Finance Brief: Sen. Cotton Targets CFPB Arbitration Rule for Repeal

Washington Brief

  • Sen. Tom Cotton (R-Ark.) said he aims to help overturn a new Consumer Financial Protection Bureau rule that prohibits banks and credit card companies from writing arbitration clauses in ways that prevent consumers from joining class-action lawsuits. Cotton said he has initiated the legislative process that could repeal the rule through the Congressional Review Act. (The Hill)
  • National Economic Council Director Gary Cohn is said to be the leading candidate to succeed Federal Reserve Chair Janet Yellen if President Donald Trump decides not to nominate her for a second term. Cohn, a former Goldman Sachs Group Inc. president, would be the first Fed chairman in four decades who isn’t an economist. (Politico)
  • The timeline for releasing a unified GOP tax overhaul proposal remains murky, according to House and Senate tax-writing committee chairmen. White House legislative affairs director Marc Short on Monday said he expects Congress to nail down a proposal before the August recess, but unresolved issues like border adjustment have left Republican lawmakers wary of announcing a specific rollout date. (Roll Call)

Business Brief

  • HSBC Holdings Plc and UBS Group AG each agreed to pay $14 million to settle private U.S. legal challenges alleging they rigged an interest rate benchmark. Payouts from 10 of the 14 accused banks are now $408.5 million. (Reuters)
  • Yellen is expected to discuss the Fed’s plan to shrink its balance sheet, as well as address the GOP push for the Fed to adopt a mathematical formula to guide its monetary policy, when she testifies this week on Capitol Hill. Yellen is slated to testify today before the House Financial Financial Services Committee and before the Senate Banking Committee on Thursday. (The Wall Street Journal)
  • House lawmakers on Thursday will discuss draft legislation from Rep. Ann Wagner (R-Mo.) that would kill the Obama-era fiduciary rule and impose a best-interest standard for brokers who provide retail investment recommendations. The Consumer Federation of American criticized the draft measure ahead of this week’s House Financial Services subcommittee hearing, saying it would “dramatically weaken existing protections for retirement savers.” (InvestmentNews)

Chart Review

Events Calendar (All Times Local)

U.S.-China Economic and Security Review Commission hearing 9:30 a.m.
Fed’s Yellen testifies before House Financial Services Committee 10 a.m.
Heritage Foundation discussion on U.S. debt 12 p.m.
House Financial Services subcommittee hearing on reg relief for community financial institutions 2 p.m.
House Ways and Means Committee hearing on tax reform 10 a.m.
Fed’s Yellen testifies before Senate Banking Committee 10 a.m.
House Financial Services subcommittee hearing on the fiduciary rule 10 a.m.
Crowe Horwath webinar on Trump tax reform plan 12 p.m.
House Financial Services subcommittee hearing on fixed income market structure 9:15 a.m.



GOP senator targets consumer bureau arbitration rule for repeal
Sylvan Lane, The Hill

Sen. Tom Cotton (R-Ark.) said Tuesday morning he would seek the repeal of a new Consumer Financial Protection Bureau (CFPB) rule cracking down on arbitration clauses in customer contracts with financial firms. Cotton said in a statement that CFPB had “gone rogue again” with a rule released Monday meant to prevent credit card companies and banks from blocking class-action lawsuits with arbitration clauses.

McConnell: ‘Ideally’ debt ceiling vote is before August recess
Jordain Carney, The Hill

Senate Majority Leader Mitch McConnell (R-Ky.) signaled on Tuesday that he wants a vote on raising the debt ceiling before lawmakers leave for the August recess. “Ideally we’ll deal with the debt ceiling before the August recess,” he told reporters.

Stocks Rebound as Dollar Dips on Trump Revelations: Markets Wrap
Adam Haigh and Cecile Gutscher, Bloomberg

European equities rebounded with oil while the dollar slipped amid reverberations from reports of Donald Trump Jr.’s contact with a Russian lawyer. S&P 500 futures were steady.


HSBC, UBS settle U.S. rate-rigging litigation; 10 banks’ total payout tops $408 million
Jonathan Stempel, Reuters

HSBC Holdings Plc and UBS Group AG have each agreed to pay $14 million to settle private U.S. litigation accusing them of rigging an interest rate benchmark used in the $483 trillion derivatives market. The preliminary settlements were disclosed in filings on Tuesday in the U.S. District Court in Manhattan and require a judge’s approval.

Sources: Cohn is Trump’s top candidate to replace Yellen at Fed
Ben White and Victoria Guida, Politico

President Donald Trump is increasingly unlikely to nominate Federal Reserve Chair Janet Yellen next year for a second term, four people close to the process said. National Economic Council Director Gary Cohn is now the leading candidate to succeed Yellen as the world’s most important central banker, these people said.

Meet Trump’s designated driver of Wall Street deregulation
Pedro Nicolaci da Costa, Business Insider

President Donald Trump looks set to nominate Randal Quarles to replace the outgoing Daniel Tarullo as the Federal Reserve’s point man on regulation. Or in this case, deregulation, given the president’s stated intention of doing a “big number” on the Dodd-Frank rules adopted to prevent a repeat of the 2008 financial crisis.

Senators ask AG Sessions to halt Choke Point
Ian McKendry, American Banker

Senators sent a letter to Attorney General Jeff Sessions last week asking him to issue a statement saying that Operation Choke Point is no longer in effect. The letter, from Sen. Thom Tillis, R-N.C., and Senate Banking Committee Chairman Mike Crapo, R-Idaho, said that, despite some assurances that the Department of Justice crackdown on banks’ third-party relationships was ending, it is still having an impact.

Financial Products and Investments

Fed’s Yellen Likely to Discuss Rates, Balance Sheet in Congressional Testimony
David Harrison, The Wall Street Journal

Federal Reserve Chairwoman Janet Yellen heads to Capitol Hill on Wednesday to address the House Financial Services Committee in her twice-yearly Humphrey Hawkins testimony and to take questions from lawmakers. She will deliver the same testimony at a separate hearing of the Senate Banking Committee on Thursday.

Rep. Wagner drafts bill to kill DOL fiduciary rule, replace it with best-interest standard
Mark Schoeff Jr., Investment News

Legislation written by Rep. Ann Wagner, R-Mo., would eliminate the Labor Department’s fiduciary rule and replace it with a best-interest standard for brokers giving retail investment advice. In Ms. Wagner’s bill, brokers would have to provide recommendations that “reflect reasonable diligence, care, skill and prudence,” according to the legislative text.

With fiduciary rule in place, two broker-dealers cut adviser compensation
Bruce Kelly, InvestmentNews

Two prominent broker-dealers are cutting bonuses and payouts to advisers, in some cases because of the Department of Labor’s new fiduciary rule. LPL Financial is eliminating a “general securities bonus” applicable to the volume of equities and fixed income securities traded by an adviser, according to two sources who asked not to be named.

Housing and GSEs

Mortgage lending expected to disappoint as big banks gear up for earnings
Brena Swanson, HousingWire

JPMorgan Chase, Citigroup and Wells Fargo are kicking off earnings season this year early Friday morning, ushering in a wave of financial companies, revealing exactly how companies performed in the second quarter of 2017. The three big banks typically give a preview of how the rest of the mortgage finance market will do.

Home-price Rebound Helps Banks Dodge Loan Mess
Christina Rexrode, The Wall Street Journal

Rising home prices have turned the great home-equity-line reset into a small setback rather than a disaster for the banking industry. Banks let home-equity lines of credit, or Helocs, flow freely in the run-up to the financial crisis, often to borrowers with bad credit or living in overvalued homes.


Top Taxwriters Noncommittal On Overhaul Timeline
Lindsey McPherson, Roll Call

The chairmen of the House and Senate tax-writing committees on Tuesday declined to commit to releasing their unified tax overhaul plan by the end of the month after a key White House official a day earlier had said they hoped to have it “locked in place” before the August recess. Republican leaders from the House, Senate and White House have been meeting regularly to discuss a tax overhaul, hoping to come up with a unified plan that both chambers of Congress can pass and the president can sign into law this year.

Not Just Stocks: Companies Could Use Repatriated Cash to Pay Down Debt
Ben Eisen, The Wall Street Journal

More U.S. companies might buy back bonds than shares if potential tax code changes make it attractive to bring home their overseas earnings. A Bank of America Merrill Lynch risk management survey this week found that 65% of executives said they would use repatriated overseas cash to pay down debt.

Financial Technology

JPMorgan Chase and Finicity reach data-sharing agreement
Ben Lane, HousingWire

For the third time this year, Finicity, a provider of real-time financial data aggregation and insights, announced that it reached a data-sharing agreement with a financial giant. Earlier this year, Finicity reached a deal with Experian that enables consumers to provide income and asset information to lenders digitally through Finicity’s more than 16,000 integrations with financial services institutions.

Bitcoin falls to near one-month low with $12 billion wiped off value since record high 30 days ago
Arjun Kharpal, CNBC

Bitcoin hit a near one-month low on Wednesday and has seen more than $12 billion wiped off its value in the last 30 days, amid nervousness in the cryprocurrency market. The price of bitcoin fell to $2,272.32, its lowest level since June 15, when it slumped to $2,185.96, according to data from CoinDesk.

Can AI make debt collection smarter and easier?
Penny Crosman, American Banker

Artificial intelligence, chatbots and self-service technology have reached a point where they can provide a much-needed makeover to the collections process. Such technologies can help lenders learn to reach out to people at times and in channels that are more conducive to a conversation and repayment.

Opinions, Editorials and Perspectives

‘Communities’ are evolving. Let credit unions do the same
Jim Nussle, American Banker

The advents of the internet and of social media have fundamentally and irrevocably altered the way we think about communities. Ultimately, geography no longer dictates where we work, how we socialize or how we build relationships with one another.

Questions remain for new cop on the banks beat
Chris Odinet, The Hill

The Trump White House announced Monday its pick for the long-awaited vice chair of supervision over at the Federal Reserve. His name is Randy Quarles, an investment banker and former senior Treasury official under both Bush administrations with international and domestic finance in his portfolio.

Research Reports

Investing in the Presence of Massive Flows: The Case of MSCI Country Reclassifications
Terence C. Burnham et al., The National Bureau of Economic Research

Almost $10 trillion is benchmarked to Morgan Stanley Capital International’s Developed, Emerging, Frontier, and standalone market indexes. Reclassifications from one index to another require thousands of investors to decide how to react. We study a comprehensive sample of past reclassifications to inform this decision.