House Financial Services Committee Chairman Jeb Hensarling (R-Texas) has presented the outlines of a reform bill designed to make fundamental changes to the Dodd-Frank Act. The plan was unveiled at a speech in New York that was streamed live on the committee’s website. Though the bill itself will not be introduced until later this summer, a summary on the committee’s website reveals a seven-point program.
The legislation would revoke the ability of regulators to designate firms as “systemically important,” a controversial power that has allowed officials to impose stringent new rules and oversight on big financial firms that fall outside the traditional authority of the government. A systemically important entity is also known as “too big to fail.” The reform bill would also revoke the so-called Volcker Rule, which limits the ability of financial institutions to grow their non-deposit liabilities and places restrictions on investment-trading activities. In addition, the bill would do away with Chevron deference, a legal precedent that strongly favors regulatory bodies in administrative court.
The CFPB is specifically addressed in Section Three, entitled “Empower Americans to achieve financial independence by fundamentally reforming the CFPB.” The bill would change the name of the bureau to the “Consumer Financial Opportunity Commission,” with a dual mission of consumer protection and competitive markets. The bill would require a cost-benefit analysis of any proposed regulation or policy. Also, the bill would replace the current single director with a bipartisan, five-member commission which would be subject to congressional oversight and appropriations under an independent, Senate-confirmed Inspector General. Finally, the bill would repeal all the bureau’s authority to ban bank products or services deemed “abusive,” its authority to prohibit arbitration, and all of its indirect auto lending guidance.
The long-awaited legislation, called the The Financial Choice Act, has no chance of becoming law this year. Democrats in the Senate are likely to block it, and Mr. Obama is certain to veto it if it comes to his desk. But the details are significant as they help define the Republican agenda for financial regulation, should the party win control of the White House in November. Donald Trump, the presumptive GOP nominee, has said he would try to repeal Dodd-Frank, but hasn’t given any details about what his plan would look like. Hensarling’s bill may help fill in some of the blanks of how a Republican-led government would likely proceed.