Last week the full U.S. House of Representatives voted 233-186 to pass Representative Jeb Hensarling’s (R-Texas) Financial CHOICE Act (H.R. 10) to reform the regulatory burden and cost to taxpayers enacted by the 2010 Dodd-Frank law. The Financial CHOICE Act allows for more consumer protections and a freer market for smaller banks, which could not compete against the bigger banks with numerous amounts of red tape established by the 2010 law.
Dodd-Frank was a signed into law by former President Obama to “rein in Wall Street” after the 2007-08 financial crisis. However, as typical of sweeping regulatory legislation, Dodd-Frank ended up benefiting large banks and only served to hurt community banks, credit unions, and the consumers in general.
The law enshrines “too big to fail” institutions through the Finance Stability Oversight Council (FSOC) and the concept of Orderly Liquidation Authority (OLA), which allows the government to continue the use of bailouts with taxpayer money. It also created an independent agency called the Consumer Financial Protection Bureau (CFPB). This agency is completely unaccountable to Congress and the Director of the CFPB is a political appointee, therefore he cannot be fired by the President without an extensive showing of cause.
In total, the Dodd-Frank Act has imposed over $36 billion in costs along with 73 million hours of paperwork. According to the American Action Forum (AAF), these costs amount to approximately $112 per American taxpayer and over $300 per household.
Thankfully, the Financial CHOICE Act makes significant reforms including:
FSOC and OLA Reforms: The Act repeals the Federal Deposit Insurance Corporation’s (FDIC) authority over orderly liquidation, which grants the FDIC authority to bailout institutions. Also, it repeals the authority of the FSOC to designate banks as systematically important financial institutions and puts in place new bankruptcy procedures.
CFPB Reforms: This unaccountable agency undergoes substantial changes in the new bill. The name is changed to the Consumer Law Enforcement Agency and restructures the agency as an Executive Branch agency with a Director removable by the President at will. Along with the structural changes, the Act would repeal the CFPB’s authority to arbitrarily designate any “act or practice” by the banking industry as unfair or abusive.
Fiduciary Rule Repeal: The Department of Labor’s Fiduciary Rule imposes heightened standard on certain financial professionals who deal with retirement planning or advice. It is estimated under the new standard that 7 million IRA holders could be disqualified from investment advice, and the number of IRAs opened annually would fall by up to 400,000. Under the CHOICE Act, this burdensome rule would be repealed.
Volcker Rule Repeal: Originally enacted under Dodd-Frank, the Volcker Rule limits the type of trading activities banks can engage in, specifically as it relates to proprietary trading. As a result, U.S. financial institutions have become less competitive globally while the cost of raising capital has increased. Recent, former Federal Reserve Chairman Paul Volcker (the provisions namesake) has acknowledged proprietary trading did not lead to the financial crisis, calling the justification for the rule into question. The Financial CHOICE Act also repeals this stranglehold on U.S. financial institutions.
Overall, the Financial CHOICE Act is a great first step to the reform that is needed for Dodd-Frank and banking regulations. Now that it has passed the House, the Senate should take up the measure in order to begin making that step to relieving banks and the American people from unnecessary, harmful, and burdensome regulations.
Photo Credit: Gage Skidmore