April 13, 2018

The FSOC Destabilization Act

On Wednesday the House considered H.R. 4061, the Financial Stability Oversight Council Improvement Act of 2017. This legislation hinders the Financial Stability Oversight Council’s (FSOC) ability to identify the nonbank financial institutions that should be classified as “systemically important financial institutions” (SIFI). These institutions are designated as SIFIs for a host of reasons including their size, the types of activities they engage in and the way they relate to other financial institutions. Entities with this designation receive closer scrutiny by regulators because of the potential risk they represent to the economy. H.R. 4061 will double the length of FSOC’s review time, leaving a potentially systemic firm without heightened supervision for up to as much as four years. The FSOC was created in the wake of the financial crisis which exposed significant gaps in the government’s oversight of large firms like AIG. FSOC has not overreached or taken the designation process lightly. In fact, currently only one non-bank and a handful of large banks have SIFI status. Hampering the agency’s work does not bode well for future financial stability and creates unnecessary risk for the economy. I voted NO. H.R. 4061 passed and the entire vote is recorded below:

The Undermining Stress Tests Act

On Wednesday the House also considered H.R. 4293, the Stress Test Improvement Act of 2017. This legislation weakens oversight put in place to limit financial activity that presents a risk to the economy, some of which contributed significantly to the 2008 crisis. H.R. 4293 decreases the quality and quantity of stress tests required of the largest financial institutions. These tests determine how the institutions would function in various economic distress scenarios. As we all know, most large financial institutions performed extremely poorly during the last crisis at great expense to taxpayers and the economy. I voted NO. H.R. 4293 passed and the entire vote is recorded below:

The Definition of Hypocrisy

On Thursday the House considered H.J. Res. 2, proposing a Balanced Budget Amendment to the Constitution of the United States. Republicans have ballooned the federal deficit to almost $2 trillion with their tax plan that mostly benefits the wealthy and corporations. Now suddenly, without a hint of irony, they’re worried about the deficit. H.J. Res. 2 would require all federal spending to be paid for every year. Every penny spent must be accounted for with revenue or cuts elsewhere. Since Republicans adamantly oppose even the appearance of a tax increase, what they really mean by a “balanced budget” is massive cuts to spending. Under the new tax plan, H.J. Res. 2 would require a cut to federal spending larger than the size of Medicare. The government would also be constrained from enacting necessary stimulus in the event of a recession, like the one the country experienced in 2008. This is not “fiscal responsibility”. It is a political stunt meant to disguise their lack of concern for the deficit. It also gives them an excuse to cut spending in the real economy after passing massive tax cuts for the rich. I voted NO. While H.J.Res.2 did receive a majority vote, the measure failed because it required 2/3 of the House to vote in favor. The entire vote is recorded below:

The Let Banks Gamble with Your Money Act

Today the House considered H.R. 4790, the Volcker Rule Regulatory Harmonization Act. This legislation provides an exemption from the Volcker Rule’s for banks having consolidated assets of $10 billion or less, of which less than 5% are in trading assets. Banks fitting this definition have restrictions on trading and owning hedge funds and private equity funds. The Volcker Rule was a major reform put in place after the financial crisis to stop banks from using federally insured customer deposits to gamble in risky products generated by hedge funds and private equity funds. This bill is opposed by former Federal Reserve Chairman Paul Volcker (after whom the rule is named), Federal Deposit Insurance Corporation (FDIC) Chairman Martin Gruenberg, FDIC Vice Chairman Thomas Hoenig, and investor advocates. Opponents are concerned the legislation may create a loophole that would encourage smaller banks to increase trading in these assets even if the banks aren’t currently engaging in this activity. The bill would also delegate sole rulemaking authority to the Federal Reserve, taking away the jurisdiction of the FDIC, which is the primary guardian of customer deposits at federally insured banks. This legislation makes it easier for the Trump administration to weaken the rule. I voted NO. H.R. 4790 passed and the entire vote is recorded below:

Credit Scores and Credit Reporting Agencies

My colleague Rep. Gottheimer (D-NJ) and I wrote to Federal Housing Finance Agency (FHFA) Director Mel Watt last week expressing concern about the impact of allowing the Credit Reporting Agencies (CRAs) to be the preferred provider of credit scores on loans sold to Fannie Mae and Freddie Mac, the Government Sponsored Enterprises (GSEs). The GSEs and most lenders today rely on FICO scores as part of the mortgage loan process. FICO creates algorithms to determine credit scores and purchases consumer data from the three CRAs to facilitate that process. Real competition in the credit score market can be a healthy development. That said, we were concerned about allowing the three companies with a monopoly on providing consumer data to collaborate in creating products that harness the value of that data. It could create a troubling expansion of that monopoly at the expense of real competition and consumer choice. The CRAs play a uniquely central role in collecting consumer data from creditors, controlling who has access to that data and at what price. Despite the value of consumer data, we as consumers have very little control over own information, but many know all too well how hard it can be to correct our credit reports when they are inaccurate or have been accessed by unauthorized parties. A 2013 Federal Trade Commission (FTC) report found that 25% of consumers had errors in their reports. This can impact the ability of millions of Americans to purchase a home, apply for a student loan, obtain a credit card and so much more. The lack of accountability with Equifax after its massive data breach illustrates one of the problems with the CRAs – since they face few consequences when issues arise, there is little incentive to improve performance. We expressed our concern that FHFA’s consideration of a credit scoring model created by the CRAs could ultimately harm consumers and do little to promote real competition.

Behind the Curtain — More House and Trump Administration Actions You Don’t Want to Miss

Here are this week’s additions. If you need to catch up or share with friends, you can find the full list here.

279. According to a March 2018 Politico report, there was quite a bit of political calculation going on behind the scenes of the Trump Administration’s decision to open much of the U.S. coastline to offshore drilling. Not surprisingly, Interior Secretary Ryan Zinke’s announcement resulted in a wave of criticism and concern – from impacted states and the environmental community. Almost immediately after the initial announcement, Zinke had a bit of a change of heart and exempted Florida from the drilling. At the time, Florida Governor Rick Scott was considering running for Senate (Scott has since announced his candidacy). During a last minute press conference called about Florida’s exemption, officials described it as the result of persuasive arguments by Scott about Florida’s unique characteristics. Over 1,200 documents reviewed by Politico, including text messages and other phone records, show repeated contact between Zinke and Scott staffers in the days before the announcement. This is certainly an indication that the exemption of Florida was an effort to cast Scott in a favorable political light.
280. Environmental Protection Agency Administrator Scott Pruitt is going to need his own section in Behind the Curtain. According to a March 2018 New York Times report, Pruitt spent more than $120,000 in taxpayer funds on a summer trip to Italy. As part of that trip, Pruitt attended a meeting of G-7 ministers. The federal government spent over $30,000 just on security for Pruitt. No other EPA administrator has required full-time security and we still don’t know how much that protection is costing taxpayers. I joined with 65 of my colleagues in asking Donald Trump to remove Administrator Pruitt for his unethical behavior and wasting of taxpayer resources.
281. According to April 2018 media reports, the Trump Administration is doing away with an Obama Administration rule that would have required all vehicles sold in this country to average more than 50 miles a gallon by 2025. Reducing these fuel economy standards is another blow to the environment and another concession to business. The Clean Air Act gives states the authority to establish stricter fuel economy standards than the federal requirements, with EPA approval. Massachusetts and California currently have stronger emissions standards and this decision raises questions about whether they will be permitted to keep them without legal action.
282. According to an April 2018 report in the Wall Street Journal, the Department of Justice (DOJ) is seeking to reduce the number of immigration cases waiting for resolution and will impose “performance metrics” on judges. They must resolve at least 700 cases per year with less than 15% being overturned. The DOJ also informed judges that their evaluations would include an analysis of how quickly they closed cases. This is all part of the Administration’s overall approach to getting tougher on immigration and denying fair hearings to asylum seekers and other immigrants with claims to refuge in our country.

What’s Up Next

The next House votes are scheduled for Monday April 16th. The House is expected to consider H.R. 5192 – Protecting Children from Identity Theft Act and H.R. 5444 – Taxpayers First Act.