Update 836 — Deregulation and Beyond:
Econ. Policy Agenda in Congress, Part 2
A modest gain for core consumer prices by 3.2 percent year-on-year in December’s CPI report — just under expectations and the first reduction in core prices since July — led this morning’s news. We will dive into the report and its implications for Fed monetary policy in Friday’s round-up.
Today, we return to a consideration of the economic policy agenda ahead for the GOP-run 119th Congress, with a focus on major (de)regulatory issues, including financial — consumer protection and crypto — and housing policy, along with a look at the status and future of efforts to ban stock trading by members of Congress.
Best,
Dana
This Congress, Republicans will launch in on purported efforts to enact a wide-ranging economic agenda over the next two years. Last week, we explored the coming fights related to government funding and reconciliation. Today, we take a look at the legislative fights we expect related to consumer protection, crypto, GSE conservatorship, and congressional stock trading in the 119th Congress.
Attacks Against the CFPB and Consumer Protection
The financial industry and its Republican allies in Congress have attacked the Consumer Financial Protection Bureau (CFPB) since its inception in the aftermath of the 2008 financial crisis. With a Republican trifecta, these attacks against the independent consumer watchdog agency are only likely to intensify.
Last Congress, Republicans on the House Financial Services Committee (HFSC) led and advanced a legislative package – the CFPB Transparency and Accountability Reform Act – to:
- abolish the Bureau’s single-director leadership structure,
- move the Bureau into the appropriations process, and
- add requirements that make it harder for the Bureau to issue guidance, orders, rules, and regulations.
Committee Republicans are likely to revive aspects of the legislation under the leadership of incoming HFSC Chair James French Hill (R-AR). Hill who says he is committed to working with incoming Chair of the Senate Committee on Banking, Housing, and Urban Affairs Tim Scott (R-SC) to rein in the CFPB this Congress. Scott has called changes at the CFPB “absolutely necessary” and referred to the Bureau’s current funding structure as “unacceptable.”
The CFPB’s leadership and funding structures were designed to insulate the agency from partisan influence and allow it to protect consumers effectively. Efforts to undermine the agency’s structure could ultimately erode its ability to fulfill its mandate, to the benefit of financial institutions engaged in deceptive and unfair practices at the public’s expense.
During his first term, Trump-appointed directors reduced enforcement actions, pushed for smaller settlements, rolled back regulation, and reduced oversight of financial markets and institutions under the agency’s watch. Similar action will likely be seen at the Bureau in the coming years though Trump has not nominated a CFPB Director yet.
Congressional Republicans are also likely to attempt to block finalized rules in recent months by the CFPB via the Congressional Review Act (CRA) to reduce overdraft fees charged by America’s largest financial institutions and remove medical bills from most credit reports. Republicans may seek to do this by passing resolutions disapproving of the rules within a sixty legislative-day window under the CRA process.
Crypto
After political donations from the crypto industry helped put Trump as well as other pro-crypto politicians in office — including several Democrats — it should come as no surprise that the new Congress is likely to be receptive to the demands of the nascent industry. At the top of the agenda is creating a clear regulatory framework that provides light oversight while giving the crypto industry the legitimacy that it so desires. The previous Congress put forward the Financial Innovation and Technology for the 21st Century Act (FIT21, H.R.4763) which would:
- Decide which digital assets would fall under the SEC and CFTC’s jurisdiction.
- Create rules for registration and disclosure requirements for actors in the digital assets market depending on the specifics of the digital assets being dealt with, such as the kind of blockchain system it uses and its source code.
FIT21 would likely serve as a jumping-off point for further crypto regulation legislation. When FIT21 made it through the House for the first time, two amendments were added (H.Admt.921 and H.Admt.922), with neither of them significantly increasing regulations for digital assets. It is doubtful that FIT21 would become substantially more restrictive for the crypto industry if considered again this Congress. The incoming HFSC Chair French Hill (R-AR) is a high-profile crypto proponent and has made passing a regulatory framework for the industry a top priority. The crypto industry will also push the Trump administration to appoint and Congress to confirm crypto-friendly regulators, such as Trump’s pick for SEC chair Paul Atkins, who will undoubtedly do little to rein in the industry. Congressional support will most likely give more legitimacy to digital assets while turning a blind eye to abuses of cryptocurrency such as money laundering and scams are less likely to get significant scrutiny.
One of the more unusual campaign promises Trump made regarding crypto was his promise to create a “strategic national Bitcoin reserve” that some members of the congressional GOP have jumped on board with, causing the price of Bitcoin to skyrocket.
Senator Cynthia Lummis (R-WY) introduced a bill last Congress titled the Boosting Innovation, Technology and Competitiveness Through Optimized Investment Nationwide (BITCOIN) Act, and looks likely to reintroduce it again. Her bill would authorize the federal government to purchase one million bitcoin tokens over five years. The US already holds around 200,000 Bitcoin tokens worth around $19 billion which were confiscated in various criminal cases, but actively buying and selling Bitcoin in the same way that the federal government buys and sells oil would be a much bigger step. The big difference is that Bitcoin does not serve much of a strategic purpose beyond serving as a speculative investment, whereas oil is a vital resource. Proponents have suggested that a Bitcoin reserve would help pay down the national debt, but that assumes that the infamously volatile asset continues to go up in value, while a crash in the crypto market would end up having the opposite effect, with American taxpayers essentially forced to invest billions of dollars in Bitcoin for this scheme with dubious benefit to the public, while paying for losses in value.
Ending GSE Conservatorship
A push to end the conservatorships of Freddie Mac and Fannie Mae, government-sponsored enterprises (GSEs), was reignited with Trump’s reelection. The 17-year conservatorship has kept the two mortgage giants and their business decisions under the scrutiny of the Federal Housing Finance Agency to ensure market stability and held them to the obligations they made to the Treasury following their bailout in 2008.
The GSEs have been under federal government conservatorship since 2008, which was intended to save the companies so crucial to the mortgage industry as well as push through reforms. Trump attempted to end the conservatorships towards the end of his first term, but those plans were put on hold thanks to the pandemic. Additionally, a bill (HR 5549) was put forward in the 118th Congress to end the conservatorship, but it only had one sponsor (Rep. Andrew Ogles, R-TN) and died in committee. Now, many Trump allies, such as Larry Kudlow and Bill Ackman, are pushing for him to give it another go. Just last week, the US Treasury and the Federal Housing Finance Agency (FHFA) jointly issued guidelines on releasing Fannie Mae and Freddie Mac from government supervision, so the groundwork is being laid for finally ending the conservatorship.
The big questions are what the ultimate plan will be and what the timeline will be. While the GSEs have made remarkable improvement in getting back on solid financial footing while under conservatorship, they still need over a hundred billion dollars to meet the FHFA’s capitalization standards, which is to say nothing of paying back the Treasury for the bailout they received in 2008. Additionally, any plan for ending the conservatorship would likely need to maintain the federal government’s guarantee on the GSEs’ mortgage-backed securities, as industry groups such as the Mortgage Bankers Association have specifically demanded that the federal backstop continue. However, the Trump administration goes about it, ending the GSE conservatorship will require a great deal of finesse and careful planning, as reprivatization runs the risk of raising mortgage rates and destabilizing the mortgage market. With everything else that Trump wants to accomplish in his first 100 days, it seems unlikely that ending the conservatorship will be a major initial priority for the incoming administration, let alone for Congress.
Banning Stock Trading by Members of Congress
A ban on stock trading by members of Congress has been broadly popular among voters of all parties and legislation to implement such a ban has received support from lawmakers on both sides of the aisle. Last year, the Ending Trading and Holdings In Congressional Stocks (ETHICS) Act, was successfully advanced out of Committee in a bipartisan 8-4 vote, marking the first time a bill to ban trading of individual securities by members of Congress was passed out of Committee.
Within the first few days of the new Congress, a strong bill to ban Congressional stock trading – H.R.253, Bipartisan Restoring Faith in Government Act – has already been reintroduced in the House. The bill led by Representatives Brian Fitzpatrick (R-PA), Alexandria Ocasio-Cortez (D-NY), Cory Mills (R-FL), and Raja Krishnamoorthi (D-IL) would prohibit members of Congress, their spouses, and dependents from owning or trading individual stocks while they serve.
With strong momentum behind the effort, there is potential for a strong bipartisan bill to finally be passed this Congress, making much-needed common-sense reforms. There is an enormous conflict of interest inherent in members of Congress owning and trading individual stocks and such activity harms public trust and the integrity of the legislative process. This Congress presents an opportunity for members of both parties to unite behind legislation and finally address the issue.
Conclusion
Democrats should explore any opportunities to work with Republicans on broadly supported bipartisan issues like restricting Congressional stock trading, but keep front of mind that a united Democratic front could be decisive in key fights given the narrow GOP majorities in the House and Senate over the next two years. It is crucial that Democrats unite in the new Congress to protect our federal institutions and the good work of the Biden administration and oppose the Trump administration’s harmful and extreme agenda.