A major reform of the Dodd-Frank Act moved towards expected passage in the House Wednesday during a hearing on the Financial Choice Act of 2017, a bill written by House Financial Services Committee Chairman Jeb Hensarling (R-TX), even as Democrats on the panel urged the GOP majority to slow down a vote on the package.
“This is the worst bill I have seen in my time in Congress. It benefits big banks in this country at the expense of the American taxpayer,” said Stephen Lynch, one of several Democrat members who referred to the bill as the “Wrong Choice Act.” “I’ve never seen so many bad ideas jammed into one bill,” said the Massachusetts lawmaker.
But Hensarling, who has been working towards repeal of the 2010 financial crisis law and reining in its Consumer Financial Protection Board since he took over the panel five years ago, remained committed to the package, saying “Dodd-Frank has been a bigger burden to enterprise than all other Obama-era initiatives combined.”
U.S. Rep. Andy Barr (R-KY) said the Choice Act will address what he sees as a “massive delegation of authority to bureaucrats” and make the CFPB more accountable. Rep. Steve Pearce (R-NM) agreed, saying, “The idea that one man (CFPB director) is going to make decisions for all consumers in the country is troubling.”
Democrat committee members expressed concern that Hensarling, after a single hearing, will move to a vote by the committee, where Republicans hold a 34-26 advantage without additional public input. Rep. Maxine Waters (D-CA), the ranking Democrat on the panel, said the committee held 41 hearings on Dodd-Frank before sending the bill to a vote by the full House, contrasting the first and only hearing held so far by the committee. Hensarling countered by saying the committee has held a total of 145 hearings on reforming or repealing parts of Dodd-Frank since he took over chairmanship of the panel in 2012.
Rep. Brad Sherman (D-CA) urged the Republican majority to vote on the various provisions in the Choice Act as separate bills, saying Democrats would support some of the provisions.
Waters said Democrats will hold their own hearing, known as a Minority Day Hearing, on the proposal, in the absence of any additional hearings scheduled by the panel’s Republican leadership. The date is undetermined.
Several witnesses affiliated with conservative or libertarian organizations testified in support of the bill.
“Unfortunately, Dodd-Frank and the related regulatory regime has not only slowed economic growth, it has not effectively dealt with the issues which caused the financial crisis. The ‘too big to fail’ problem has not been solved,” said John Allison, a senior fellow at the libertarian Cato Institute and former CEO of BB&T Bank.
He specifically endorsed a central feature of the Choice Act that would allow banks to opt out of most of the regulatory provisions of Dodd-Frank in exchange for maintaining a 10 percent leverage (capital) level. “I will state with certainty after many years in the banking industry that raising these institutions’ leverage ratio to 10 percent would reduce the risk of the banks failing far more then hiring 5,000 or 10,000 more regulators to micromanage the companies.”
Peter Wallison, senior fellow at the right-leaning American Enterprise Institute, expressed support for the bill’s repeal of the power by the Financial Stability Oversight Committee to designate systemically important financial institutions, or SIFIs. “It is impossible for any agency, or council of agencies, to know that at some point in the future — in completely unknown market conditions — the failure of a particular firm will cause instability in the U.S. financial system,” he said.
Norbert Michel, senior fellow at the conservative Heritage Foundation, endorsed measures that would roll back the powers of the CFPB and repeal the Durbin Amendment, a provision which has the Federal Reserve set rates big banks can charge for debit card transactions. “Congress never should have intervened (in the debit market),” Michel said.
Also testifying in favor of the bill were Hester Peirce, senior research fellow at the conservative Mercatus Center at George Mason University; and Alex Pollock, senior fellow at the conservative R Street Institute.
The conservative witnesses were tempered by testimony by Michael Barr, former undersecretary of the Treasury Department who now serves as a professor at University of Michigan Law School, and Lisa Cook, associate professor of Economics and International Relations at Michigan State University, who served on President Obama’s Council of Economic Advisers.
“A kind of collective amnesia appears to be descending on Washington,” said Barr, who helped draft Dodd-Frank. “Many seem to have forgotten the causes of the financial crisis, and the brutal consequences for American families.” The 10 percent leverage ratio option, according to Barr, is a “big mistake,” because it adds another layer of complexity to the existing set of capital rules and benefits only the biggest banks subject to the Fed’s heightened supervision. “It lets Wall Street firms choose whatever approach is least constraining for them, even if it means bigger risks for the rest of us,” he stated.
The Financial Choice Act would:
• curtail the processes established under Dodd-Frank for the designation, regulation and receivership of systemically important financial institutions (SIFIs);
• repeal Dodd-Frank’s Volker Rule barring banks from proprietary trading;
• repeal the Durbin Amendment;
• repeal authority for SEC and CFPB to restrict arbitration clauses;
• eliminate the CFPB’s supervision authority over banks and nonbanks and make significant changes to CFPB’s enforcement authority;
• eliminate the CFPB’s authority to regulate payday or similar loans and roll back its indirect auto lending guidance;
• reduce the annual stress tests for banks to semiannual.
The bill would also repeal the Department of Labor’s fiduciary rule; streamline securities offering requirements and reporting requirements for issuers; and enhance crowdfunding provisions.
It would also dramatically alter the process for consideration and review of agency rulemakings by requiring more cost-benefit analysis for rulemaking; requiring financial agencies to report on proposed rules to Congress and the Government Accountability Office before the rules take effect; requiring that Congress approve rules having an annual effect on the economy of $100 million or more through a joint resolution of approval; providing that Congress may pass a joint resolution of disapproval to prevent non-major rules from taking effect; and rolling back Chevron judicial deference under which regulatory agencies are given deference on interpreting laws.