The House voted (233-186) today for passage of the Financial CHOICE Act, an opening Republican bid to encourage economic growth by loosening regulation of the financial sector, the Wall Street Journal reported. The bill, authored by House Financial Services Committee Chair Jeb Hensarling (R-Texas), would unwind major parts of Dodd-Frank by relieving healthy banks of some regulatory requirements and forcing failing firms through bankruptcy rather than a liquidation process spearheaded by the regulators. It would subject new financial rules to cost-benefit analyses, boost penalties for financial wrongdoers, and repeal the Volcker rule restricting banks from speculative trading. Supporters of the plan say scrapping what they view as onerous regulatory requirements will ultimately help smaller businesses, allowing them to grow and create jobs. The bill is expected to face stiff resistance in the Senate, but aspects of the Financial CHOICE Act could be approved by Congress in smaller pieces or be implemented by the Trump administration.
House Financial Services Committee Chairman Jeb Hensarling (R-Texas) said Thursday he’s considering seeking contempt of Congress charges against the director of the Consumer Financial Protection Bureau (CFPB). Hensarling said CFPB Director Richard Cordray has refused to turn over documents his panel requested for its investigation into Wells Fargo’s sales practices. A report from the Financial Services Committee’s Republican staff released Tuesday argued that Cordray’s refusal was grounds to pursue contempt of Congress charges. “It’s nothing personal against Mr. Cordray, but I’ve got a job to do,” Hensarling said at a briefing with reporters Thursday. “We will use whatever legal means necessary to get those documents.” The CFPB fined Wells Fargo $100 million in September 2016 for opening and charging fees for more than 2 million bank and credit accounts for customers without their authorization. The Office of the Comptroller of the Currency (OCC) and the City of Los Angeles were also involved in the investigation of practices first revealed by the Los Angeles Times in 2013. GOP lawmakers on the panel have argued that Cordray and the CFPB were “asleep at the wheel” and jumped into the investigation late to take credit.
The U.S. House is expected to pass sweeping legislation Thursday sponsored by Texas Republican Jeb Hensarling that would roll back major pieces of the Dodd-Frank Act, the banking law passed by Democrats in the wake of the 2007-2008 financial crisis. The expected party-line vote will represent a milestone for Hensarling, an eight-term congressman who led the opposition to the George W. Bush administration's 2008 bank bailout. As chairman of the House Financial Services Committee, he has focused on loosening the regulatory burdens on banks. The vote in the Republican-dominated House will set up a tough battle in the Senate, where Democrats who see the legislation as an attack on consumer protections appear to have the votes to block it. Hensarling's 600-page bill, known as the Financial Choice ACT of 2017, would repeal some of President Obama's signature financial reforms, chiefly the so-called Volcker Rule limiting certain types of speculative investments by banks. More controversially for Democrats, the bill would weaken the Obama-era Consumer Financial Protection Bureau which was set up to investigate consumer complaints against financial institutions.
The Supreme Court ruled unanimously yesterday that U.S. Securities and Exchange Commission enforcement actions requiring companies to return illegally obtained profits must conform to a five-year federal statute of limitations, MorningConsult.com reported. The decision in the case, Kokesh v. SEC, further restricts the securities regulator’s ability to require the forfeiture of funds, known as disgorgement. As part of the decision, which Justice Sonia Sotomayor authored, the court rejected a government argument that the disgorgement requirements shouldn’t be ordered because they are a remedial, and not punitive, measure. “This limitations period applies here if SEC disgorgement qualifies as either a fine, penalty, or forfeiture,” Sotomayor wrote. “We hold that SEC disgorgement constitutes a penalty.” Despite being limited in scope to the statute of limitations issue, SEC experts said that the decision could have long-term consequences for SEC disgorgement actions because of the court’s ruling that disgorgement is a penalty instead of a remedy.
Fewer subprime borrowers are paying off their auto loans early, a possible sign that consumers with weaker credit scores are struggling more, according to a report by Wells Fargo & Co. researchers, Bloomberg News reported yesterday. Borrowers are making fewer extra payments on loans that were bundled into bonds in 2015 and 2016, compared with loans in 2013 and 2014 bonds, according to Wells Fargo analysts led by John McElravey. The data on prepayments may offer another sign that subprime consumers are having more trouble paying their bills, the analysts wrote in a note on Tuesday. Borrowers are already defaulting on a growing amount of auto debt. Last decade, slower monthly payment rates on credit cards were an early sign of the consumer credit cycle changing for the worse, the analysts wrote. For auto loans, slower prepayment may be more of a coincident indicator than a leading one, they wrote.
Illinois had its bond rating downgraded to one step above junk by Moody’s Investors Service and S&P Global Ratings, the lowest ranking on record for a U.S. state, as the long-running political stalemate over the budget shows no signs of ending. S&P warned that Illinois will likely lose its investment-grade status, an unprecedented step for a state, around July 1 if leaders haven’t agreed on a budget that chips away at the government’s chronic deficits. Moody’s followed S&P’s downgrade Thursday, citing Illinois’s underfunded pensions and the record backlog of bills that are equivalent to about 40 percent of its operating budget. “Legislative gridlock has sidetracked efforts not only to address pension needs but also to achieve fiscal balance,” Ted Hampton, Moody’s analyst, said in a statement. “During the past year of fruitless negotiations and partisan wrangling, fundamental credit challenges have intensified enough to warrant a downgrade, regardless of whether a fiscal compromise is reached.”
The director of the Consumer Financial Protection Bureau, Richard Cordray, defended the need for the agency, which has been under near-constant attack from Republicans this year, saying yesterday that it provides important protections for consumers, Reuters reported. Cordray rarely addresses political moves or the lawsuit that could defang his agency, which was created after the financial crisis to protect individuals from fraud in lending. In a speech at a community development conference, Cordray did not mention names or specifics. But he argued at length for maintaining the CFPB's rulemaking work, its enforcement powers, and its public database of consumer complaints — all at the heart of current assaults on the agency. "Consumers want and need to have someone stand on their side to see that they are treated fairly. We seek to protect them against unfair surprises, frustrating runarounds and bad deals that ruin their credit, cost them their homes and saddle them with further problems," Cordray said.
Jay Clayton, who left Sullivan & Cromwell, the prominent New York law firm, to become the chairman of the Securities and Exchange Commission, is expected to tap his former colleague Steven R. Peikin to serve as the commission’s co-director of enforcement, the New York Times reported. Peikin, a Sullivan & Cromwell partner and former federal prosecutor, is said to be friends with Clayton, and many New York lawyers speculated for weeks that he would get the job. Clayton is expected to also name Stephanie Avakian, the agency’s acting enforcement director and a former white-collar defense lawyer, as co-director with Peikin.
Senate Judiciary Committee Chairman Chuck Grassley (R-Iowa) and Sen. Al Franken (D-Minn.) have reintroduced legislation that corrects a Supreme Court ruling (Hall v. United States) that they said made it harder for family farmers to reorganize their finances when falling on hard times, according to a press release on Friday. Grassley and Franken’s “Family Farmer Bankruptcy Clarification Act of 2017” remedies the May 2012 Supreme Court ruling that said amendments made to the Bankruptcy Code in 2005, which restricted the Internal Revenues Service’s veto power over a family farmer’s ability to reorganize in bankruptcy in certain situations, unfortunately failed to achieve Congress’s express goal of helping family farmers. The Family Farmer Bankruptcy Clarification Act clarifies that bankrupt family farmers reorganizing their debts are able to treat capital gains taxes owed to a governmental unit, arising from the sale of farm assets during a bankruptcy, as general unsecured claims. It also removes the Internal Revenue Service’s veto power over a bankruptcy reorganization plan’s confirmation, giving the family farmer a chance to reorganize successfully.
The average American's credit score has never been higher, but rising levels of consumer debt have some analysts worried a bubble is forming. The Wall Street Journal reported Monday that the average credit score hit 700 in April to reach its highest level since such information was first tracked by Fair Isaac Corp. [-] back in 2005. On top of that, the share of consumers with scores below 600 dropped to about 40 million, representing 20 percent of U.S. adults with FICO scores. That percentage peaked at 25.5 percent in 2010. Americans' personal savings rate – which tracks the percentage of disposable income a consumer stashes away in a given month – soared during and after the crisis. And at 5.3 percent in April, it still sits above any level reached in 2005, 2006 or 2007. Now, consumer default rates are significantly lower than they were even just a few years ago. A composite S&P/Experian consumer credit default index in April was slightly elevated from where it sat through much of 2016. Consumers' debt portfolios simply look different than they did 10 years ago, as mortgage obligations have taken a backseat for many while student, auto and credit card loans have soared. A household debt tracker published earlier this year by the Fed's New York regional bank estimated total household indebtedness sat at $12.7 trillion at the end of the first quarter. That's up $50 billion from the previous peak reached in the third quarter of 2008.