The United States House of Representatives recently approved a bill, known as the Financial Choice Act, which aims to undo significant elements of the Dodd-Frank Act. The bill will now head to the Senate where it will need to receive 60 votes, 52 of which are held by Republicans, before it is able to make it to President Donald Trumps desk.
The Dodd-Frank Act was enacted under the Obama administration in 2010 following the 2007-2008 financial crisis. Consumer advocates have shown large support for the act, whereas banks and other financial firms have expressed their opposition to the regulations. The acts key reforms includes the prohibition of federally insured banks from engaging in high risk trading, the creation of the Consumer Financial Protection Bureau (CFPB) and a new liquidation authority that shuts down at risk financial giants in crisis to avoid future bailouts.
The Consumer Financial Protection Bureau has provided consumer ~$12 billion in refunds, mortgage principle reductions, and other forms of reliefs since its creation in 2011. The bureau played a key role in holding Wells Fargo accountable when it was revealed employees had created ~2.1 million unauthorized accounts. If the republican bill would to pass, the bureau would lose their ability to closely monitor financial firms; insuring their compliance with consumer protection laws. Additionally, the agency’s independent funding stream would be eliminated; making it subject to congressional appropriations where Republicans could reduce its budget.
The Financial Choice Act was approved in the House 233-186, gaining zero Democratic support. The act seeks to repeal trading restrictions and the liquidation authority; instead enhanced bankruptcy provisions designed to protect taxpayers should a major financial firm collapse. The bill would also repeal the pending fiduciary rule, a new Labor Department regulation. The fiduciary rule requires investment brokers that handle retirement funds to put their clients interests above their company’s own.
“We will replace bailout with bankruptcy. We will replace economic stagnation with a growing healthy economy. We’ll replace Washington micromanagement with market discipline,” said the legislations author Rep. Jeb Hensarling (R-TX).
Republicans argue the bill will ease rules and regulations on community banks, and reduce what they describe as bureaucratic overregulation from Washington. Conservatives also argue that the emergency powers in Dodd-Frank have provided a ‘safety net’ for ‘Too Big To Fail’ by implying the government will always be ready to swoop in with a rescue.
Democratic lawmakers have been largely critical of the bill, arguing the banks inevitable speculative spending could lead to another economic crisis. Last month, more than 120 leading economist and law professors sent a letter to Congress opposing the elimination of the liquidation authority; arguing that the bankruptcy option put forth by Republicans could not adequately deal with an imploding mega bank that has global financial ties; potentially dragging down other entities, wreaking havoc on financial markets.
President Donald Trump has expressed his support for the passage of the bill in the House. The bill would give president Trump the ability to fire the heads of the CFPB and the Federal Housing Finance Agency, which oversees mortgage giants, at his discretion.
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