The House passed retirement legislation (see below) and a bill to override actions at the Consumer Financial Protection Bureau. The Senate passed legislation to crack down on robocalls, approved a handful of Trump administration nominations and passed a $19.1 billion disaster aid bill (see below).
Both the House and Senate will be on recess until June 3 to celebrate Memorial Day.
Financial Services Issues
Best Interest Rule.
The SEC is nearing completion of its rule to establish a new best interest standard for brokers (called Regulation Best Interest or Reg BI). The Commission will vote on a final rule on June 5. The development of Reg BI has been a long saga, with the latest chapter beginning with the SEC’s release of a proposal last April after a federal appeals court invalidated the Department of Labor’s (DOL) fiduciary rule. Under the leadership of Chairman Jay Clayton, the SEC has sought to put forward a strong standard that requires brokers to act in their clients’ best interests when making an investment recommendation while also preserving investors’ access and choice regarding investment advice and products. This negative impact was a major problem with the DOL fiduciary rule. Some Democrats, including House Financial Services Chairwoman Maxine Waters (D-CA), have argued that the SEC’s proposal does not go far enough in raising standards for brokers beyond the existing suitability requirement and are likely to be critical of the final rule as well. Several states also would like to go further and have proposed their own fiduciary rules. These actions have raised concerns about brokers being subject to a patchwork of conflicting state requirements and have given the Commission greater urgency in finalizing Reg BI.
Other Issues in Play
US-China Trade Negotiations.
We wish we had something positive to report but we don’t. Negotiators from both countries stayed home in their capitals this week and don’t currently have travel plans to visit each other in an effort to advance the negotiations. The talks have seemingly hit a brick wall with hardliners from both sides now calling the shots and pulling both countries further apart. The pathway forward is muddled at best. Perhaps a market meltdown or other significant economic impacts from the tariffs will nudge one side to offer some new concessions. The drastic halt in momentum puts great pressure on the likely meeting in Japan in late June between President Trump and President Xi. The prospects for a deal will either show some promise or reveal an even weaker pulse at that time. Until then, progress will likely either be frustratingly slow or non-existent.
Congressional leaders are nearing a budget "caps" deal. This would raise the capped level of federal spending that was imposed several years ago. We continue to think that increased spending across the board is the most likely outcome. However, it is important to note a few things about this potential deal. First, it would raise the debt limit and therefore would take the potential for a government default on its debt off the table. This is very important, because a default would be a major blow to the markets. Second, this is a deal on spending levels, not on the specific allocation of funds. Therefore, it lowers the probability of another government shutdown over the next two years, but does not completely close the door on that possibility since Congress would still need to pass the actual spending bills. Finally, this is a deal in principle; it is not done until it has passed. There is always a chance for a rebellion from the right and left wings of the two political parties. This potential deal is progress even though it sidesteps major issues like the debt and deficit.
For weeks, the Trump administration, Senate Republicans and House Democrats have been working out differences on a bill to provide aid to people and communities affected by wildfires, flooding, hurricanes and other natural disasters in various states and Puerto Rico. Even after lawmakers resolved differences on how funds for humanitarian aid are to be allocated, there were lingering disagreements on funding for border security. To reach an agreement negotiators had to jettison the controversial provisions addressing border funding. The Senate passed the $19.1 billion package yesterday and the House will pass it after Memorial Day. In a week where partisanship was on full display, this successful effort shows that Congress can still do some basic things in a bipartisan fashion.
The House this week passed a bipartisan bill on retirement security known as the SECURE Act. This bill, which we have previously discussed in this publication, will allow small businesses to band together in providing workers retirement savings accounts. It also will increase the required minimum distribution age from 70 ½ to 72. We are encouraged by the House's passage and expect the Senate to try to pass its version before August. While we think that is possible, it may take a little longer to reach a bipartisan consensus in the upper chamber. Either way, we remain optimistic that a version of this retirement legislation will become law this year.
Increasing the federal minimum wage remains a top priority for House Democrats. While the majority of Democrats support raising the federal minimum wage, there is some disagreement on how that increase should be implemented. The lack of consensus among House Democrats has stalled any action on this issue. A bill introduced by Congressman Bobby Scott (D-VA) would increase the federal minimum wage from $7.25 to $15 an hour by 2024. It is just shy of having enough votes to pass the House and has faced some resistance from lawmakers in more moderate and rural states. Those lawmakers have rallied around an alternative bill introduced by Congresswoman Terri Sewell (D-AL) that proposes raising the federal minimum wage to $15 an hour at a tiered rate based on the cost of living in different states. While this bill isn't likely to gain much traction, it highlights the concern from some Democrats (particularly those in states where wages and the cost of living are generally lower) about doubling the existing federal minimum wage in just five years. As House Democrats try to find unity on this issue, we believe Congressman Scott's bill will ultimately pass the House this summer. This legislation will not advance in a Republican Senate, but it will serve as an important symbolic message for Democrats.
Medical Surprise Bills.
Bipartisan health care legislation supported by the Trump administration is about to advance in a House committee. The bill addresses the problem of surprise medical bills that patients often receive following visits to hospital emergency rooms. Specifically, it will prevent out-of-network emergency care providers from charging patients more than the amount that would be charged by their in-network care provider in most circumstances. The bill will change somewhat as it moves through the House. The Senate is also working on a similar bill. This bill has a high likelihood of being passed and signed into law this or next year.
Family and Medical Leave.
Both Democratic and Republican lawmakers are exploring legislative options to allow workers to take paid time off to care for a new baby or a sick family member. However, a hearing in a House committee highlighted the two parties' divergent approaches to this issue. The House could potentially act on a bill by Congresswoman Rosa DeLauro (D-CT) that would cover parental leave, medical leave, and caregiver leave for up to 12 weeks. It would be paid for by contributions of 0.4% from employers and employees. However, that approach will not advance in the Senate. Senators Bill Cassidy (R-LA) and Kirsten Sinema (D-AZ) are working on a bipartisan alternative and, if they can reach agreement, this bill has a shot of advancing. The more likely scenario is that these efforts will stall and that there will be renewed efforts following the 2020 elections.
New York City Mayor Bill de Blasio (D-NY) became the 23rd Democratic candidate to enter the race for the Democratic nomination. With Democrats changing their nomination rules and process and with such a large field, we wonder about the possibility of a brokered convention. The 2020 Democratic primary will feature proportional allocation in every state for candidates who win over 15% of the vote. As such, it would not be a surprise to see states split their delegates among several candidates, making it harder for any one candidate to collect enough delegates to win the nomination on the first ballot at the convention. Both New York and California moved their primary dates earlier, which means 64 percent of all delegates will be chosen in the first six weeks of primary season. This will encourage candidates to stay in the race until then, further spreading the delegate allocation. Finally, a change to the rules this election prevents superdelegates from voting on the first ballot at convention. Instead, they only are allowed to vote on the second ballot onward. While it's too early to predict whether we will have a brokered convention, this is a distinct possibility that we will hear more about as the campaign continues to ramp up.