Iowa’s most prominent political pollster, released the results of their first survey of the upcoming gubernatorial contest featuring new Gov. Kim Reynolds (R). According to the poll (1/28-31; 801 Iowa adults; 555 likely voters), Gov. Reynolds leads all of her announced opponents, but by small, or relatively small, margins. Against state Sen. Nate Boulton (D-Des Moines), Ms. Reynolds edge is 41-37%. Her lead expands to 42-37% over wealthy businessman Fred Hubbell who has already been running television ads. Against former Obama Administration official John Norris, the margin grows to 41-30%, and 42-30% over former Iowa Democratic Party chairman Andy McGuire. Gov. Reynolds performs best against local union president Cathy Glasson (44-31%).

Minnesota:  Former state House Speaker Paul Thissen announced yesterday that he is dropping his bid for the Democratic gubernatorial nomination. The move means five candidates are left in the field, led by US Rep. Tim Walz (D-Mankato), state Auditor Rebecca Otto, and former St. Paul Mayor Chris Coleman. Local Hennepin County Commissioner Jeff Johnson, the 2014 Republican nominee, appears to be the GOP early leader, but that could quickly change if former Gov. Tim Pawlenty decides to enter this race. As previously reported, Mr. Pawlenty is holding meetings to assess his chances in a new statewide race. The former Governor and short-term presidential candidate served as Minnesota’s chief executive from 2003-2011.