House Passes Bill to Replace and Repeal Several Dodd-Frank Regulations
On June 8, 2017, the U.S. House of Representatives voted to repeal and replace certain provisions of the Dodd–Frank Act (Dodd-Frank) by passing the Financial CHOICE Act. House Financial Services Committee Chairman Jeb Hensarling (R-Texas), who introduced the Financial CHOICE Act last year, stated it will follow the Trump Administration’s Core Principles for regulating the U.S. Financial System. The Financial CHOICE Act still needs to be passed by the Senate, where it will face strong opposition, but Hensarling is optimistic that some of the provisions will pass the Senate. All but one Republican voted for the bill, and all Democrats opposed it.
The major highlights of the Financial CHOICE Act include an end to taxpayer bailouts of large financial institutions, reforms to the Consumer Financial Protection Bureau (CFPB), and regulatory relief for community financial institutions.
The Financial CHOICE Act would end “big bank” bailouts through a number of Dodd-Frank repeals, including replacement of Title II of the Dodd-Frank Act and its Orderly Liquidation Authority, with a new chapter of the Bankruptcy code designed to accommodate the failure of a large, complex financial intuitions. The Financial CHOICE Act also includes a repeal of the authority of the Financial Stability Oversight Council (FSOC) to designate firms as systematically important financial institutions (SIFIs) eligible for bailouts. These actions aim to limit government discretion in providing financial relief, hold big banks accountable, and require big banks to be strongly capitalized in hopes of making them less susceptible to failure.
The CFPB would also be restructured into an Executive Branch agency with a single director that would be a political appointee and removable by the President at will. The CFPB’s supervisory function would be eliminated and the agency’s authority to bring cases against financial institutions would be removed. If the Senate votes on the bill, it is anticipated that the CFPB’s reform, and the resulting benefits (or lack thereof) to consumers, would be strongly debated by Democrats and Republicans.
Finally, community banks and credit unions would be major winners if the Financial CHOICE Act becomes law, based on the almost two dozen regulatory relief bills aimed at them in the act. These regulatory relief bills aim to repeal costly reporting requirements under Dodd-Frank and allow community banks to offer services which were previously unavailable or more difficult to implement, including residential mortgages, small business loans, and free checking. The bill’s goal is to streamline burdensome regulatory procedures to ease the relationship between consumers and smaller community banks and credit unions.