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For Financial Services, Divided Government Could Be A Boon


Based on the outcomes of last week’s midterm elections, we know that control of Congress will be divided between the two parties for at least the next two years. In the financial services realm, you’d be forgiven for presuming that a divided government will translate into political squabbling but little else. To wit: a headline this week in the Credit Union Times said Rep. Maxine Waters (D-Calif.), who will take over as chair of the House Financial Services Committee (HFSC), and Rep. Patrick McHenry (R-N.C.), who is expected to serve as ranking member, are headed for a “showdown.”


Not so fast.


To start, as Bloomberg noted, Rep. Waters and Rep. McHenry would both like to pass legislation to make it easier for startup companies to raise money from investors – an expansion of legislation that McHenry has championed for several years. Democrats and Republicans also could come together to provide regulatory relief for credit unions and small community banks.


Then there is the hard-to-believe fact that Sen. Mike Crapo (R-Idaho), the current and likely chair of the Senate Banking Committee in the 116th Congress, generally has more in common with Rep. Waters on reform of housing giants Fannie Mae and Freddie Mac than he did with outgoing Republican House Financial Services Committee Chairman Jeb Hensarling from Texas. A decade after the financial crisis, Fannie and Freddie remain under federal conservatorship and have not been restructured. Both Waters and Crapo have signaled their intention to focus their respective committees’ work on the issue beginning next year. In what would be an odd turn of events, it’s entirely possible that, on this issue, we could see Chairman Crapo and Chairwoman Waters forge an alliance, with the White House opposed to their effort.


Where else might the two parties agree on financial services legislation over the next two years?


Sen. Crapo and Rep. Waters also are both strong supporters of the Terrorism Risk Insurance Act, which originally was originally passed after the Sept. 11th, 2011 terrorist attacks, and which will need to be reauthorized in 2019. For the last 16 years, TRIA has provided critical reinsurance coverage for high-risk areas of the United States (i.e. large cities), allowing commercial development. Additionally, a short-term reauthorization of the National Flood Insurance Program expires in a few weeks. Since Congress is likely only to pass another short-term extension next month, Crapo and Waters also will have to tackle this vital issue next year.


Next, with the Office of the Comptroller of the Currency (OCC) having kicked off its drive towards modernizing the Community Reinvestment Act, both the Democratic House and the Republican Senate committees of jurisdiction will have an intense interest in what that modernization package ultimately looks like. Additionally, OCC Comptroller Joseph Otting has said that the OCC will announce the first applicants for its fintech charter by the end of December or early January. With increasing regulatory focus on fintech, the committees will examine not just the charter, but broader fintech and consumer data issues for the next two years.


While we await confirmation on Sen. Crapo’s plans and his broad agenda for the GOP-led Banking Committee should he elect to stay on the panel, in an eight-page memo sent late last week to House colleagues, Rep. Waters outlined her objectives for the Democratic-led House Financial Services Committee. Not surprisingly, oversight and examination of the administration and the financial services industry will be a priority.


Arguing “Americans are concerned about the state of our country, particularly their economic security, and they have given Democrats a mandate to support their call for change,” Rep. Waters suggested she plans to investigate Wells Fargo, Deutsche Bank’s ties to the Trump administration, and certain large scale data breaches. The memo also noted Rep. Waters’ strong support for the Bureau of Consumer Financial Protection and argued President Trump “illegally installed” Mick Mulvaney as the acting director of the agency after Richard Cordray left. Rep. Waters wants to “undo Mulvaney’s anti-consumer changes,” which she said include stripping the Office of Fair Lending of its enforcement and supervisory powers and disbanding Consumer Advisory Boards. (In a divided government, legislation on such politically-charged issues is highly unlikely to advance, but sure to grab headlines.)


Rep. Waters also said she will ensure there are “strong safeguards in place to prevent another financial crisis”—don’t expect any further reforms to the Dodd-Frank Act—expand affordable housing opportunities, encourage “responsible innovation in financial technology,” and push credit reporting reform.


On the Senate side of the Capitol, Sen. Crapo’s management of the Senate Banking Committee is certain to be complicated by the potential 2020 presidential campaigns of at least two of the Democrats on his panel: his ranking member, Sen. Sherrod Brown (D-Ohio) and Sen. Elizabeth Warren (D-Mass.). The bright lights of not one but two campaigns for the White House, when shone on the Senate Banking Committee, could have the potential to make otherwise wonky, esoteric financial services policy issues significantly more politically-charged than they have been historically. But it’s difficult to see how, for example, the national political press might seize on the modernization of the Community Reinvestment Act or the Terrorism Risk Insurance Act as a presidential campaign issue.


So, despite the conventional wisdom, and while we very well still could see some politically-fueled flare-ups over the next two years, don’t expect a complete impasse on banking policy initiatives in Congress as a result of a divided government. On some issues, we may actually see more progress than we have in the era of complete Republican control of both chambers.

#Congress #Fintech #CFPB #US

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