Rewriting the Dodd-Frank Act, One Provision at a Time

On January 18, the House Financial Services Committee advanced a package of more than a dozen bills to loosen financial regulations. Together, the measures represent a broad effort by Republican lawmakers to roll back disclosures and other requirements on smaller banks and credit unions, funds, mortgage lenders, insurers and other entities supervised by financial regulators.

Rollback effort stalled in 2017

Last year, the House passed a sweeping overhaul of the Dodd-Frank Act. The bill, known as the Financial Choice Act (H.R. 10), was authored by the Financial Services Committee Chairman, Rep. Jeb Hensarling. But it failed to find any traction in the Senate, where it would almost certainly have run into a Democratic filibuster.

Now the Financial Services Committee is moving to split the Choice Act into smaller, more palatable bills and pass them individually. Republicans are framing the package as a way to expand on the tax cuts signed into law late last year.

“Even as tax reform is massively boosting our economy, regrettably excessive regulation will continue to clog the arteries and prevent the free flow of capital that is the lifeblood of economic growth,” Chairman Hensarling said.

In addition to the Choice Act, some of the bills track closely with the Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155), a more modest package of Dodd-Frank banking rollbacks proposed last year by Senate Banking Committee Chair Mike Crapo.

The bill passed the Senate Banking Committee in December. The bipartisan bill was approved with the help of a coalition of moderate Democrats: Sens. Mark Warner of Virginia, Joe Donnelly of Indiana, Heidi Heitkamp of North Dakota and Jon Tester of Montana.

Opposition mounts again in 2018

House Financial Services Committee Democrats balked at some of the more aggressive deregulatory bills proposed by Republicans on the committee in January, partly due to their resemblance to either the Choice Act or the Senate version of the bill. Democrats have branded the Financial Choice Act the “Wrong Choice Act” in an effort to tar the bill as a dangerous rollback of postcrisis investor and consumer protections.

While less unanimous in their opposition to the Senate bill, some influential Democrats, such as Sen. Sherrod Brown of Ohio, the Senate Banking Committee’s ranking Democrat, remain wary. He says the Senate bill goes too far to lift oversight on banks.

Rep. Maxine Waters, a California Democrat and the House Financial Service Committee’s ranking member, warned that several of the committee’s 15 new bills mirror provisions of the Senate bill, which she called “a wolf in sheep’s clothing.”

“While [the Senate bill] includes some bipartisan bills it also repackages several elements of the chairman’s Wrong Choice Act and ultimately adds up to a brazen giveaway to Wall Street that would harm consumers and risk another recession,” Waters said. “It must not become law.”

Stay tuned

Since January, House and Senate deregulatory bills have taken a backseat to government funding, tax extender, immigration and infrastructure legislation. But dismantling portions of the Dodd-Frank Act remains a priority for Republican lawmakers, so Congress is expected to vote on this issue later in 2018. But a significant overhaul faces an uphill battle, and the fate of these bills might hinge on the results of the 2018 elections.

Sidebar: What’s in the House deregulatory package?

During a two-day markup session, the House Financial Services Committee approved 15 deregulatory bills. Now the following proposals are pending consideration by the full chamber:

Community Financial Institution Exemption Act (H.R. 1264). This bill would free banks and credit unions with less than $50 billion in assets from all regulations of the Consumer Financial Protection Bureau.

Consumer Financial Choice and Capital Markets Protection Act (H.R. 2319). This would reverse a key provision of the money market rules that the Securities and Exchange Commission implemented to protect against runs during stress periods. The bill would let certain institutional money market funds maintain the price of their shares at $1, scrapping a forced transition to a so-called “floating” share price, or net asset value (NAV).

Financial Stability Oversight Council Improvement Act (H.R. 4061). This measure would add new layers of analysis in the Financial Stability Oversight Council’s process for designating insurers and other nonbank firms as Systemically Important Financial Institutions (SIFIs).

Alleviating Stress Test Burdens to Help Investors Act (H.R. 4566). This would free certain nonbank institutions from Dodd-Frank’s stress testing requirements.

Comprehensive Regulatory Review Act (H.R. 4607). This bill would require financial regulators to undertake a broad review of all existing rules every seven years “to identify outdated or otherwise unnecessary regulatory requirements.”

Community Bank Reporting Relief Act (H.R. 4725). This proposal eases requirements for “consolidated reports of condition and income,” also known as “call reports,” for banks with less than $5 billion in consolidated assets.

Mutual Fund Litigation Reform Act (H.R. 4738). This would raise the bar for investors to launch excessive fee lawsuits against mutual funds governed by the Investment Company Act of 1940.

American Customer Information Protection Act (H.R. 4785). This bill would bar the SEC’s Consolidated Audit Trail (CAT) from “accepting personally identifiable information (PII), except where such information would apply to large traders.”

© 2018