House Republicans try to pass Wall Street’s most dangerous deregulation bill – Mother Jones
From the early days of his campaign, Donald Trump opposed the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Obama-era financial reform law passed in response to the 2008 financial crisis. Trump characterized it as a “disasterThat created obstacles for the financial sector and hampered growth. In April, he reiterated his promise to gut the existing law.
“We’re doing a major elimination of the horrible Dodd-Frank regulations, keeping some, obviously, but getting rid of a lot.” Trump said in one meeting with senior executives during a “CEO Strategic and Political Discussion,” which brought together executives from large companies like Walmart and Pepsi. He added: “For the bankers in the room, they will be very happy.”
The Republican Congress shares Trump’s aversion to Dodd-Frank and this week the House plans to vote on the Financial CHOICE Act, a Dodd-Frank overhaul bill that, as promised, will make banks and Wall Street “very happy” if it becomes law, while canceling many financial guarantees for regular Americans. (CHOICE stands for “Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs”.)
The bill, sponsored by Rep. Jeb Hensarling (R-Texas), targets some of Dodd-Frank’s main accomplishments: it destroys rules meant to protect mortgage borrowers and the military. Veteransand restrict predatory lenders. It also weakens the Consumer Financial Protection Bureau’s ability to oversee and enforce consumer protection laws against the country’s banks – upsetting a mix of powers that have helped the CFPB recover nearly $ 12 billion for 29 million people. since it opened in July 2011. The bill also weakens or outright removes a number of banking regulations adopted by Dodd-Frank to control risky investment behavior in order to avoid economic devastation from another financial crisis or crisis. ‘a taxpayer-funded bailout.
In an April hearing before the House Financial Services Committee, Senator Elizabeth Warren delivered a fiery speech criticizing the measure. “It’s a 589-page insult to working families,” she said. “It would trigger the same behavior on Wall Street that led to the 2008 financial crisis.” Other Democrats have joined with Warren in opposing the bill, as have some institutional investors and financial experts.
“With this bill, fraud becomes easier, abusive consumption becomes easier, reckless lending becomes easier, speculation becomes easier,” said Carter Dougherty, left-wing American communications director for financial reform. “The chances of another financial crisis increase dramatically with the passage of this legislation.”
Former Massachusetts Congressman Barney Frank, one of the main architects of the original Dodd-Frank Act, is also concerned that the overhaul of the financial reform bill could trigger another financial crisis. “Consumers who deal with banks and other financial institutions should be very worried [Dodd-Frank] being abolished ”, he declared in a February interview. “If you don’t follow the rules we have in place to prevent irresponsible risk-taking, you will, at some point, have another crash.”
Representative Hensarling, who chairs the House Financial Services Committee, argued that the CHOICE law will protect consumers and especially small financial institutions – such as community banks or credit unions – who are burdened by the costs of complying with the Dodd-Frank regulatory structure. (FDIC data on community banks contradicts Hensarling’s point: In 2016, community banks’ revenues increased by $ 507.9 million from the previous year, and they provided loans to small businesses at more than twice the rate of non-community banks.)
Here’s a look at some of the main ways the Financial CHOICE Act could help regulate Wall Street and hurt consumers:
The bill reduces the power of the CFPB to crack down on banks: The CFPB was created in the aftermath of the 2008 financial crisis by the Dodd-Frank Act, which gave the agency the power to enforce consumer protection regulations in banks and on Wall Street. The current CHOICE law proposes a reduction in the agency’s power to enforce these regulations on banks, instead of distributing that power among a mix of federal agencies. This exploded model of consumer protection is similar to what existed before the financial crisis, and supporters of the CFPB argued that this decentralized approach has contributed to the crisis.
Gives the White House control over consumer protection: The CHOICE law proposes to end the status of the CFPB as an independent body whose director is appointed by the president and must be confirmed by the Senate. If the measure becomes law, the White House would have the power to fire the agency director without cause; today, the director of the CFPB can only be dismissed by the president a small list of work-related offenses. In addition, the rules set by the agency would require a White House review – a constraint that is not placed on other bank branches.
Decimates the regulation of predatory lenders: The CHOICE Act would eliminate the power of the CFPB to regulate “small loans” including “payday loans, vehicle title loans or other similar loans” with extremely high interest rates that are used by more than 19 million American households, mostly low-income, to make ends meet when they run out of other options. Given the interest, these loans can lead to an ever-increasing cycle of debt – the majority of borrowers end up having to take out a second loan to cover the first. The CFPB proposed rules in 2016 that would have curbed abuse by predatory lenders by requiring them to ensure that a borrower will be able to make payments on time, and also make it harder to repeat loans to the same people. The CHOICE Act’s proposal to deprive the CFPB of its power to regulate small dollar credit is “a free pass for payday and securities lenders not to be subjected to efforts to curb their abusive practices”, Diane Standaert , executive vice president of the Center for Responsible Lending, told the Los Angeles Times.
Reverses efforts to curb the practice of forced arbitration: Forced arbitration clauses have proliferated in recent years, appearing in consumer contracts for virtually every financial product – bank accounts, credit cards, etc. These clauses prohibit consumers from bringing traditional lawsuits against financial institutions, forcing them to participate in private, often expensive, proceedings outside the regular court system. The CHOICE Act would remove the CFPB’s power to restrict forced arbitration, subsequently preventing the agency from finalizing a rule limiting forced arbitration clauses that was should enter effective mid-2017.
Repeals the Volcker rule: A key element of Dodd-Frank, the Volcker rule prohibits large banks from participating in certain risky investment activities, in order to prevent them from jeopardizing their solvency by playing with depositors’ funds. The bill would repeal that rule, which Wall Street has long complained about reducing revenues. In a closed-door meeting last month, Treasury Secretary Steve Mnuchin – a former Goldman Sachs, one of the banks subject to the Volcker Rule – ordered five federal agencies to review the Volcker Rule with a view to ‘relax some of its requirements.
Repeals the fiduciary rule requiring pension fund managers to work in the best interests of their clients: The fiduciary rule enacted by the Obama-era Labor Department elevates asset managers who manage retirement savings to “fiduciary” status. This means they are required to put their clients’ interests above their own, disclose any potential conflicts of interest, and be transparent about all charges. After trying to delay its implementation by the Trump administration, the fiduciary rule is expected to come into effect on Friday. If it were to become law, this bill would repeal the rule, interrupting its implementation.
Facilitates stress tests on large banks: The Federal Reserve demands that the largest US banks that are “too big to fail” – meaning their creditworthiness is critical to the health of the economy as a whole – submit to an annual stress test measuring capacity of the bank to withstand financial shocks. “This has been the cornerstone of our efforts to improve supervision,” said Janet Yellen, Fed Chairman told lawmakers in February. “It’s a key part of our regulatory process.” The Financial CHOICE law proposes to require that banks only submit to these tests every two years and exempts them qualitative aspects of the tests, which verify the bank’s internal processes – such as risk monitoring, loss modeling, etc. – which help protect the bank in the event of an economic shock.
Repeal the government’s ability to restructure a failing financial institution: After the 2008 financial crisis, regulators explained that they were unable to liquidate failing banks without throwing the economy into turmoil – hence the need for a taxpayer-funded bailout instead. In response to this, Dodd-Frank created the Orderly Liquidation Authority, which allows the FDIC to take over a bankrupt financial institution and liquidate it using a mixture of fresh collected in advance from banks as a preventive line of credit for this type of crisis. The CHOICE Act would repeal the OLA and replace it with a bankruptcy process which is “a reckless gamble with the stability of the American financial system”, according to a letter sent last month in Congress by more than 100 bankruptcy scholars and law school professors across the country.
Increased debit and credit card fees: The Durbin Amendment enacted by Dodd-Frank allowed the Fed to set a limit on the amount banks can charge consumers and retailers for using debit and credit cards. The amount ended up being about 12 cents by stroke. The Financial Choice Act proposes to repeal the amendment and raise the cap on what banks can charge. Faced with the refusal of this change on the part of many retailers and some of his fellow Republicans, Representative Hensarling said at the end of last month that he will likely drop that part of the bill in order to help secure its passage.