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Washington Wrap — Battle over arbitration rule heats up in the Senate

The Washington Wrap is a weekly look at regulation, news and chatter from the Capitol. Send tips and ideas to brian.cheung@spglobal.com.

On Capitol Hill

Congress is on recess through Sept. 5, but the Senate is still rumbling over efforts to repeal the Consumer Financial Protection Bureau's arbitration rule, which restricts forced arbitration clauses on financial products. The fate of the rule rests in the hands of the Senate. The House voted to repeal the rule on party lines, and the White House has stated an intention to sign the repeal measure if passed by both chambers.

But Senate Republicans need a simple majority to pass a repeal, which is already a challenging feat with Republicans controlling a very narrow majority of 52 seats. On Aug. 7, The Wall Street Journal reported that Republicans may have already lost one of their own votes, as Sen. Lindsey Graham, R-S.C., voiced support for the rule. The Journal reported that Republican Sens. Susan Collins of Maine, Lisa Murkowski of Alaska and John Kennedy of Louisiana are undecided on the rule, and Sen. John McCain of Arizona may be unable to vote if he takes leave for brain cancer treatment.

Meanwhile, Sen. Elizabeth Warren, D-Mass., is doing some fact gathering to defend the rule. Warren, who helped create the CFPB, wrote letters to the CEOs of 16 large financial institutions, including Bank of America Corp. and JPMorgan Chase & Co., asking for a public position on whether their companies support the rule. Warren said that while industry lobbying groups have been vocal about their opposition to the CFPB rule, she has no clarity on where the companies and executives themselves stand on the issue and for what reasons.

"If your lobbyists are taking such strong positions against the rule, is there a reason both you and your bank have been unwilling to take a public position?" Warren wrote.

The CFPB remains the subject of Republican ire. On Friday Aug. 4, GOP members of the House Financial Services Committee recommended contempt proceedings against CFPB Director Richard Cordray for allegedly failing to comply with the committee's subpoena requests related to the arbitration rule.


Democrats on the House Financial Services Committee asked Chairman Jeb Hensarling, R-Texas, to subpoena Deutsche Bank AG over possible relationships between President Donald Trump, his associates, and mirror trades in Russia. Ranking Member Maxine Waters, D-Calif., argued that Deutsche Bank CEO John Cryan and company counsel ignored previous requests for cooperation in investigating the matter.

Deutsche Bank expects subpoenas as investigations into collusion with Russia continue, The Guardian reported in July.

At the regulators

Wells Fargo & Co. continues to face regulatory scrutiny in light of issues with its auto lending business. On Aug. 8, American Banker reported that the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau are investigating Wells Fargo's guaranteed auto protection insurance program.

The Federal Reserve Bank of San Francisco is also reportedly probing the company, according to The New York Times.

On Aug. 10, The Wall Street Journal reported that Wells Fargo Chairman Stephen Sanger is likely to step down before the company's annual meeting in spring 2018, citing "people familiar with the matter."


After Acting Comptroller of the Currency Keith Noreika tussled with CFPB Director Richard Cordray over the arbitration rule, Noreika is now picking a fight with the Federal Deposit Insurance Corp. over low numbers of de novo creations. In a July 28 podcast, Noreika called out the FDIC for failing to act on a number of applications — approved by the Office of the Comptroller of the Currency — for deposit insurance.

The FDIC responded by saying that the OCC's chartering process is completely different from the FDIC's role in assessing eligibility for deposit insurance. The FDIC further added that it has approved nine applications since 2011.


The U.S. Securities and Exchange Commission told Congress on Aug. 8 that Dodd-Frank had little impact on capital and market liquidity and in some cases actually improved financial conditions. The 315-page report, commissioned to help guide the appropriations process, said that postcrisis regulatory reforms actually slightly improved small-company initial public offerings and primary market security issuance.

The report also addressed the Volcker rule, which limits proprietary trading, and said the rule may have caused a reduction in capital commitment in corporate bond markets. But the report said there has not been a "commensurate decrease" in the number of dealers participating in the market.

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