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

In Partnership with the Eris Group

Treasury issues recommendations for regulatory framework — The Department of the Treasury released its recommendations for regulatory reform of the asset management and insurance industries last Thursday. The report is the third published under the President’s executive order directing agencies to identify laws and principles that are inconsistent with the administration’s core principles. Among many recommendations, the 176-page report recommends that the Financial Stability Board distinguish clearly between the prudential supervision of banks and the regulation of insurance; assigns responsibility for monitoring the IAIS covered agreement to the Federal Insurance Office; delays the implementation of the Department of Labor’s fiduciary rule; and supports legislative action to eliminate the statutory stress testing requirement for investment advisers and investment companies.

Congress nullifies CFPB rule on mandatory arbitration — Vice President Mike Pence cast the tiebreaking vote late last Tuesday night on a joint resolution to nullify the Consumer Financial Protection Bureau’s rule prohibiting mandatory arbitration agreements. The resolution, introduced by Rep. Keith Rothfus (R-PA), invokes the Congressional Review Act to declare that the CFPB rule “shall have no force and effect.” The House passed the resolution in July.

FIO role needs clarification, curbs, say witnesses — The House Financial Services Subcommittee on Housing and Insurance discussed the appropriate role of the Federal Insurance Office at a hearing last Tuesday. Witnesses representing the insurance industry and state regulators urged Congress to reverse the trend of greater federal involvement in insurance regulation, while Professor Daniel Schwarcz of the University of Minnesota Law School noted that failures of large organizations such as AIG can present systemic risks that warrant federal oversight. The Committee is considering two bills, H.R. 3861 and H.R. 3762, that would set limits on the FIO’s size and authority while clarifying state insurance regulators’ role in agreeing to international standards.

Housing reform must preserve long-term fixed rate mortgages, access to secondary market — Witnesses representing lenders told the House Financial Services Subcommittee on Housing and Insurance this week that any reform package must preserve lenders’ ability to make long-term, fixed rate mortgages, and to manage their liquidity through the secondary market. Witnesses expressed no enthusiasm for privatizing the government-sponsored enterprises, and called for an explicit government guarantee of mortgage-backed securities.

House panel discusses alternative funding sources for small business — The House Small Business Subcommittee on Economic Growth, Tax, and Capital Access heard testimony last Thursday about the growing role of fintech and merchant cash advance companies in providing funding for small businesses. While fintech’s share of the small business credit market remains low, its loan amounts and loan lengths have increased. Merchant cash advance companies can offer shorter-term loans in exchange for a percentage of future income. Witnesses suggested that allowing borrowers to transfer their credit reports from one lender to another might reduce the risk of multiple inquiries lowering a borrower’s credit score.

IRS defends hiring, contract practices — Members of two House Oversight subcommittee grilled IRS officials and the Treasury Inspector General for Tax Administration at a hearing last Wednesday about the agency’s rehiring hundreds of former employees after they had been fired for cause, and about the IRS’s decision to extend a contract to Equifax after the revelation of its data breach. Inspector General J. Russell George said that the agency had made many of the changes his office had recommended, but were handicapped by old technology and budget constraints. Its archiving resources are inadequate, and its legacy systems date back to the 1960s. Deputy IRS Commissioner Jeffery Tribiano explained that the contract to Equifax had been awarded as a three-month bridge to avoid gaps in identity verification services; it has now been awarded to Experian.

House Financial Services Democrats call for enhanced protection of data security ­— Democratic members of the House Financial Services Committee held a second day of hearings on the Equifax security breach last Wednesday, with testimony from state government officials and consumer advocates. Witnesses recommended updating the FTC safeguards rule by explicitly mentioning encryption. Ranking member Maxine Waters (D-CA) has introduced H.R. 3755, the Comprehensive Consumer Reporting Reform Act, which would shift reporting burdens away from consumers, limit credit checks by prospective employers, and reduce the time that negative information stays on credit reports.

Senate Banking holds nomination hearings for FHA, HUD, SEC — The Senate Committee on Banking, Housing, and Urban Affairs had a full slate of nomination hearings last week, hearing testimony from two nominees to the SEC, the nominated director of the U.S. Mint, and three nominees to the Department of Housing and Urban Development. Hester Peirce and Robert Jackson, Jr., nominated to the Securities and Exchange Commission, both named cybersecurity as a top priority at a hearing last Tuesday. They agreed on the need for more oversight of self-regulatory organizations such as FINRA. Ms. Peirce backed the repeal of the CFPB’s rule on mandatory arbitration. Last Thursday, former Federal Housing Commissioner Brian Montgomery, nominated to return to that office, called for improvements in the agency’s technology infrastructure, and said that HUD should treat lenders more as allies than as adversaries. Robert Kurtz, nominated to serve as Assistant Secretary of HUD for Public and Indian Housing, called for greater cooperation with and delegation to local public housing authorities.

Winter Park National Bank receives first national charter since 2008 — Acting Comptroller of the Currency Keith A. Noreika presented a full-service national bank charter to Winter Park National Bank last Friday, the first issued since the financial crisis. Based in Winter Park, Florida, the bank was capitalized at $39 million, and seeks to serve the specific needs of local attorneys, doctors, CPAs, contractors and small business entrepreneurs. Acting Comptroller Noreika said that the agency is “seeing increasing interest in becoming new banks.”

Carson promises lenders protection from “outsized liability” — Secretary of Housing and Urban Development Ben Carson told the Mortgage Bankers Association last Monday that the Department is committed to reviewing and addressing lenders’ concerns about outsized liability for immaterial errors. HUD will work with the Department of Justice on this issue, Dr. Carson said, and the process will include a review of FHA lender certifications and the implementation of the defect taxonomy.

SEC approves PCAOB’s new auditor’s reporting standard — The Securities and Exchange Commission voted last Monday to approve a rule proposed by the Public Company Accounting Oversight Board (PCAOB) to require significant enhancements to certain public company audit reports. Chairman Jay Clayton said that he “would be disappointed” if the new rule results in “frivolous litigation costs, defensive, lawyer-driven auditor communications, or antagonistic auditor-audit committee relationships.” He said that the PCAOB would be watching for unintended consequences.

SEC issues no-action letters under EU directive — The Securities and Exchange Commission released three letters last week to reassure market participants that for now, they will not take action against companies under the European Union’s Markets in Financial Instruments Directive (MiFID II), which takes effect on January 3, 2018. On a temporary basis, at least, broker-dealers may continue to receive research payments from money managers; money managers may continue to aggregate orders for mutual funds and other clients; and money managers may continue to rely on an existing safe harbor when paying broker-dealers for research and brokerage. During this period of no action, the SEC will “assess the impact of MiFID II’s research provisions . . . in order to determine whether more tailored or different action, including rulemaking, is necessary and appropriate.”  

MBA’s Stevens to retire — David H. Stevens, President and CEO of the Mortgage Bankers Association, announced last Wednesday that he will retire from the organization on September 30, 2018. Diagnosed with cancer in 2016, Stevens said that now that he is in remission, “focusing on family, friends and staying healthy is my priority.” MBA has formed a 12-member search committee under the direction of MBA’s immediate past chairman, Rodrigo Lopez.

This Week in Washington:

November 1
House Financial Services Subcommittee on Oversight and Investigations holds a hearing on “Examining the Community Development Block Grant-Disaster Recovery Program.” Helen Albert, Acting Inspector General for the Department of Housing and Urban Development, will be the only witness. 10:00 a.m., 2128 Rayburn House Office Building.

November 1
House Energy and Commerce Subcommittee on Digital Commerce and Consumer Protection holds a hearing on “Securing Customers’ Credit Data in the Age of Digital Commerce.” 10:00 a.m., 2123 Rayburn House Office Building.

November 1
Senate Committee on Banking, Housing, and Urban Affairs holds a hearing on the nominations of the Honorable Scott Garrett to serve as President of the Export-Import Bank; Kimberly A. Reed to serve as First Vice President of the Export-Import Bank; the Honorable Spencer Bachus III, Judith Delzoppo Pryor, and Claudia Slacik to serve as members of the Board of the Export-Import Bank; and Mark L. Greenblatt to serve as Inspector General of the Export-Import Bank. 10:00 a.m., SD-538 Dirksen Senate Office Building.

November 1
House Financial Services Subcommittee on Financial Institutions and Consumer Credit holds a hearing on “Data Security: Vulnerabilities and Opportunities for Improvement.” Witnesses include Kenneth Bentsen, Jr., President and CEO of the Financial Markets Association; Daniel Mennenoh, President, H.B. Wilkinson Title Company, on behalf of the Land Title Association; and Debra Schwartz, President and CEO of Mission Federal Credit Union, on behalf of NAFCU. 2:00 p.m., 2128 Rayburn House Office Building.

November 2
House Financial Services Subcommittee on Housing and Insurance holds a hearing on “Sustainable Housing Finance: Private Sector Perspectives on Housing Finance Reform, Part II.” 2:00 p.m., 2128 Rayburn House Office Building.

November 3
House Financial Services Subcommittee on Capital Markets, Securities and Investment holds a hearing on “Legislative Proposals to Improve Small Businesses’ and Communities’ Access to Capital.” 9:15 a.m., 2128 Rayburn House Office Building.

The Ellis Insight. Jim Ellis reports on political news:

> Senate

Arizona:  First-term Arizona Sen. Jeff Flake (R), besieged with poor internal polling numbers largely because of his continuing feud with President Trump, announced that he will not seek re-election next year. Sen. Flake was trailing Republican primary challenger Kelli Ward, a former state Senator who held Sen. John McCain to a 51-40% win in the 2016 Republican primary, and Democratic Rep. Kyrsten Sinema (D-Phoenix) in early general election ballot tests.

A number of candidates come forward, but most are saying they won’t run. Only Rep. Martha McSally (R-Tucson) remains a possible Senate candidate coming from the congressional delegation, as the other four GOP members have already removed themselves from consideration. Rep. McSally, a proven winner in tough elections who has developed a fundraising operation that has raised more than $10 million for her 2016 re-election effort and preparing for what will be a difficult race next year, and with a long and distinguished military record as an Air Force pilot, is a very attractive potential GOP candidate.

Potential contenders have a long while before they are forced to make a decision. The Arizona candidate filing deadline isn’t until May 30th, with the primary election scheduled for August 28th. Since Rep. Sinema was quickly becoming a consensus Democratic candidate, it is now unclear whether her status will greatly change under this new political scenario. Some key Democrats say they could now turn to a more liberal candidate. Sen. Flake’s departure ironically makes this situation more winnable for the Republicans.

California:  After State Senate President Kevin de Leon (D-Los Angeles) announced he would challenge Sen. Dianne Feinstein (D), the Capitol Weekly newspaper published a September Sextant Strategies poll that tested the now unfolding Senate race. The survey was unusual in that the pollsters used Republican gubernatorial candidate John Cox as a “stand-in” GOP Senate candidate. Therefore, such a move could dramatically change the polling results.

The poll was conducted during unidentified dates in September, but uses healthy sample sizes: 1,554 general election interviews, and 1,197 for the all-candidate primary. In a proposed Feinstein-de Leon general election pairing, Sen. Feinstein’s lead is 36-17%, with 28% (largely Republicans) who say they would vote for neither.

Florida:  The University of North Florida conducted a statewide US Senate survey (Public Opinion Research Lab; 10/11; 838 registered voters via live telephone interviews) testing Sen. Bill Nelson (D) and Gov. Rick Scott (R), the unannounced but virtually certain Republican candidate. Once again, we see results that yield a virtual tie. According to the UNF data, Sen. Nelson’s lead dwindles to one point over Gov. Scott, 37-36%, after leading 44-38% in their February 2017 poll. Mason-Dixon Polling & Strategy also went into the field here and draws a similar conclusion. The survey (10/17-19; 625 FL registered voters) finds the two major candidates tied with 44% apiece.

Michigan:  In a profanity-laced interview last Tuesday evening, potential US Senate candidate Robert Ritchie, better known as rock star “Kid Rock,” said he is not entering next year’s race against three-term incumbent Debbie Stabenow (D). Most believed his original statements about entering elective politics, and even some polling that showed Ritchie performing well against Sen. Stabenow, were a publicity stunt to further his music career and now we see that such an analysis is likely correct.

Currently, former state Supreme Court Chief Justice Bob Young and businessman John James are in the Republican primary. Veteran US Rep. Fred Upton (R-St. Joseph) continues to maintain that he is considering the statewide run and early fundraising suggests his musings are serious.

North Dakota:  The 1892 polling firm, a company that has conducted several surveys for North Dakota political campaigns, released their new study for state Sen. Tom Campbell (R-Grafton), an announced GOP US Senate primary candidate. The poll (10/11-12; 500 ND registered voters; 400 ND likely Republican primary voters) gives Sen. Campbell a 32-24% lead over former at-large US Rep. Rick Berg in a hypothetical GOP primary. Mr. Berg has not announced his Senate candidacy, and more than likely will not run.

The general election numbers are highly surprising, however, and will have to be confirmed in future surveys. The results: Campbell leading Sen. Heidi Heitkamp (D), 44-41%. Currently, the Senator is favored for re-election, but polls such as this suggest a highly competitive campaign is on the North Dakota political horizon.

Tennessee:  Fresh from completing his “listening tour” of the Volunteer State, former US Rep. Stephen Fincher (R-Crockett County) officially announced that the will join the open seat Republican primary campaign to succeed retiring Sen. Bob Corker (R). Mr. Fincher becomes the second major Republican candidate to enter the open contest, following 7th District US Rep. Marsha Blackburn (R-Brentwood) who immediately announced upon Sen. Corker making public his decision not to seek a third term.

The Tennessee primary isn’t held until early August and, with a candidate filing deadline to be scheduled sometime in April, much time remains for this field of contenders to solidify. On the other side of the political ledger, Democratic former Gov. Phil Bredesen has backed away from earlier comments about not running for the seat, and now says he will decide whether to become a candidate in the next few weeks.

> House

CA-24:  Santa Barbara businessman Justin Fareed (R), who played on the UCLA football team, announced that he will seek a re-match with freshman Rep. Salud Carbajal (D-Santa Barbara). Last November, Mr. Carbajal won a 53-47% victory in a California coastal district that voted 57-36% for Hillary Clinton. Combined spending for the 2016 congressional race exceeded $5 million, and with Carbajal already having more than $1.1 million in his campaign account and Fareed demonstrating he can attract more than $2 million to a political effort, this will again be a costly campaign. Rep. Carbajal begins the race as a solid favorite for re-election, however.

FL-27:  Money isn’t everything in campaigning, but it certainly gives us clues as to who has the stronger early effort. In the open South Florida 27th Congressional District (Rep. Ileana Ros-Lehtinen (R) retiring), Republicans are starting way behind in a district that was re-configured to favor the Democrats.

Looking at the new cash-on-hand totals that the Federal Election Commission just published, the two Republican candidates, Miami-Dade County Commissioner Bruno Barreiro and former Miami-Dade School Board member Rachel Regalado, daughter of City of Miami Mayor Tomas Regalado, have raised only $42,000 and $15,000, respectively, though the former man reports having $187,000 cash-on-hand as a result of transfers from other political committees. By contrast, among the six Democrats filing, the lowest cash-on-hand figure, from Miami Beach City Councilwoman Kristen Rosen Gonzalez, is $196,000, while the high is $469,000 for non-profit group executive Matt Haggman.  Clearly, the Democrats are off to the better start in attempting to convert what is widely seen as the most vulnerable Republican open House seat in the country.

MA-9:  Peter Tedeschi (R), chairman of the Tedeschi Food Shops, which owns 181 stores throughout New England, announced that he will challenge four-term Rep. Bill Keating (D-Bourne/Cape Cod) next year in a contest that could become competitive. The district begins south of Boston hugging the Atlantic Ocean coastline and includes the entire Cape Cod peninsula. It then moves west to annex the cities of Fall River and New Bedford.

Though reliably Democratic, this district can swing Republican in statewide contests. Gov. Charlie Baker (R) will have to run well here to win re-election, thus ensuring a strong Republican turnout operation within the CD boundaries. Mr. Keating has averaged an underwhelming 52.7% average victory margin in his four congressional races, weak for a Massachusetts Democrat. This race could become one to watch.

UT-4:  Two weeks ago we reported that two-term Rep. Mia Love (R-Saratoga Springs) has drawn Salt Lake County Mayor Ben McAdams as her projected Democratic opponent. Last week, Dan Jones & Associates released a 4th District poll that pairs the two in the likely general election match-up. According to the Jones’ company results conducted for the Salt Lake Tribune (10/9-18; 402 UT-4 registered voters), Rep. Love begins the race with only a 48-42% edge. In order to put the US House majority in play, Democrats must seriously challenge for districts such as this, and it appears they have found a credible candidate to do so.

> Governor

Georgia:  The open Georgia Governor’s race has important 2021 redistricting ramifications, particularly since the state appears on the cusp of adding a new seat to its delegation. Therefore, Landmark/Rosetta Stone (10/16-17; 800 GA Republican voters) conducted a survey released to the Atlanta Journal-Constitution and found Lt. Gov. Casey Cagle holding a substantial advantage against his GOP nomination campaign opponents. According to the Landmark results, Mr. Cagle scores a support factor of 35%, well ahead of second place finisher Hunter Hill (9%), an ex-Georgia state Senator, Secretary of State Brian Kemp (7%), and state Sen. Michael Williams (R-Cumming @ 4%). Gov. Nathan Deal (R) is ineligible to seek a third term.

Hawaii:  While most of the early attention is focusing on US Rep. Colleen Hanabusa’s (D-Honolulu) challenge to Gov. David Ige in the Democratic primary, the general election now comes into focus. State House Minority Leader Andria Tupola (R-Wai’anae Coast) announced that she will run for Governor, giving the GOP a credible standard bearer in the general election. Democrats are favor to hold the position, but the strong incumbent primary challenge creates some uncertainty.

Meanwhile, Kauai Mayor Bernard Carvalho (D) had been talking about launching a primary challenge to Gov. David Ige. With US Rep. Colleen Hanabusa already in the race, however, the path for Carvalho to upset them both becomes very narrow. Considering the new political landscape, Mr. Carvalho this week announced that he will run for the open Lt. Governor’s position, instead.

Illinois:  A new We Ask America automated poll conducted for the Illinois Capitol Fax organization (10/17-18; 1,154 IL likely Democratic primary voters) was released during last week, and we see venture capitalist J.B. Pritzker opening up a substantial lead over Chicago businessman Chris Kennedy, son of the late Sen. Robert F. Kennedy (D-NY), and state Sen. Daniel Biss (D-Skokie). According to the WAA data, Pritzker’s lead is 39-15-6%. But, the results aren’t particularly surprising considering that Pritzker just completed a $21 million media ad blitz.  With vulnerable Gov. Bruce Rauner (R) already reporting over $66 million in his campaign account, the Illinois Governor’s race will be an expensive affair to say the least.

Texas:  Gov. Greg Abbott (R) appears a sure bet for re-election next year, but Democrats are still attempting to recruit a viable challenger. After Rep. Joaquin Castro (D-San Antonio) chose to seek re-election instead of launching a tough statewide campaign, the party leaders are now looking to businessman Andrew White, the son of recently deceased former Gov. Mark White (D). The latter man served one term as Governor, from 1983-87. He came to office defeating Republican Gov. Bill Clements in 1982, but lost to him in a re-match four years later. Andrew White is expressing interest in challenging Gov. Abbott.

Virginia:  A new Hampton University Center for Public Policy survey (10/18-22; 750 VA registered voters self-described as likely to cast a ballot in the November 7th Governor’s race) gives Virginia Republican gubernatorial candidate Ed Gillespie his biggest lead of the campaign. According to the Hampton CPP results, the GOP nominee has a 41-33% advantage over Lt. Gov. Ralph Northam (D). It has been clear that Gillespie has a surge in momentum, and this poll certainly quantifies the movement. We will need confirming data for this to become a trend, but there is no doubt that the race has changed direction.