The U.S. House of Representatives has approved a bill that would ease federal restrictions on banks, reduce the cost of regulatory compliance, and relax some federal government controls over banks and financial services.
Congress and President Barack Obama imposed forceful financial restrictions in 2010 in response to the 2008 economic crisis, including enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act, commonly referred to as Dodd-Frank.
On June 8, the House of Representatives approved the Financial Creating Hope and Opportunity for Investors, Consumers, and Entrepreneurs (CHOICE) Act.
If approved by the U.S. Senate and signed into law by President Donald Trump, the bill would repeal Dodd-Frank and reduce the power of the Consumer Financial Protection Bureau (CFPB), a government agency created by Dodd-Frank that’s tasked with enforcing new financial laws and regulations.
Limiting Choices
John Berlau, a senior fellow at the Competitive Enterprise Institute, says Dodd-Frank worsened the problems lawmakers said they intended to solve.
“Dodd-Frank limited options for consumers and didn’t go after what was the cause of the crisis,” Berlau said. “The main effect of Dodd-Frank is that it has made too-big-to-fail banks even bigger and has put up red tape, which has furthered the consolidation and decline of community banks. Some community banks are not even offering mortgages anymore, because Dodd-Frank and the CFPB have made it too difficult.”
Obamacare for Your Bank Account
Dodd-Frank is to consumers’ financial well-being as Obamacare is to consumers’ physical health, Berlau says.
“Just as Obamacare has not meant that if you like your doctor you can keep it, so has Dodd-Frank not meant that if you like your bank you can keep it,” Berlau said. “With the CHOICE Act, it will be easier to get a mortgage and easier to get a mortgage from the bank you want.”
Increased Oversight for CFPB
The bill also fixes constitutional problems with CFPB by giving lawmakers more oversight, Berlau says.
“The CHOICE Act makes the CFPB more accountable, with a director who is removable by the president,” Berlau said. “It puts the CFPB and all financial regulatory agencies, except for the Federal Reserve, directly under the appropriations process of Congress, so they’re directly accountable. Congress can deny funding or decrease funding if it doesn’t like what they’re doing.”
Meghan Milloy, director of financial services policy at the American Action Forum, says Dodd-Frank’s cost to business owners and consumers exceeds the benefits it provides.
“Since 2010, Dodd-Frank compliance costs have been around $40 billion,” Milloy said. “These increased regulation costs get passed down to the consumer. Dodd-Frank was billed and marketed as a consumer protection law. When you look at the cost burden and the paperwork burden, it has ended up harming them.”
Opening Investment Channels
With the CHOICE Act, small business owners will have more options for getting capital investments from banks, Milloy says.
“Small-business lending is the one thing that hasn’t really recovered since the crisis,” Milloy said. “The CHOICE Act’s key provision is that banks will either be able to stay under the current regulatory structure or choose to hold higher levels of capital and get out of this current regulatory structure. I think that will allow a lot of banks to free up capital that is currently being spent on compliance.”
