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Your Weekly Report on the Discord from Washington, D.C.

In Partnership with the Eris Group

CFPB issues final rule on payday lending — The Consumer Financial Protection Bureau finalized a 1,690-page rule on payday, vehicle title, and certain high-cost installment loans this week. (The six-page fact sheet is here.) The rule includes an affordability test, requiring lenders to determine borrowers’ ability to repay; there’s one exception for short-term loans of up to $500, if they’re structured to let borrowers get out of debt more gradually. The rule limits the number of loans that can be made in quick succession to three. “Less risky” loans made by lenders that make 2,500 or fewer short-term or balloon-payment loans each year, or that derive less than 10% of their revenue from those loans, are not subject to the affordability test. The rule forbids lenders from making more than two attempts to collect repayments via debit without authorization from the borrower. The complete rule will not take effect until July 2019, but provisions that allow for registration of information systems will take effect in 60 days. Consumer lenders immediately decried the rule and the rulemaking process, calling it “misguided and hideously complex.”

Treasury recommends regulatory relief for capital markets — The Treasury released a report this morning on its evaluation of the regulatory system for capital markets. To no one’s surprise, it recommends changes large and small, ranging from streamlining and tailoring disclosure requirements to increasing the amounts allowed to be crowdfunded to repealing Sections 1502, 1503, 1504 and 953(b) of Dodd-Frank. The report also recommends restricting regulators’ ability to make rules through informal guidance or no-action letters; reviewing the roles of self-regulatory organizations (SROs); and harmonizing SEC and CFTC regulations. If you don’t have time to read the 232-page report, a five-page fact sheet is here.

Hensarling urges delay on consolidated audit trail — Securities and Exchange Commission Chairman Jay Clayton made his first appearance before the House Financial Services Committee to discuss his goals for the agency. His priorities, he said, are cyber security, retail investor protection, improvements to the risk-based examination program, and access to capital formation. Chairman Jeb Hensarling (R-TX) and Capital Markets Subcommittee Chairman Bill Huizenga (R-MI) called for a delay of the November 15 date for implementation of the consolidated audit trail (CAT) requirement unless and until the agency can guarantee the data is secure. Clayton reminded the panel that the CAT is being developed by a contractor for the Financial Industry Regulatory Authority (FINRA), but said that the SEC would not accept CAT data unless it is secure, and only then if Clayton believes the agency needs it. He said that FINRA had not yet answered questions to his satisfaction, including questions about its contractual relationship with vendors.

Watt defends GSE underwriting, says Congress must act on reform — Federal Housing Finance Administrator Mel Watt testified on the health of Fannie Mae and Freddie Mac before the House Financial Services Committee on Tuesday. In response to questions from Chairman Hensarling and others, Watt said that the GSE’s loans were safe and sound despite their exemption from qualified mortgage (QM) standards. He said that while the FHFA had made many reforms to the workings of the GSEs, Congress must make decisions about when and how the organizations come out of conservatorship. At nine years, the conservatorships are “unprecedented in scope and duration,” Watt said. Once out of conservatorships, he added, the GSEs should certainly be supervised as systemically important financial institutions (SIFIs) and subject to similar requirements.

Equifax on the grill — Former Equifax Chairman and CEO Richard Smith appeared at four different hearings on Capitol Hill this week, answering questions about the security breach, the company’s delay in making the breach public, and the appearance that Equifax insiders profited by selling shares before the breach was made public. Smith apologized for the breach and said that he was disappointed with the way the company had responded. The company became vulnerable when it failed to apply a patch supplied by the Department of Homeland Security on March 8; hackers were able to access the Equifax database between May 13 and July 30, when the vulnerability was finally patched. Equifax is offering a new service that will allow consumers to control their own credit data for free, for life, but this service will not be available until early next year. Smith called for a public-private dialogue on replacing the Social Security number as the touchstone for identity verification. At yesterday’s hearing before the House Financial Services Committee, Chairman Jeb Hensarling (R-TX) called for adoption of the bipartisan Data Security Act, which passed the House two years ago and would create a national standard for data security and breach notification.

Can tax reform help startups? — The Joint Economic Committee looked at the question of whether changes to the tax code can help reverse the decline in new businesses at a hearing on Tuesday. Witnesses representing entrepreneurs and small businesses pointed to several areas where startups could benefit from tax reform, such as being allowed to defer income, carry forward losses, increase deductions for research and development, and simplify compliance. Committee members expressed concern about the concentration of capital in three states and five urban areas, and about the U.S.’s competitive disadvantage to other countries with more favorable commercial tax codes.

House Small Business gets support for tax reform plan — Witnesses representing small businesses and entrepreneurs endorsed a bipartisan package of reforms intended to simplify compliance and improve access to capital at a hearing on Wednesday. Small business owners and industry experts applauded provisions in HR 3717 that would raise the revenue threshold for self-employment, allow small business owners to participate in the pre-tax benefits they offer their employees, and clarify the difference between employees and contractors. Witnesses also suggested further improvements, such as updating expense categories in Schedule C, and making it easier to get information from the IRS. HR 3717 is not currently part of the House’s tax reform framework.

House approves budget framework for tax reform — The House of Representatives voted 219-206 yesterday to approve a budget resolution that calls for major reductions in spending on social welfare programs including food stamps, housing aid, and student loans, and prohibits the use of Federal Reserve surpluses or the Fannie and Freddie guarantee fees to offset budget expenses. The budget projects revenues and expenditures through fiscal year 2027, reducing the deficit but not balancing the budget during that time. The Senate has not yet acted on its own budget proposal.

IRS systems are years out of date — The Internal Revenue Service’s information infrastructure is one of the oldest in the federal government, and the chance of catastrophic failure is real, witnesses told the House Ways and Means Oversight Subcommittee this week. Senior information systems officers from the IRS, the GAO and the Treasury’s Inspector General office agreed that the IRS needs considerable additional funding to bring its hardware and software up to date, but the agency has no plan with realistic costs and milestones to make these changes. Witnesses told the committee that the IRS learned about the Equifax data breach on the evening news, drawing sharp questions about the agency’s decision to award a $7 million contract to Equifax for identify-proofing.

Senate confirms Quarles to Fed vice chairmanship — The Senate voted 65-32 on Thursday to confirm Randal Quarles as a member and vice chairman for supervision and regulation of the Federal Reserve Board. Quarles is expected to take office next week, before current vice chairman Stanley Fischer’s resignation takes effect. Fischer’s departure will keep the number of empty seats on the board at three.

Next Week in Washington:

The Senate is in recess next week.

October 9
Federal holiday for Columbus Day; many federal offices will be closed, but most of us will be working.

October 11
House Financial Services Committee will begin a markup of 23 different bills on regulatory burden relief, to continue on subsequent days if necessary. The complete list, with descriptions of each bill, is here. 10:00 a.m., 2128 Rayburn House Office Building.

October 11
House Agriculture Committee holds a hearing on “Examining the 2017 Agenda for the Commodity Futures Trading Commission.” CFTC Chairman J. Christopher Giancarlo will be the only witness. 10:00 a.m., 1100 Longworth House Office Building.

October 11
House Ways and Means Subcommittee on Trade holds a hearing on “Opportunities to Expand U.S. Trade Relationships in the Asia-Pacific Region.” 2:00 p.m., 1100 Longworth House Office Building.

October 12
House Financial Services Committee holds a hearing on “The Future of Housing in America: Oversight of the Department of Housing and Urban Development.” HUD Secretary Ben Carson will be the only witness. 9:30 a.m., 2128 Rayburn House Office Building.

October 12
House Energy and Commerce Subcommittee on Digital Commerce and Consumer Protection holds a hearing on “21stCentury Trade Barriers: Protectionist Cross Border Data Flow Policies’ Impact on U.S. Jobs.” 10:15 a.m., 2322 Rayburn House Office Building.

The Ellis Insight. Jim Ellis reports on political news:

> Senate

Alabama:  The Opinion Savvy research firm released the first special general election survey for the Alabama Senate election, and it forecasts a close race. The poll (9/27-28; 590 likely and possible special general election voters), taken just after former state Supreme Court Chief Justice Roy Moore won the party nomination on September 26th, finds the new Republican nominee leading former US Attorney Doug Jones (D), 50-45%. Among the 514 respondents who say they will “definitely” vote, Moore does a bit better. His lead increases to 51-44% within this subset. For those saying they are only “considering” voting, Mr. Jones gains. Within this segment, the gap closes to a 46-45% Moore edge.

Arizona:  Three-term Rep. Kyrsten Sinema (D-Phoenix) announced that she will enter the 2018 US Senate race with the hope of unseating first-term Sen. Jeff Flake (R). Ms. Sinema comes into the race with what appears to be a united Democratic Party. Phoenix Mayor Greg Stanton and state Rep. David Friese (D-Tucson), both speculative Senate candidates, each said they would yield to Ms. Sinema. The Democratic Senatorial Campaign Committee also officially endorsed the Congresswoman’s candidacy. All this, while vulnerable incumbent Sen. Jeff Flake must fight through his own GOP primary against significant opposition.

Ohio:  State Treasurer Josh Mandel (R), the 2012 US Senate nominee who held Sen. Sherrod Brown (D) to a 51-45% win, is running again and drawing a primary challenge from investment banker Michael Gibbons.  Remington Research released their new Ohio Republican primary poll on Friday (1,268 GOP respondents) and finds Mr. Mandel having little to worry about in the early going. He leads Mr. Gibbons, 50-5% according to the RR results.

Tennessee:  US Rep. Marsha Blackburn (R-Brentwood), armed with over $3 million in her campaign account and a probable endorsement from the Club for Growth, announced that she will enter the open US Senate campaign. The move was expected. Simultaneously, Gov. Bill Haslam (R) publicly stated that he will not become a Senate candidate. Former US Rep. Stephen Fincher (R-Crockett County) is a possible candidate. Andy Ogles, the Tennessee director for Americans for Prosperity who had launched a primary against Sen. Bob Corker before the incumbent announced his retirement, remains active. Former state Rep. Joe Carr, who held Sen. Lamar Alexander (R) to a nine point primary win in 2014, but then went onto suffer a crushing defeat in a congressional match-up with Rep. Diane Black (R-Gallatin), is another potential candidate. The eventual GOP nominee becomes a heavy favorite in the general election.

> House

AZ-9:  Rep. Kyrsten Sinema (D-Phoenix) announcing for the Senate means her Phoenix suburban US House district will be open next year. Phoenix Mayor Greg Stanton (D) then quickly entered the race. Arizona has a “resign to run” law, meaning he must leave his current position before his term ends. Former state House Minority Leader Chad Campbell is another potential Democratic candidate. Physician Steve Ferrara, a retired Navy captain, is the leading Republican and has the potential to become a strong candidate, but this district is evolving into a reliably Democratic seat (Clinton: 55-38%; Obama: 51-47%).

MA-3:  Cambridge City Councilman Nadeem Mazen (D), who was potentially preparing a Democratic primary challenge to Rep. Steve Capuano (D-Somerville), has now officially switched gears. Though Cambridge is two congressional districts away from the open 3rd District, Mr. Mazen has nonetheless declared his candidacy for the open seat. He says his ties to the 3rd are growing up in the city of Andover. He will face stiff competition. Likely to enter the race are Dan Koh, former chief of staff to Boston Mayor Marty Walsh, state Sen. Barbara L’Italien (D-Andover), hotel corporation CEO Abhijit Das, and former congressional aide Lori Trahan among other potential candidates. With a September 2018 Democratic primary, this race will take a long while to gel. Rep. Niki Tsongas (D-Lowell) is retiring.

MN-1:  Ever since Rep. Tim Walz (D-Mankato) announced back in July that he would run for Governor, only 2014 and ’16 party nominee Jim Hagedorn has stepped forward to compete for the Republican nomination. During the same period, seven Democrats announced candidacies in the politically marginal southern Minnesota CD. Now, however, things have changed. State Sen. Carla Nelson (R-Rochester) announced her congressional candidacy this week, adding competition for the party nod. Considering that Mr. Hagedorn lost in a tight 50.3 – 49.6% margin to Rep. Walz last November, he remains the favorite to win the state party convention endorsement and will be a strong contender for the seat next November.

NM-2:  It was commonly believed that state Land Commissioner Aubrey Dunn (R) would succeed outgoing US Rep. Steve Pearce (R-Hobbs) in the open 2nd Congressional District. But, this week he decided not to pursue the congressional contest. This makes the Republican primary a free-for-all and, in a district with 45% Hispanic population, the Democrats are certainly alive to score an upset victory in the open general election. Both primaries, to be decided in June, will be crowded. Therefore, no clear favorite currently exists, though based upon the long-term southern New Mexico voting history the eventual GOP nominee will be considered at least an early favorite to hold the seat.

NY-1:  State Assemblyman Fred Thiele (I-Bridgehampton), who came to office on the Independence Party ballot line but caucuses with the Democrats, was expected to enter the Long Island Democratic congressional primary in order to oppose two-term Rep. Lee Zeldin (D-Shirley/Smithtown). This week, however, Mr. Thiele announced that he will not run. There are still six announced candidates vying for the party nomination. In 2016, Rep. Zeldin scored a strong 55-40% re-election victory while President Trump was recording a similar 54-42% district win over Hillary Clinton.

PA-11:  Though Rep. Lou Barletta (R-Hazelton) running for the Senate gives the Democrats a better chance to pick up the lean Republican 11th District, they still face an uphill challenge. Now, one of their most promising potential candidates, state Sen. John Yudichak (D-Luzerne County), has made the decision to remain in the state legislature. To date, no major Democrat has yet come forward to run, but former state Agriculture Secretary Dennis Wolff (D) is said to be considering the race.  State Rep. Stephen Bloom (R-Carlisle), former state Revenue Department Secretary Dan Meuser, and Berwick Borough Councilman Andrew Shecktor comprise the early Republican field.

PA-15:  So far the Democratic field lining up to attempt converting the Lehigh Valley seat to their party appears weak, but it may just have gotten stronger. Allentown City Solicitor Susan Ellis Wild (D) announced that she would join the race. Since her current position is an appointed one, she has actually only been on that ballot once in a losing effort for Lehigh County Commissioner. She joins Copley City Councilman Bill Leiner, energy consultant Laura Quick, pastor Greg Edwards, and attorney Chip Collica as announced Democratic candidates.  Republican state Reps. Justin Simmons (R-Coopersburg) and Ryan Mackenzie (R-Macungie) lead the GOP candidates. Rep. Charlie Dent (R-Allentown) is retiring upon completing seven terms.

PA-18:  Under siege from revelations regarding an extra-marital affair that led to the Congressman allegedly encouraging his mistress to have an abortion after co-sponsoring pro-life legislation, eight-term Rep. Tim Murphy (R-Pittsburgh) announced late this week that he will resign from Congress effective Oct. 21st. The district will go to a special election, but is too late to run concurrently with the November 7th municipal elections. The political parties will caucus to nominate candidates so there will be no open primaries. Gov. Tom Wolf (D) will schedule the special election once the seat officially is vacant. The Republicans are heavy favorites to hold the seat. President Trump scored a 58-38% win here last November.

SC-5:  The surprisingly strong 2017 special election candidate, former Wall Street executive Archie Parnell (D), has apparently decided to take another run at newly elected Rep. Ralph Norman (R-Rock Hill). Mr. Parnell only lost the special election by three percentage points even though the national Democratic political apparatus left him for politically dead. Mr. Parnell has scheduled “a special announcement” for Monday, which will undoubtedly be a declaration of candidacy. He made have already taken his best shot, however. In the low turnout special election, chances for an upset in the conservative district were much better than in this coming regular election. Still, the Parnell move clearly gives the South Carolina Democrats their best opportunity for victory, but Mr. Norman remains a heavy favorite for re-election.

TN-7:  On the heels of Rep. Marsha Blackburn (R-Brentwood) announcing her Senate campaign, state Sen. Mark Green (R-Ripley) declared his candidacy for her open 7th Congressional District. Mr. Green was nominated as President Trump’s Secretary of the Army, but withdrew when his confirmation appeared problematic. The 7th District, a western Tennessee seat that sits between Nashville and Memphis, is solidly Republican (Trump: 67-28%; Romney: 66-33%). Therefore, the eventual GOP nominee is a virtual sure bet to capture the seat next November.

> Governor

Maryland:  The Mason-Dixon Polling & Research organization released the results of their new Maryland poll (9/27-30; 625 MD registered voters), testing Republican Gov. Larry Hogan’s political strength as he seeks re-election in this most Democratic of states. Opposite Prince Georges County Executive Rushern Baker, the Hogan margin is 46-39%. He records a 48-35% spread over Baltimore County Executive Kevin Kamenetz, 49-33% over former NAACP President Ben Jealous, and 49-30% against state Sen. Richard Madaleno (D-Montgomery County).

Nevada:  The Las Vegas shooting tragedy influenced two gubernatorial hopefuls in different ways during the week. Spurred to action, Clark County Commissioner and former state legislator Chris Giunchigliani (D) announced her intention to compete for the open Democratic gubernatorial nomination. She faces fellow Clark County Commissioner Steve Sisolak, who became an official candidate back in June. Attorney General Adam Laxalt (R), who had scheduled an announcement news conference, postponed his plans in remembrance of the victims who perished in the senseless massacre. Mr. Laxalt is a heavy favorite over state Treasurer Dan Schwartz in the Republican primary, and will likely be considered to have at least a slight advantage over the eventual Democratic nominee. GOP Gov. Brian Sandoval is ineligible to seek a third term.