2019 Financial Services Policy Outlook

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2019 will bring many changes that will impact how financial services issues are considered, including new leadership at the House Financial Services Committee, the Consumer Financial Protection Bureau (CFPB), the Federal Housing Finance Agency (FHFA) and a slew of additional Democratic members on the Financial Services Committee, even if the committee ratios do not change.

There will be a sea change in the leadership and the policy agenda of the Financial Services Committee, with the very liberal Rep. Maxine Waters (D-CA) replacing Jeb Hensarling (R-TX) as the committee chair and Rep. Patrick McHenry (R-NC) serving as the committee’s ranking member. While Rep. Waters is well known for her fiery rhetoric and her harsh criticism of President Trump, she has also, over the years, built a reputation in the business world as a savvy dealmaker who knows how to get to yes when she is inclined to do so.

Chairwoman Waters sees it as her mission “[t]o bring accountability to the Trump administration and the regulatory agencies under the Committee’s jurisdiction, including the Consumer Financial Protection Bureau” (CFPB). She is a strong proponent of the Community Reinvestment Act and tremendously hostile to the efforts of the Treasury Department’s Office of the Comptroller of the Currency’s (OCC) to change the Act’s metrics and focus. She surely will utilize aggressive oversight hearings as the committee’s primary vehicle for achieving accountability (including on the topics discussed in the oversight hearings section of this document). But overturning the many changes made at the CFPB and at the financial regulators since Trump’s inauguration would require passage of legislation that will prove virtually impossible to become law given the president’s veto power and Republican control of the Senate.

Similarly, House Democrats under Chairwoman Waters’ leadership will surely ignore former Acting CFPB Director Mick Mulvaney’s requests that the CFPB be funded through the appropriations process, or that the director be answerable to the President. (Ironically, given the fact of Republican leadership at the CFPB, some Democrats could be more amenable to requiring legislative approval of major rules as Mulvaney requested.) Kathy Kraninger, the recently confirmed director of the CFPB who is largely a blank slate with respect to the issues within the CFPB’s purview, will likely be spending lots of quality time before Chairwoman Waters and the committee exploring what many Democrats see as the CFPB’s abandonment of its enforcement mission and its new and controversial policy on no-action letters.

While the leadership of the Senate Committee on Banking, Housing and Urban Affairs (the Banking Committee) will remain the same as in the last Congress, with Mike Crapo (R-ND) as chair and Sherrod Brown (D-OH) as ranking member, incoming Senator Kyrsten Sinema (D-AZ) and Senator Tina Smith (D-MN) will join the committee, filling positions that became open when Democratic Senators Heidi Heitkamp of North Dakota and Joe Donnelly of Indiana lost their reelection bids. Meanwhile, Nevada Senator Dean Heller’s election loss and Tennessee Senator Bob Corker’s retirement opened up two Republican seats on the committee that will be filled by two new Senators, Martha McSally of Arizona and Kevin Cramer of North Dakota.

Chairman Crapo’s agenda will continue his focus on increasing access to capital, promoting more initial public offerings and implementing the Treasury’s many Trump-driven recommendations for reforming the financial services sector and reducing its regulatory burden. While Chairman Crapo has periodically expressed support for housing finance reform, he did not actively pursue such legislation in the last Congress and it’s not yet clear how much of a priority, if any, he is prepared to give to the issue of ending the Fannie and Freddie conservatorships. However, the Trump’s nomination of Mark Calabria, a strong opponent of the Fannie and Freddie conservatorships, to be the next director of the FHFA is likely to increase the focus of the administration and congressional Republicans on this issue.

Even though the Banking Committee’s membership will change only modestly in 2019, there are two Democratic senators on the committee who have expressed interest in seeking their party’s nomination for president in 2020—Ranking Member Sherrod Brown (D-OH) and Elizabeth Warren (D-MA). Brown and Warren could end up engaging in their own battle to win the support of progressives, a fight that could push them even further to the left as they seek to outdo each other, thereby increasing the difficulty of Chairman Crapo obtaining the Democratic support required to bring financial services legislation to a final passage floor vote in the Senate. Given these realities, and with 60 votes still needed to break a legislative filibuster, it is unlikely that the 116th Congress will enact, or President Trump sign, anything except truly noncontroversial financial services legislation.

While it will certainly be a challenge to identify legislative initiatives of consequence that can win the support of both bodies and get to the President, there are a few subjects that warrant consideration nonetheless, including: a long¬term flood insurance reauthorization that deals with both unresolved policy and funding issues for the program; fintech and cybersecurity regulations; data privacy protections; an Export-Import Bank reauthorization; a Terrorism Risk Insurance Act (TRIA) reauthorization; and housing finance reform legislation resolving the status of Fannie Mae and Freddie Mac, especially if coupled with funding to promote the availability of affordable low-income housing. Accomplishing housing finance reform would be a huge achievement, but it would require addressing and resolving the tremendous costs associated with recapitalizing Fannie Mae and Freddie Mac, as well as the many questions about the potential impact changes to the housing finance system would have on the cost and availability of 30-year mortgages.

If the current committee ratios are maintained for the next Congress, there will be 16 more seats for Democrats to fill on the Financial Services Committee. As she works with the House Democratic Steering and Policy Committee to arrive at a slate of Democrats who will join the committee, Chairwoman Waters will surely be looking to add members who share her progressive values. She will also place a special emphasis on ensuring that the new members reflect the diversity of the House Democratic Caucus.

As it is one of the largest committees in the House, the Financial Services Committee is the target of periodic proposals to reduce its number of members. However, this is unlikely to ever happen, especially because membership on the committee has proven to be very helpful for fundraising. Recent reports indicate that, because a number of incoming Democratic members refuse to take campaign contributions from PACs, seeking membership on the committee has become less popular than in prior Congresses. Nonetheless, it’s expected that there will be no shortages of Democratic takers to join the committee.

Especially when there is divided government, congressional leaders and chairs frequently have to answer the question: Are you just looking to make a point or looking to make a law? It is likely that most of the financial services bills that the more liberal Democratic House will pass in the next two years will go nowhere in the Senate because they can’t achieve the 60 votes required to overcome filibusters by the Senate Republican majority. Likewise, any controversial financial services legislation that comes from the more conservative Senate will, in most instances, not be able to attract sufficient House support.

Chairwoman Waters has, over the years, repeatedly demonstrated that she knows how to make a point. But given her highly contentious relationship with President Trump, and in such a partisan climate, it will take exceptional skills and a very deft touch to show that she can also make laws.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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