Finance Brief: Wells Fargo Under Investigation Over Auto Insurance Refunds


Government Brief

  • Republican lawmakers are considering legislation that would mix both permanent and temporary changes to the tax code in order to use the reconciliation process to get around Democratic opposition. Combining temporary cuts for individuals with permanently lower rates for corporations could help offset the deficit now that the controversial border adjustment tax, which was estimated to raise more than $1 trillion in revenue over a decade, has been dropped from negotiations. (Bloomberg)
  • A top House conservative said he supported the bundling of eight remaining 2018 appropriations bills into one, but warned against rolling other legislative “challenges” into the package. The chairman of the Republican Study Committee, Rep. Mark Walker (R-N.C.), said any additional items, such as a debt ceiling vote, should be considered independently. (The Hill)
  • Federal Housing Finance Agency regulators say mortgage finance giants Fannie Mae and Freddie Mac could require nearly $100 billion in taxpayer money in the event of a severe U.S. economic downturn. Though the two companies failed the Dodd-Frank mandated stress test, the figure is an improvement on last year’s estimate of a $125.8 billion bailout. (MarketWatch)

Business Brief

  • Federal Reserve Bank of San Francisco officials are taking a closer look Wells Fargo’s practices related to guaranteed auto protection insurance, or GAP, refunds.  The bank admitted to a “lack of oversight and controls” in the program that is supposed to issue refunds to some borrowers when they pay off car loans early. (New York Times)
  • A hedge fund holding about $468 million worth of Puerto Rico’s debt called for the commonwealth’s bankruptcy to be dismissed. Aurelius Capital Management says the creation of PROMESA, the federally appointed oversight board working through Puerto Rico’s debt reduction, violates the U.S. Constitution’s Appointments Clause. (Law 360)
  • Minneapolis Federal Reserve Bank President Neel Kashkari joined a handful of other Fed officials in saying that immigration is essential to economic growth. In his response to a question about a Trump-backed bill that would cut legal immigration by 50 percent over the next 10 years, Kashkari told the Rotary Club of Downtown Sioux Falls that the “math” shows that newcomers to the United States are a source of “economic growth vibrancy.” (Reuters)

Chart Review

Events Calendar (All Times Local)

Tuesday
No events scheduled.
Wednesday
No events scheduled.
Thursday
EPI event on Regulatory Accountability Act 10 a.m.
Friday
No events scheduled.
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General

Top House conservative calls for combined appropriations bills free of debt ceiling increase
Niv Elis, The Hill

Rep. Mark Walker (R-N.C.), the chairman of the conservative Republican Study Committee (RSC), said Monday that he supports combining the eight remaining appropriations bills for 2018 into one piece of legislation. “This decision to consolidate appropriations is the best option available with weeks left before the end of the fiscal year,” Walker said in a statement.

Euro Extends Gain as Stocks Struggle; Gold Climbs: Markets Wrap
Samuel Potter, Bloomberg

Europe’s common currency edged higher and the dollar fell back in a lackluster trading session on Tuesday. Futures on the S&P 500 Index dipped 0.1 percent to 2,475.25.

The deadline for raising the debt ceiling is over six weeks away, but investors are already concerned about possible inaction. The yields on U.S. Treasury bills that are set to expire after the Sept. 29 deadline set by Treasury Secretary Steve Mnuchin for raising the debt ceiling have spiked by as much as 0.15 percentage points, according to Bloomberg data.

Check your math, central banker says: less immigration equals less growth
Ann Saphir, Reuters

Less than week after a U.S. President Donald Trump embraced legislation to reduce immigration, Minneapolis Federal Reserve Bank President Neel Kashkari urged residents of South Dakota to embrace newcomers instead. “Just going to math, if a big source of economic growth is population growth, and your population growth slows, either because you restrict immigration or because you have fewer babies, your economic growth is going to slow,” Kashkari said at the Rotary Club of Downtown Sioux Falls, responding to a question about a Trump-backed bill to cut legal immigration by 50 percent over the next 10 years.

Banking

Wells Fargo, Awash In Scandal, Faces Violations Over Car Insurance Refunds
Gretchen Morgenson, New York Times

Wells Fargo, the scandal-plagued bank, is facing new regulatory scrutiny for not refunding insurance money owed to people who paid off their car loans early, according to people briefed on the inquiry. Just last month Wells Fargo was found to have forced unneeded collision insurance on consumers who financed their car purchases.

U.S. Credit Card Debt Surpasses Record Set at Brink of Crisis
Jennifer Surane, Bloomberg

U.S. consumer credit-card debt just passed an ominous milestone, beating a record set just before the global financial system almost collapsed in 2008. Outstanding card loans reached $1.02 trillion in June, data from the Federal Reserve show, as lenders including Citigroup Inc. and JPMorgan Chase & Co. compete to sign up cardholders who may carry balances — a relatively lucrative business in a prolonged period of low interest rates.

Japanese Bank Fined $600,000 For ‘Spoofing’ U.S. Futures Market
Alexander Osipovich, The Wall Street Journal

Japan’s largest bank agreed to pay $600,000 to settle civil charges by the Commodity Futures Trading Commission that one of its traders repeatedly disrupted trading in futures markets for more than five years. The fine on Bank of Tokyo-Mitsubishi UFJ is the latest move in the CFTC’s crackdown on “spoofing,” an illegal strategy in which traders post orders to dupe other traders into believing there is genuine buying or selling interest.

Financial Products and Investments

Aurelius hedge fund seeks to toss Puerto Rico’s bankruptcy filing
Tom Hals, Reuters

Puerto Rico’s bankruptcy, aimed at restructuring $72 billion of debt, violates the U.S. Constitution and should be dismissed, the Aurelius Capital Management hedge fund said in a court filing on Monday. The U.S. commonwealth’s federally appointed oversight board initiated its debt-cutting proceeding in May under a law known as PROMESA.

J.P. Morgan Chase Axes Popular Debit Card Feature
Kate Fazzini and Emily Glazer, The Wall Street Journal

J.P. Morgan Chase  has quietly canceled a popular program that allowed customers to replace lost debit cards at many of its 5,300 branches, responding to factors including an uptick in fraud, according to people familiar with the matter. The change means that customers who lose their debit card or have it stolen will have to wait for a new one to be mailed to them.

Finra bars former Edward Jones broker for no-show at hearing on client gifts
Investment News

The Financial Industry Regulatory Authority Inc. has barred former Edward Jones broker James V. Marino for failing to appear at a hearing about allegations related to his acceptance of gifts and use of a client’s credit card for his own benefit. Mr. Marino, who worked at the firm’s Pompano Beach, Fla., office, was fired by the firm last November for “accepting gifts totaling approximately $20,500 from a client and using the same client’s credit card … for his personal benefit in the amount of approximately $6,700.”

Housing and GSEs

CFPB gives first glimpse into HMDA portal
Brena Swanson, HousingWire

The Consumer Financial Protection Bureau shed a little more light on what compliance with its controversial 2015 updates to the Home Mortgage Disclosure Act rule looks like in a training session last week. With 2017 more than halfway over, the industry’s deadline to become compliant with the 2015 updates is coming up quick, as most of the updated requirements take effect in January 2018.

Fannie and Freddie could need $100 billion bailout in next crisis, stress test finds
Andrea Riquier, MarketWatch

Fannie Mae and Freddie Mac could need a taxpayer bailout of as much as $99.6 billion if a severe economic downturn gripped the U.S., their regulator said Monday. The Federal Housing Finance Agency released the results of a stress test that examined how the mortgage finance companies would perform in what’s called a “severely adverse scenario.”

Taxes

Republicans Discusss a Mix of Temporary, Permanent Changes
Anna Edgerton, Bloomberg

Republicans struggling to pass a major tax overhaul that doesn’t add to the federal deficit are discussing a kind of compromise: mixing permanent revisions with temporary rate cuts for individuals and businesses. Officials on the House and Senate tax committees are talking with the White House about a hybrid approach that would combine lasting tax code changes to deter offshore profit shifting by corporations with lower rates for a number of years, according to three people familiar with the discussions.

Who Ultimately Pays for Corporate Taxes? The Answer May Color the Republican Overhaul
Richard Rubin, The Wall Street Journal

Tax overhaul efforts in Washington are being shaped by a debate about whether it is workers or investors who bear the greater burden of U.S. corporate taxes. If the load falls mainly on investors, cutting corporate taxes will mostly benefit high-income households, in which there is a greater proportion of stockholdings, through dividends and other disbursements.

Financial Technology

Custodians are charting fintech’s future
Liz Skinner, Investment News

The nation’s largest custodians are racing to align with — and in some cases, buy — the strongest fintech available, as each of the major players seeks to win over advisers by providing the ultimate technology platform. “One of the biggest challenges is to have the marketplace understand you’re not just a custody and clearing provider,” said Tom McCarthy, head of platform technology at Fidelity Institutional.

People’s Bank of China Has Fintech On Its Mind
Yang Jie and Liyan Qi, The Wall Street Journal

China’s central bank is increasing its monitoring of the loosely regulated financial-technology sector — a major source of risk, given the enormous sums involved. The People’s Bank of China said in a report that it is considering expanding its risk-assessment system beyond banks to include major online financial businesses.

The race to connect smart contracts to the real world
Brian Patrick Eha, American Banker

Smart contracts technology is rapidly maturing. Self-executing coded agreements are being harnessed to launch new digital assets and will soon be used by American corporations to issue shares of stock on a blockchain overseen by the state of Delaware.

Opinions, Editorials and Perspectives

Why Tax Reform Is So Fiendishly Difficult
Editorial Board, Bloomberg View

President Donald Trump has been talking about tax reform for months, but true to form, his administration is moving away from a specific proposal rather than toward one. And that’s fine with Democrats: They’ve just set conditions for cooperating on taxes that are as much about gaining political advantage as advancing the prospects of reform.

It starts with rental housing: 3 key considerations for housing finance reform
Ali Solis, REwired

Housing finance reform may be making its long-awaited comeback on Capitol Hill. In recent weeks, the Senate Banking Committee has held a series of hearings on the subject, three years after the committee‘s initial attempt at crafting legislation.

Norquist: 6 reasons Congress shouldn’t have any trouble passing tax reform
Grover Norquist, The Hill

ObamaCare repeal was defeated in the Senate by Arizona Sen. John McCain‘s unexpected “no” vote. So what now?

Cheat sheet: What happens if CFPB’s Cordray leaves early
Kate Berry, American Banker

If Consumer Financial Protection Bureau Director Richard Cordray leaves soon to run for governor of Ohio — as is widely expected — there are questions about who President Trump could pick to fill the vacancy and whether that choice might delay the enactment of the agency’s arbitration rule. Cordray’s term expires in July 2018, but if he is going to join the gubernatorial race, he would likely have to leave by fall at the latest.

Research Reports

The Structure of State Corporate Taxation and Its Impact on State Tax Revenues and Economic Activity
Juan Carlos Suárez Serrato and Owen M. Zidar

This paper documents facts about the state corporate tax structure — tax rates, base rules, and credits — and investigates its consequences for state tax revenue and economic activity. Overall, changes in state tax bases have made the state corporate tax system more favorable for corporations and are reducing the extent to which tax rate increases raise corporate tax revenue.