House Passes the Financial Choice Act to Gut Dodd-Frank, End Too-Big-to-Fail

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House Republicans passed the Financial Choice Act on Thursday, legislation that would strip Dodd-Frank’s too-big-to-fail policy and curtail the Consumer Financial Protection Bureau (CFPB).

The Financial Choice Act will restructure the Consumer Financial Protection Bureau, a spawn of the Dodd-Frank financial overhaul passed by Democrats in the wake of the financial crisis. Instead of protecting consumers, the bureau slapped community banks with 17 million hours of paperwork requirements and almost $3 billion in regulatory costs.

The Federal Reserve, not Congress, funds the CFPB, making congressional oversight via the funding process difficult.

The CFPB’s director, Richard Cordray, once fined PHH Mortgage $109 million, instead of the $6 million recommended by the bureau’s own administrative law judge.

The Choice Act will restructure the CFPB’s single independent, unaccountable, director to a director that serves at the pleasure of the president and is subject to removal. The CFPB would be renamed the Consumer Law Enforcement Agency (CLEA) and will be subject to oversight via the appropriations process. House Republicans would also reform the CFPB to enforce financial consumer laws that currently remain on the books, instead of creating onerous regulations ad hoc. In effect, the CFPB would work in a similar fashion to the Federal Trade Commission (FTC).

Under Dodd-Frank, federal regulators can label large financial organizations Systemically Important Financial Institutions (SIFIs) that would subject banks to stricter regulations and potentially rescue Wall Street banks through taxpayer-funded bailouts.

The Choice Act would also subject financial agencies to the REINS Act, that would allow Congress to disapprove of major regulations that cost $100 million or more in economic impact. According to the American Action Forum, applying REINS to financial regulatory bodies would save more than $27 billion in annual regulatory costs and 11.5 million paperwork burden hours.

The bill would also repeal the Department of Labor’s Fiduciary Rule, a rule that stops consumers from receiving investment advice customized to their individual preferences. According to some estimates, the Fiduciary rule could double retirement savers’ cost.

The Congressional Budget Office estimates that the bill will reduce the deficit by $25 billion.

John Berlau, a senior fellow at the Competitive Enterprise Institute, commended the Financial Choice Act. He said:

The Financial Choice Act is packed with provisions to restore choice and opportunity to middle-class investors and consumers and small businesses and accountability to Wall Street and Washington. Just as Obamacare diminished Americans’ choices of health insurers and doctors, so have Dodd-Frank and other rules — including Sarbanes-Oxley from the Bush era — greatly reduced options to invest, obtain loans, and raise capital. Next it’s time for the Senate to advance similar legislation to restore Americans’ financial choices.

Peter Wallison, a scholar at the American Enterprise Institute, explained in his book Hidden in Plain Sight that lack of banking regulations caused the financial crisis, and that Dodd-Frank was a solution in search of a problem.

Wallison said:

Dodd-Frank was based on the false idea that the 2008 financial crisis was caused by insufficient regulation of the private sector. This narrative supported what the 2010 Democratic Congress wanted to accomplish—the imposition of much greater regulation on the US financial system—but did not come close to identifying or addressing the government policies that were the actual cause of the crisis. Indeed, by absolving the government from any role in the crisis, the supporters of Dodd-Frank left the government free to do the same thing again—something that is occurring right before our eyes.

“Every promise of Dodd-Frank has been broken,” said Financial Services Committee Chairman Jeb Hensarling (R-TX), as he read letters from Americans about how they were declined home, automobile, and small business loans due to Dodd-Frank’s burdensome regulations. Hensarling went on:

Fortunately there is a better, smarter way.  It’s called the Financial CHOICE Act.  It stands for economic growth for all, but bank bailouts for none.  We will end bank bailouts once and for all.  We will replace bailouts with bankruptcy.  We will replace economic stagnation with a growing, healthy economy.

“We will make sure there is needed regulatory relief for our small banks and credit unions, because it’s our small banks and credit unions that lend to our small businesses that are the jobs engine of our economy and make sure the American dream is not a pipe dream,” said Chairman Hensarling.

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