Congressional Investigations Under House Democratic Leadership

Following their success in the midterm elections, Democrats are expected to increase investigations of financial institutions. Rep. Maxine Waters, D-Calif., a staunch proponent of increased bank regulation, megabank accountability, and consumer protection, is now the majority chair of the House Financial Services Committee, a position that comes with significant subpoena and investigatory powers. In addition, Rep. Elijah Cummings, D-Md., who spent the past two years trying to gather information about possible corruption in the Trump administration, now chairs the House Oversight and Reform Committee (formerly, the House Committee on Oversight and Government Reform), giving Democrats broad investigatory authority. Rep. Cummings is expected to launch numerous investigations of government agencies and their activities, including relationships with private sector actors. Indeed, on Jan. 2, 2019, Rep. Cummings stated that the committee’s name change “better reflect[s] our true jurisdiction, which covers both government and the private sector.” With these changes, megabanks that have been implicated in financial misconduct, and financial institutions with ties to President Trump and those around him can expect to be the subject of congressional investigations.

As a result of the Democratic Party’s success in the 2018 congressional elections, on Jan. 3, 2019, Rep. Waters replaced Rep. Jeb Hensarling, R-Texas, as chair of the House Financial Services Committee. Under Rep. Hensarling, the committee focused more on deregulation than on investigations and oversight, and the former chairman did not act on multiple requests from Democrats for probes into certain financial institutions’ alleged or potential improper activity. Rep. Waters is likely to ratchet up the House Financial Services Committee activity with a focus on investigations of banks, in addition to enforcement of the Dodd-Frank Act and Consumer Financial Protection Bureau (CFPB) accountability. Further, Rep. Cummings, who replaced Rep. Trey Gowdy, R-S.C., as the chair of the House Oversight and Reform Committee, has made it clear that the Trump Organization and President Trump’s finances are now a major part of the committee’s oversight agenda. 

Forecasting Congressional Investigations Under House Democratic Leadership
With Rep. Waters at the helm, the House Financial Services Committee will focus on megabanks’ accountability and clamp down on perceived unsound financial services practices. Rep. Waters has pushed for probes to uncover any illicit financial dealings of President Trump and his associates, especially in connection with potential Russian corruption and money laundering. Rep. Waters has also proposed legislation that targets large banks with questionable financial practices, including legislation that would allow regulators to break up big banks that “repeatedly harm consumers.” Potential targets of the committee include banks that have been cited for repeatedly violating consumer protection laws or that have engaged in unsound banking practices. Under Rep. Waters’ leadership, the House Financial Services Committee will also likely prioritize strengthening CFPB accountability, which may entail inquiry into the CFPB’s significant decrease in fines and enforcement actions against financial institutions since 2016. Additionally, on Dec. 19, 2018, Rep. Cummings sent a clear signal to the administration that President Trump’s financial ties would be an area of focus for the House Oversight and Reform Committee, sending out more than 50 letters requesting documents and records pertaining to issues the committee intends to investigate, including records relating to payments from foreign governments and foreign-controlled entities to the Trump Organization. Banks reported to be involved in any of the above should not be surprised if they come under congressional scrutiny.

The anticipated directional shift in focus for these key House oversight committees signals that banks of all sizes, but especially large financial institutions, may be targets of future congressional investigations or face hearings and subpoenas aimed at uncovering potentially illicit financial dealings, consumer financial protection violations, or unsound banking practices. Now is a good time for banks to identify and address, where necessary, their perceived vulnerabilities so they are prepared should they undergo a congressional investigation. 

Banks should consider proactively assessing their risk and reviewing likely areas of focus of the new Democratic-majority House. This includes identifying and assessing any public information that implicates them in consumer fraud, money laundering, or other illicit activity; evaluating the effectiveness of their policies and procedures relating to potential areas of inquiries; and reviewing high-risk customers, customer relationships, and business products for potential vulnerabilities and indicators of connections with Russian corruption influences and kleptocrats. Banks should also consider developing a response plan and take steps to remediate any issues that are identified. 

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