Wall Street’s favorite court in the crosshairs

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Apr 02, 2024 View in browser   By Michael Stratford and Zachary Warmbrodt Presented by Editor’s note: Morning Money is a free version of POLITICO Pro Financial Services morning newsletter, which is delivered to our subscribers each morning at 5:15 a.m. The POLITICO Pro platform combines the news you need with tools you can use to take action on the day’s biggest stories. Act on the news with POLITICO Pro. QUICK FIX A major overhaul of U.S. fair lending rules is the latest Biden-era policy to come to a sudden halt in a federal court in Texas that’s become the go-to place for banks and business groups seeking to fend off new regulations. Judge Matthew Kacsmaryk, a Trump appointee, late on Friday blocked the Federal Reserve and other financial regulators from implementing their new framework for assessing whether banks are following the Community Reinvestment Act, a landmark 1977 anti-redlining law. Kacsmaryk ruled that regulators ran afoul of the law in their attempt to modernize the rules to account for things like online deposits and take a more expansive view of the communities banks serve beyond just physical branches. He also ruled that the changes were so extensive – that is, they implicated a “major question” of economic importance – that they needed to be expressly authorized by Congress. Proponents of the new CRA rules want to see regulators appeal. David Dworkin, head of the National Housing Conference, said the Texas court was “carefully curated” and that the practice known as judge-shopping “shouldn’t be necessary when you’re confident in your case.” The Fed, OCC and FDIC declined to comment on the litigation. The regulators didn’t raise objections about the business groups and their Texas affiliates filing the case there. Kacsmaryk’s ruling is preliminary and will be further litigated. But it’s the latest high-profile example of industry groups turning to the conservative Northern District of Texas court to thwart policies from Biden-era regulators – a practice that’s drawing increasing scrutiny from opponents on the left. Senate Majority Leader Chuck Schumer on Monday vowed that the Senate would “consider legislative options” to address judge shopping after the chief judge of the Northern District of Texas said his court wouldn’t follow new recommendations aimed at bolstering the random assignment of cases. Some Republicans, including Senate Minority Leader Mitch McConnell, had decried the recommendations, calling them one-sided. “Democrats are salivating at the possibility of shutting down access to justice in the venues favored by conservatives,” McConnell said last month. Business groups have defended their strategy. Jennifer Dickey, deputy chief counsel for the U.S. Chamber, said in a statement that the organization “brings lawsuits with local partners across the country, where government micromanagement over businesses is often felt most acutely.” But liberal organizations are increasingly pushing back on the business-friendly court. Liz Zelnick, who directs the economic security and corporate power program for Accountable.US, said the group was pushing to expose the legal tactics of “moneyed, well connected groups” that she said were trying to “maximize profits and block the Biden administration at every turn.” Accountable.US notched a victory last month when Judge Reed O’Connor, a Trump appointee, recused himself from hearing banks’ challenge to the CFPB’s new limits on credit card late fees after the group raised questions about his investments in financial institutions that could benefit. Another Trump appointee who took over the case, Judge Mark Pittman, also unexpectedly pushed back against the Chamber and bank trade associations for filing their case in his court. Pittman last week sided with the consumer bureau and kicked the case to D.C. rather than blocking the rule. That fight is ongoing and could heat up again today. Banks have turned to the 5th Circuit Court of Appeals to intervene and keep the case in Texas. Last week, the appeals court said it was temporarily blocking Pittman’s decision until 5 p.m. today. Yet the case had already been transferred to the D.C. court where it’s been assigned to Judge Amy Berman Jackson, an Obama appointee. It’s Tuesday — Send tips to zwarmbrodt@politico.com. Follow Michael (@mstratford).   A message from Electronic Payments Coalition: CRS: NO EVIDENCE THAT DURBIN-MARSHALL CREDIT CARD BILL WOULD HELP CONSUMERS OR SMALL BUSINESSES The independent Congressional Research Service (CRS) is the latest organization to release a report questioning whether the Durbin-Marshall Credit Card Bill would help consumers or small businesses. CRS echoed an earlier report by the Richmond Fed noting that consumers failed to see any meaningful cost savings because of similar legislation imposing routing mandates and price caps on debit card interchange. Learn more HERE.   Driving the day SEC Chair Gary Gensler is among the agency officials appearing at the two-day “SEC Speaks” conference in Washington … Job openings data for February is out at 10 a.m. … Fed Governor Michelle Bowman discusses bank M&A and de novo formation during a virtual workshop on the future of banking hosted by the Kansas City Fed at 10:10 a.m. … IMF managing director Kristalina Georgieva speaks at the Center for Global Development at 3:30 p.m. Investors dump Trump — CNBC reports that shares of former President Donald Trump’s social media company plunged by more than 20 percent on Monday, after it revealed a 2023 net loss of $58.2 million. The company said it ended last year with just $2.7 million in cash on hand. In other Trump financial news, the former president posted a $175 million bond in his civil fraud case, preventing authorities from seizing his assets while he appeals. The bond was provided by Los Angeles-based Knight Insurance Group. A problem for Biden — Bloomberg reports that economic pessimism among those under 30 is spiking. Recent polling data indicates that adults 18-29 are more than twice as likely to cite the economy as their top concern when compared with older voters. Ukraine update — Speaker Mike Johnson is floating a potential expansion of natural gas exports as part of the Ukraine aid deal that would also let the U.S. seize Russian assets. Our colleagues Jordain Carney and Anthony Adragna report that it may not be enough to win over skeptical Republicans.   SUBSCRIBE TO GLOBAL PLAYBOOK: Don’t miss out on POLITICO’s Global Playbook, the newsletter taking you inside pivotal discussions at the most influential gatherings in the world, including WEF in Davos, Milken Global in Beverly Hills, to UNGA in NYC and many more. Suzanne Lynch delivers the world's elite and influential moments directly to you. Stay in the global loop. SUBSCRIBE NOW.     Economy Another Fed freakout — A stronger-than-expected manufacturing report appears to have further throttled Wall Street’s hopes of Fed rate cuts this year. An Institute for Supply Management survey of executives indicated that the U.S. manufacturing sector expanded in March for the first time since Sept. 22 and that raw materials prices also continued to increase. In the wake of the report, traders scaled back bets that the Fed will begin lowering interest rates in June, per CME FedWatch. Treasury yields rose. It followed Friday’s PCE release that also showed inflation stubbornly above the Fed’s target in February. EY-Parthenon chief economist Gregory Daco told MM that the new data on manufacturing sentiment is encouraging but that it comes as actual manufacturing output has been declining. He describes it as a “nuanced picture.” “I don’t think the Fed will be taking any strong signal in terms of any fear the economy is re-accelerating,” he said. “One, because there is still that disconnect between soft data and the hard data, the sentiment and output. And two, because you are in an economy that is heavily focused toward services. Manufacturing is about 15 percent of the economy.” “My perspective is there is excessive market focus on each and every single data release,” he added. “Every time there’s a data release, whether it’s good or bad, it shifts market expectations fairly dramatically.” Another data point for you: The Atlanta Fed raised its estimate of first quarter real GDP growth to 2.8 percent, up from 2.3 percent on Friday.   A message from Electronic Payments Coalition:   On the Hill New SBA fintech scrutiny — Senate Small Business Chair Jeanne Shaheen (D-N.H.) is the latest lawmaker to press the SBA for answers on its decision to grant the fintech firm Funding Circle a license to issue government-backed loans. Republicans and Democrats are raising questions about the move after the U.K.-owned firm revealed it was considering selling its U.S. business as it dealt with losses. Shaheen told SBA Administrator Isabel Casillas Guzman in a letter Monday that she was “troubled.” “Questions about the company’s current and future ownership that were raised during your appearance before our committee deserve further scrutiny,” she said. Guzman testified last month that Funding Circle was “in a strong position in terms of being able to deliver against their mission of small-dollar lending.” At the time, Funding Circle said it had received “expressions of interest” in its U.S. business but that the “early stage” conversations were not impacting the ability of its SBA arm to maintain minimum capital requirements or to begin offering 7(a) loans. An SBA spokesperson told MM Monday that the agency “has and will continue to diligently follow all appropriate processes and regulations as it explores how to improve its programs to best serve the needs of today's entrepreneurs.” Funding Circle said in a statement that its intention is “any transaction regarding the U.S. business would be to a well-capitalized U.S. domiciled entity willing to provide the capital to enable Funding Circle USA to continue making 7(a) loans subject to SBA approval per long-standing regulations regarding the transfer of lending authority.”   Access New York bill updates and Congressional activity in areas that matter to you, and use our exclusive insights to see what’s on the Albany agenda. Learn more.     Regulatory Corner First look: A bank merger rethink — MM has a preview of a provocative bank M&A talk that Federal Financial Analytics managing director Karen Petrou will give at a Kansas City Fed workshop today. As banking agencies signal tougher scrutiny of proposed mergers, Petrou makes the case that regulators are failing to use tools they already have to address conflicts of interest, concentration and unfair competition ahead of M&A reviews. “How much of this is necessary in merger review and how much could be accomplished by better prudential regulation along with vigilant supervision and meaningful enforcement?” she says in remarks prepared for her talk, which you can read here.   A message from Electronic Payments Coalition: CRS QUESTIONS WHETHER DURBIN-MARSHALL CREDIT CARD BILL WOULD HELP ANYONE AT ALL Every member of Congress should read the CRS analysis which discusses the impact the Durbin-Marshall Credit Card Bill could have on small businesses and American families. Report after report has plainly demonstrated that consumers and small businesses did NOT save any money when Congress passed the 2010 Durbin Amendment, imposing new mandates on debit cards. Now, a decade later, why would anyone assume a monumental restructuring of our nation’s secure, worry-free credit card system would yield different results? After considering the facts, the only logical solution would be to strongly OPPOSE the Durbin-Marshall Credit Card Bill. Click HERE to learn more.   Fly Around People moves — Ryan Tracy, formerly of the Wall Street Journal, has joined Capitol Account as co-writer … Amy Best Weiss has been promoted to executive vice president at American Express, where she’ll lead global government affairs … Karolina Arias has joined State Street as vice president in its U.S. public policy office … Bert Kaufman has returned to the Commerce Department as senior adviser to Secretary Gina Raimondo for private sector engagement, where he will focus on her engagement with CEOs, Daniel Lippman reports.   Follow us on Twitter Mark McQuillan @mcqdc Zachary Warmbrodt @Zachary Victoria Guida @vtg2 Declan Harty @ @declanharty Eleanor Mueller @eleanor_mueller Katy O'Donnell @katyodonnell_ Sam Sutton @samjsutton   Follow us

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