On June 8, the House voted along party lines to repeal many of the stricter regulations of the Dodd-Frank Act enacted after the 2008 financial crisis, taking the first step in a long-held Republican desire to roll back the landmark rules they complain are hurting banks, restricting consumer credit and slowing economic growth. The Financial Choice Act, which passed the House on a vote of 233 to 186 with all but one Republican voting in favor, is expected to face major opposition in the Senate.
Its major changes include repealing the trading restrictions, known as the Volcker Rule and scrapping the liquidation authority in favor of enhanced bankruptcy provisions designed to eliminate any chance taxpayers would be on the hook if a major financial firm collapsed. The bill also would repeal the so-called Fiduciary Rule, a pending Obama Administration Labor Department regulation that requires investment brokers who handle retirement funds to put their clients’ interests ahead of their own compensation, company profits or other factors.
The Financial Choice Act would also stop the Consumer Financial Protection Bureau (CFPB) from undertaking certain activities focused on monitoring financial firms for compliance with consumer protection laws. The legislation specifically prohibits the bureau from writing any regulations on payday and car-title loans. The Bureau's director would be subject to removal by the President for any reason and the agency's independent funding stream would be eliminated, making it subject to congressional appropriations.
In addition to House's changes in to the Dodd-Frank legislation, on June 12, the Treasury Department unveiled more than 100 changes to the nation's financial regulatory framework primarily (though not exclusively) focused on regulation. Changes proposed by the Department include easing up on restrictions big banks now face in their trading operations, lightening the annual stress tests they must undergo, and reducing the powers of the CFPB. The plan would also expand the authority of the Financial Stability Oversight Council and change the way global capital standards are implemented. Smaller banks would get some relief as well: Lenders with $50 billion or less in assets would have to jump through fewer regulatory hoops than those with multitrillion-dollar balance sheets.
Takeaway: With House approval of the Financial Choice Act, the bill now moves to the Senate where it faces an uphill climb unless there are significant modifications to attract Democratic support. Senate Banking Committee Chairman Mike Crapo (R-ID), who has been working closely with Committee Ranking Member Senator Sherrod Brown (D-OH) to craft bipartisan legislation, said he would work with all stakeholders to "strike a balance" when it comes to financial reform. Senator Crapo has set his own target of early 2018 for passage of any financial reform legislation.
