This regular publication from DLA Piper focuses on helping banking and financial services clients navigate the ever-changing federal regulatory landscape.

Waters, McHenry outline Financial Services Committee priorities. As the 116th Congress gets up and running, the agendas of the new Democratic chairwoman and Republican ranking member of the House Financial Services Committee are starting to take shape. In a January 16 speech to the Center for American Progress, Chairwoman Maxine Waters (D-CA) said she "will be keeping a watchful eye on all of the financial regulators to make sure that they are carrying out their statutory duties, including holding bad actors accountable, and promoting financial stability." She singled out the CFPB for particular scrutiny and said she will be "working diligently to undo the damage that [former acting CFPB director Mick] Mulvaney has wrought during his time at the Consumer Bureau." She said she will soon introduce legislation, known as the Consumers First Act, reversing many of the agency's actions and policies over the past year. Waters also said she would hold the line on Dodd-Frank provisions regarding increased capital requirements, stress testing, the Financial Stability Oversight Council and the Volcker Rule. "The Committee will be paying close attention to whether financial regulators try to weaken these important reforms, and keeping an eye on the big banks and their activities, including by holding many hearings," Waters said. She said she wanted to encourage fintechs that "can open up opportunities for those who have been excluded from access to responsible credit," but stressed that "responsible innovation" must be accompanied by strong consumer protections. Oversight of IFIs, such as the World Bank and IMF, and monitoring of Russia-related sanctions will be among the top international policy issues that Waters and her Democratic colleagues will focus on.

  • GOP hearing requests. International financial issues are also high on committee Republicans' agenda as they adjust to their new minority status. Representative Patrick McHenry (R-NC), the new ranking member, listed his key priorities in a January 23 letter to Waters. Subjects of a dozen hearings proposed by McHenry include Brexit's "impacts on the US economy and the international financial system" and on "unilateral and multilateral agreements and its potential systemic risk," as well as the role of the Ex-Im Bank, China's "debt trap" and implementation of the Foreign Investment Risk Review Modernization Act of 2018. Cybersecurity in the financial sector, reductions to the Federal Reserve's balance sheet, modernization of the BSA/AML regulatory regime, fintech regulation and oversight of FASB and its Current Expected Credit Loss Accounting Standard are some other areas committee Republicans hope to explore.
  • Bipartisan commitment to bipartisanship. Waters concluded her speech with a pledge to work in a bipartisan manner whenever possible and offered specific examples of how she and McHenry have collaborated on various committee initiatives. On January 18, the chairwoman and ranking member introduced legislation they co-sponsored called the Promoting Transparent Standards for Corporate Insiders Act (HR 624), which requires the SEC to ensure corporate insiders cannot indirectly engage in illegal insider trading through changes to their trading plans.

Regulators encourage banks to work with customers hit by government shutdown. During the record-longest 35-day partial government shutdown that came to at least a temporary end on January 25, the Big Five of federal bank regulators joined with state regulators in calling on financial institutions to work with affected consumers. In a January 11 Joint Statement, the Fed, FDIC, OCC, CFPB and NCUA, as well as the Conference of State Bank Supervisors, urged "financial institutions to consider prudent efforts to modify terms on existing loans or extend new credit to help affected borrowers," as the agencies have done in previous shutdowns. "Prudent workout arrangements that are consistent with safe-and-sound lending practices are generally in the long-term best interest of the financial institution, the borrower, and the economy," the agencies jointly stated. "Such efforts should not be subject to examiner criticism."

Wider impact of shutdown. Policymakers and commentators have noted that the effects of the shutdown went far beyond federal employees themselves, or even government subcontractors, to permeate many sectors of the economy, including financial services. House Financial Services Committee Chairwoman Maxine Waters, in her January 16 policy address cited above, expressed concern about the effects the shutdown was having on the SEC, “Wall Street's cop on the block.” Chris Brummer, a professor at Georgetown Law, recently published an article in Roll Call (subscription required) discussing how the shutdown was harming fintechs and the development of policy for the emerging sector. “The shutdown is also starting to create serious problems for financial technology firms – slowing dealmaking, impairing supervision and casting a pall over the presumed pre-eminence of the US as a fintech superpower,” Brummer wrote in the January 10 article. In a January 23 article in Forbes, financial journalist Donna Fuscaldo wrote, "fintech startups looking to go public via an initial public offering or those needing a sign-off from regulators are seeing efforts delayed. The irony isn't lost on some of the fintech startups that decided to go the regulated route, eschewing the launch of services without the approval of the federal government. Those who play by the rules are now the ones hostage to a government that is not operating."

Warren seeks more details on Mnuchin's outreach to banks. Treasury Secretary Steven Mnuchin made some news during the usually quiet late-December holiday season when it was announced that he had called six CEOs at the nation's largest banks and subsequently reported their assurances that they had "ample liquidity available for lending to consumer, business markets, and all other market operations." Now Senate Elizabeth Warren (D-MA), a member of the Senate Banking Committee, is calling on Mnuchin to release details of those "unusual calls" that took place "during a period of significant uncertainty in the US stock market." In a January 18 letter to Mnuchin, Warren wrote, "your calls sought to assuage a concern – the liquidity of banks – that neither banking regulators nor executives had publicly indicated was a problem." The senator is asking the secretary for summaries and documentation from last month's discussions, as well as more information on what specific concerns may have prompted the calls. In separate letters sent to the six CEOs, Warren requested additional information on "the nature of each call with Mr. Mnuchin," any actions taken by the banks in response to the calls, and if the banks have information as to "whether the nation's financial institutions are facing liquidity risks, clearance or margin risks, or other risks to market operations that could negatively impact the US economy."

CFPB asks Congress for authority to supervise military lenders. The CFPB is calling on Congress to give the consumer-protection agency clear authority to examine financial services companies for compliance with the Military Lending Act. In letters sent on January 17 to House Speaker Nancy Pelosi (D-CA) and Vice President Mike Pence in his capacity as President of the Senate, CFPB Director Kathleen Kraninger asked for Congressional consideration of a legislative proposal to "clarify" the bureau's authority to review compliance with the MLA, enacted in 2006 to protect active-duty members of the military, their spouses and their dependents from certain lending practices. The law, implemented by the Defense Department, limits the amount creditors can charge, including interest, fees and charges imposed for credit insurance, debt cancellation and suspension, "and other credit-related ancillary products sold in connection with the transaction," limiting the total charge to 36 percent. It also prohibits loan terms, such as prepayment penalties, mandatory arbitration clauses and "unreasonable" notice requirements, according to a September 2016 summary of the MLA from the FDIC Compliance Examination Manual. Representative Andy Barr (R-KY), who serves on both the Financial Services and Veterans Affairs committees, has introduced the Financial Protection for Our Military Families Act (HR 442). While Barr's legislation would "extend" CFPB authority to assess MLA compliance, Kraninger's draft text "clarify" the bureau's authority. Former acting CFPB Director Mick Mulvaney had determined that the bureau did not have authority to audit firms' MLA compliance. "The requested authority would complement the work the Bureau currently does to enforce the MLA," Kraninger said in a January 17 statement.

Supreme Court declines to hear challenge to CFPB's constitutionality. The Supreme Court on January 14 decided not to take up a lawsuit challenging the constitutionality of the CFPB. The State National Bank of Big Spring, Texas, the Competitive Enterprise Institute and the 60 Plus Association, a Koch brothers-funded organization that favors Social Security privatization, had asked the high court to review an earlier decision by the US Court of Appeals for the District of Columbia Circuit rejecting their challenge to the constitutionality of the CFPB's structure as an independent agency. CEI, in a January 14 statement, noted that there are other pending lawsuits making essentially the same constitutional argument and expressed hope that one of those cases would eventually be taken up by the Supreme Court. Jim Purcell, Chairman of the Board and CEO of State National Bank, said, "Big banks might be able to cope with CFPB rules, but for us and banks like us, the costs and red tape spun out by this agency could become a slow death sentence." The petitioners cited what they consider two constitutional problems in the CFPB's structure: that it is led by a single director that the president cannot remove at will, and Congress has no control over the bureau's funding, resulting in little oversight. Brett Kavanaugh, the newest Supreme Court Justice, sided with the petitioners in his previous capacity as a member of the D.C. Appeals Court and would have had to recuse himself if the Supreme Court did take up the case.

OCC promotes two officials to top posts. The OCC has announced that two agency veterans have been named to senior positions as part of Comptroller Joseph Otting's leadership team. Morris Morgan, an OCC staffer since 1985 and most recently Senior Deputy Comptroller for Large Bank Supervision since December 2016, will be the new Senior Deputy Comptroller and Chief Operating Officer, the agency announced on January 17. And, according to a January 9 OCC announcement, Chau Do, who has been with OCC since 2004, was named Deputy Comptroller for the Risk Analysis Division. As noted in the previous edition of Bank Regulatory News and Trends, former Senate aide Jonathan Gould joined the agency as chief counsel in late December.