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Financial Regulatory Reform in Spotlight as Financial Regulators Fill in Trump Administration

Legislative Activity

House Financial Services Committee to Hold Markup of CHOICE Act on Tuesday

After much anticipation, House Financial Services Committee Jeb Hensarling (R-TX) introduced the Financial CHOICE Act of 2017 (CHOICE Act) last week following a contentious hearing on the bill. Unsurprisingly, the hearing revealed partisan differences over the effectiveness of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) and the benefits of reforms proposed in the CHOICE Act. Republican lawmakers highlighted the difficulties faced by community banks after Dodd-Frank, criticized the constitutionality and structure of the Consumer Financial Protection Bureau (CFPB), and stressed the need for regulatory relief to promote economic growth. Democrats, however, pointed to positive economic indicators that have led to a more resilient economy since Dodd-Frank and generally rejected the CHOICE Act’s approach. Note, too, that the Democrats held their own hearing on the CHOICE Act last Friday, in which they emphasized how the bill would harm consumers, investors, and the economy; while highlighting the ways that Dodd-Frank has kept consumers safer following the financial crisis.

This Tuesday, May 2, the Committee is scheduled to hold a markup of the CHOICE Act. Once passed out of Committee – which we expect it will be along partisan lines – timing of consideration by the full House remains uncertain. Moreover, as far as the Senate is concerned, the CHOICE Act is largely seen as a nonstarter, with the Senate Banking Committee likely to take a more measured approach that seeks bipartisan agreement on targeted areas of consensus (i.e., the monetary threshold for designation as a systemically important financial institution (SIFI), etc.). Note that the Trump Administration has yet to announce its detailed policy positions on financial regulation, although it is set to receive a review of financial regulations from the Treasury Department in June, pursuant to President Trump’s Executive Order issued in February (further discussed here).

Beyond Dodd-Frank, Senate Banking Committee Chairman Mike Crapo (R-ID) is optimistic about gaining bipartisan support for housing finance reform, though he acknowledged that the Senate has a “busy agenda” this year. Still, Chairman Crapo expects to have a hearing on Fannie Mae and Freddie Mac this month. Notably, Treasury Secretary Steven Mnuchin has also expressed his support for moving forward with housing finance reform – an area with which he has significant expertise from his professional career.

This Week’s Hearings:

  • On Tuesday, May 2, the House Financial Services Committee has scheduled a markup of the CHOICE Act.

  • On Tuesday, May 2, the Senate Banking Committee has scheduled a hearing titled “Examining the U.S. – E.U. Covered Agreements.”

  • On Thursday, May 4, the Senate Banking Committee has scheduled a hearing titled “Reauthorization of the National Flood Insurance Program, Part II.”

Regulatory Activity

Senate Confirms Acosta as DOL Secretary, Set to Vote on SEC Chairman-Nominee Today

Last Thursday, April 27, the Senate confirmed Alexander Acosta to be Secretary of Labor by a vote of 60 to 38, which rounded out the confirmations of President Trump’s cabinet appointments. One item that will be at the forefront of his to-do list: the Department of Labor’s (DOL) Fiduciary Rule At his confirmation hearing, Secretary Acosta promised to review the rulemaking, which requires financial advisers to act exclusively in their clients’ best financial interests when offering retirement advice. In February, President Trump signed an Executive Memorandum (further discussed here) instructing DOL to examine the rule in order to determine whether it may adversely affect the ability of Americans to gain access to retirement information and financial advice. As a result of that Executive Memorandum, DOL delayed the rule’s applicability date by 60 days, thus the rule is now set to take effect on June 9, 2017.

Additionally, today, May 1, the Senate is expected vote on the confirmation of President Donald Trump’s nominee to be Chairman of the Securities and Exchange Commission (SEC), Jay Clayton. President Trump nominated Mr. Clayton in January and the Senate Banking Committee voted to in April to advance his nomination, which notably received three votes from Democrats. As with Secretary Acosta, the soon-to-be SEC Chairman will also be tasked with, among many priorities, determining how the SEC will proceed with its version of the Fiduciary Rule.

CFPB Delays Prepaid Card Rule to April 2018, to Hold Hearing on Small-Business Loans

Last week, the Consumer Financial Protection Bureau (CFPB) announced that it is delaying until April 1, 2018, the start date for its prepaid spending cards rule. The rule was originally scheduled to start on October 1, 2017, but the CFPB has decided to delay the rulemaking after learning that some businesses reported that they would have difficulty complying with the rule. Separately, the Bureau is planning to hold a public hearing on May 10 in Los Angeles, California on small-business lending. The hearing will feature testimony from a panel of consumer advocates and industry representatives.

State Bank Supervisors File Suit Over OCC FinTech Charters As Key House Republican Reportedly Working on New FinTech Bill with a Senate Democrat

Last week, the Conference of State Bank Supervisors filed a law suit against the Office of the Comptroller of the Currency (OCC) over its proposal to offer a national bank charter for financial technology (FinTech) firms. The limited purpose innovation charter would give FinTech startups the option of bypassing state-by-state registration in return for federal supervision. Meanwhile, Comptroller Curry defended the charter, stating last week that banking is not a “static” business and must be allowed to evolve. All of this against the backdrop of rumors that Rep. Patrick McHenry (R-NC) is working with a Senate Democrat on a revised “permanent beta test” bill to encourage regulators to foster FinTech innovation. Rep. McHenry has taken an active role in the FinTech space, introducing the Financial Innovation Act in the House in 2016, which did not advance past introduction last Congress.

Federal Reserve Restructuring and Cyber in the Spotlight

The Federal Reserve is restructuring its committee for supervising large financial institutions. The Large Institution Supervision Coordinating Committee oversees the eight U.S. global systemically important banks, the four European banks with the largest U.S. presence, and two large insurance companies, AIG and Prudential, that are under Fed supervision because of their “systemically important” designations. Separately, note that a new report from the Federal Reserve’s Office of Inspector General has suggested that the regulator could be doing more to protect the nation’s financial industry in the face of cybersecurity risks. The report described a range of measures that are needed to help defend private sector financial institutions against growing cyber risks.

Patrick Kirby is co-author of this article. 

© Copyright 2019 Squire Patton Boggs (US) LLP

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About this Author

Brandon Roman, Corporate Attorney, Squire Patton Boggs Law Firm
Associate

Brandon Román advises domestic and international clients on a range of legal, legislative, and regulatory issues. Mr. Román helps clients develop comprehensive strategies to address legislative and regulatory interests as well as legal concerns. His work includes identifying client needs and helping them navigate the legal, legislative, and regulatory landscape, focusing primarily on government investigations, financial services and products, tax, and real estate. 

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