In response to the housing collapse and financial crisis of 2007-08, Congress rushed to pass the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act 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 bail out large financial institutions, Dodd-Frank empowers the very regulatory establishment which created the environment that led to the financial crisis in the first place.
Heritage Foundation Financial Regulations expert 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."
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, reduces access to capital for small businesses, and 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.
On June 6, 2016, House Financial Services Committee Chairman Jeb Hensarling (R-Texas) unveiled his plan to repeal most of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. His legislation, entitled the Financial CHOICE (Creating Hope and Opportunity for Investors, Consumers, and Entrepreneurs) Act, was a significant, positive step toward repealing Dodd-Frank and restoring economic stability and growth to the financial markets.
But after the election of President Donald Trump and with Republicans maintaining control of both branches of government, Chairman Hensarling took advantage of the opportunity to strengthen and reintroduce his bill.
According to the Financial Services Committee website, the Financial CHOICE Act of 2017 would:
"end taxpayer-funded bailouts of large financial institutions; impose tougher penalties on those who commit financial fraud and insider trading; demand greater accountability from Washington regulators, and relieve well-capitalized banks from growth-strangling regulations that slow the economy and harms consumers."
The newly introduced Financial CHOICE Act would do the following:
- Mitigate "too big to fail" 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 returns to a time-tested bankruptcy system by repealing Title II of Dodd-Frank.
- Fundamentally reform the CFPB:
- Rename it as the "Consumer Financial Opportunity 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.
- Repeal the "Durbin Amendment" that allows the Federal Reserve to price-fix interchange fees from debit card purchases.
- 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.
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."
The Financial CHOICE Act is a significant, positive step toward full repeal of Dodd-Frank. This bill provides regulatory relief essential to restoring economic growth, significantly reins in the unaccountable CFPB, and pushes the government out of the business of enacting price controls by repealing the Durbin Amendment. Republican members of Congress have repeatedly promised to get rid of Dodd-Frank and stop taxpayer funded bailouts. Now they have the opportunity to fulfill that promise by bringing the Financial CHOICE Act (H.R. 10) to a vote in the House and Senate, and sending the bill to the president's desk.
***Heritage Action supports the legislation, encourages Representatives and Senators to support it, and reserves the right to key vote in the future.***