Congressional attempts to deregulate the finance industry have been set in motion with a bill passed by the House of Representatives: the Financial Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs Act (CHOICE Act).
The CHOICE Act seeks to repeal several rules implemented under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), the 2010 legislative overhaul of financial regulations aimed at protecting consumers from predatory finance practices and preventing another financial crisis.
Though the CHOICE Act was passed unanimously by the House in June, its fate now rests in the hands of the Senate — a likely opponent of the bill due to the Senate’s majority support for Dodd-Frank regulations.
About the Financial CHOICE Act
Through implementation of the CHOICE Act, the House aims to reduce the number of regulations controlling financial institutions to encourage a competitive banking market, promote economic growth and help sustain small banks — which they claim are severely hindered by Dodd-Frank.
The major amendments of the CHOICE Act include:
- repealing the orderly liquidation authority, which allows the Federal Deposit Insurance Corporation (FDIC) to liquidate a failing financial institution when the failure threatens financial stability;
- applying Chapter 11 bankruptcy rules for the reorganization of assets and debt to failing financial corporations;
- converting the Consumer Financial Protection Bureau (CFPB) into the Consumer Law Enforcement Agency, replacing its director with a deputy director appointed by the president and subjecting the agency to congressional oversight and appropriations — significantly reducing its authoritative reach;
- repealing the CFPB’s authority to ban financial services or products as “abusive” and to prohibit arbitration;
- repealing the Financial Stability Oversight Council’s (FSOC’s) authority to designate a non-bank financial institution as “systemically important” and too big to fail;
- elimination of the Office of Financial Research (OFR) which collects and analyzes data from the financial market;
- revoking the Volcker Rule that bars short-term proprietary trading of securities to curtail risky practices; and
- repealing the requirement for banks to maintain a minimum amount of reserve capital to provide a cushion during financial trouble.
Supporters of the CHOICE Act say these changes will loosen excessive restrictions that limit the function of financial service providers and hinder access to loans (a claim unsubstantiated by market data).
However, opponents warn against the risk of gutting critical Dodd-Frank regulations that protect consumers and mitigate dangerous practices — namely, the possibility of another nationwide financial crisis.
As expected, Dodd-Frank is supported by consumer advocates, but often opposed by lenders and other financial institutions — some of the same bad actors whose unchecked behavior contributed to the financial meltdown. This is a trend largely mirrored by the responses to the CHOICE Act.
In fact, Dodd-Frank’s and the CFPB’s popularity among consumers and advocates is a formidable obstacle to those who seek to gut or bypass the regulations, making much of the repeals proposed by the CHOICE Act nearly impossible.
Though Dodd-Frank is not without flaws, it serves an important purpose in the regulation of the finance industry. Those with a fresh memory of the financial crisis will recall the severe consequences of allowing financial institutions free rein, and why eliminating many Dodd-Frank regulations will do more harm than good.
Presently, the CHOICE Act is awaiting review by the Senate, which is expected to reject the bill and craft its own legislation to address some of the issues laid out in the CHOICE Act.
However, expect the back-and-forth legislative reform to span several months. As before, development, passage and implementation of financial regulation amendments will occur over a prolonged period of time.
Though the current administration is determined to dismantle Dodd-Frank and reduce the CFPB’s authority, mounting opposition will hinder this process. Opponents remain in support of Dodd-Frank and the CFPB’s current agenda to educate borrowers and take enforcement actions against lenders that violate consumer protection regulations.
Further, if the CFPB’s authority is significantly diminished — as proposed under the CHOICE ACT — the CFPB’s policy agenda is likely to change with every new administration. The effect will be not only to interfere with the CFPB’s regulation of lending practices, but also to create confusion for mortgage and real estate professionals.
It now remains to be seen just what type of changes Dodd-Frank regulations will undergo, if any — and when.