“YES” on the Financial CHOICE Act (H.R. 10)

This Thursday, the House is scheduled to vote on the Financial CHOICE (Creating Hope and Opportunity for Investors, Consumers, and Entrepreneurs) Act (H.R. 10), introduced by Chairman Jeb Hensarling (R-TX). The bill would repeal or replace some of the worst provisions established by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act.

In response to the housing collapse and financial crisis of 2007-08, Congress rushed to pass Dodd-Frank under the guise of “consumer protection.” But instead of addressing the root causes of the financial crisis, such as the government’s reckless efforts to expand housing affordability and implied guarantees to bailout large financial institutions, Dodd-Frank empowers the very regulatory establishment that created the environment that led to the financial crisis in the first place.

Heritage Foundation Research Fellow in Financial Regulations Norbert Michel writes:

“The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act is among the most inappropriately named laws ever enacted in the U.S. It neither reformed Wall Street nor protected consumers, and it imposed massive new regulations on banks far away from Wall Street.”

The CHOICE Act would enact a number of significant financial service reforms including:

  • Mitigate “too big to fail” policies and bank bailouts by repealing most of Title I and all of Title VIII of Dodd-Frank.
  • Stop the government from seizing troubled financial firms through orderly liquidation and return to a time-tested bankruptcy system by repealing Title II of Dodd-Frank.
  • Fundamentally reform the CFPB:
    • Rename it as the “Consumer Law Enforcement Agency”
    • Governed by a single director removable at will by the president along with a deputy director appointed by the president
    • Restructure into an enforcement agency only, with no supervisory authority
    • Subject it to congressional oversight and the appropriations process
  • Rein in the Federal Reserve’s emergency lending authority by making it more difficult for the Fed to conduct bailout-style loans to insolvent firms.
  • Unleash small business creation, innovation and entrepreneurship by eliminating the misguided Volcker rule which has limited capital formation over the past few years.
  • Subject all new major rules imposed by financial regulatory agencies to congressional approval under the Regulations from the Executive in Need of Scrutiny (REINS) Act.
  • Strengthen penalties on Wall Street for those who engage in fraud, insider trading and other corrupt practices.

The original bill also included the repeal of the so-called “Durbin Amendment” that allows the Federal Reserve to price-fix interchange fees from debit card purchases, but unfortunately House Republicans removed this provision due to pressure from big box retailers.    

Along with imposing 3,500-plus pages of new rules and regulations on the financial industry, Dodd-Frank codifies “too big to fail” policy, runs local community banks out of business, restricts access to credit for investors and homebuyers, raises lending costs, and reduces access to capital for small businesses. It also created one of the most powerful and unaccountable federal agencies — the Consumer Financial Protection Bureau (CFPB). Evidence shows Dodd-Frank is one of the major factors responsible for the country’s historically slow economic recovery.

Research conducted by Norbert Michel and Salim Furth, Research Fellow in Macroeconomics at the Heritage Foundation, demonstrate that passing the Financial CHOICE Act would increase U.S. income by an average of one percent of GDP a year from 2017 to 2026 while also increasing federal revenue by $340 billion as businesses choose to increase investment.

Contrary to the charges levied by some Democrats, the Congressional Budget Office (CBO) recently found that community banks, not Wall Street, would reap the most benefits from the CHOICE Act by taking advantage of a provision that frees financial institutions from onerous federal regulation if they maintain a capital election leverage ratio of at least 10 percent. Wall Street is actually opposed to the bill as “CBO expects that most of the financial institutions that chose to maintain a leverage ratio at 10 percent would be those with assets below $10 billion, commonly known as community banks.” In addition to the economic benefits, CBO concluded that the CHOICE Act would save taxpayers billions of dollars by reducing federal deficits by $24.1 billion from 2017-2027.

Summarizing the core principle of the bill, Norbert Michel issued this statement:

“Dodd-Frank enshrined too big to fail with several key changes that make future taxpayer bailouts likely. The Financial CHOICE Act of 2017 repeals those key provisions and reduces the likelihood of future bailouts by providing regulatory relief for firms that absorb their own losses. Specifically, The CHOICE Act provides relief to banks that choose to fund themselves with more equity, thus lowering the probability of failure and taxpayer bailouts. Thus, the Financial CHOICE Act emphasizes the key principle that should drive any financial regulatory reform effort: there’s no justification for heavily regulating companies that bear their own losses.”  

Thanks to the courageous leadership of Financial Services Committee Chairman Jeb Hensarling, dating all the way back to June 2016 when he first introduced legislation, Republicans will finally have the chance to end bank bailouts and follow through on their campaign promise to undo Dodd-Frank — the Obamacare of the financial service sector of the U.S. economy.

***Heritage Action supports H.R. 10 and will include it as a key vote on our legislative scorecard.***        

Related:
Heritage Action: Legislative Endorsement: Hensarling’s Financial Choice Act (H.R. 10)
Heritage Foundation: The Case Against Dodd-Frank (2016)
Heritage Foundation: The Macroeconomic Impact of Dodd-Frank-and of Its Repeal (2017)
Heritage Foundation: Repeal The Durbin Amendment: Restore The Rule Of Law (2017)
Heritage Foundation: Consumer Protection Predates the Consumer Financial Protection Bureau (2017)