The Dodd–Frank Wall Street Reform and Consumer Protection Act, commonly referred to as Dodd–Frank, was signed into federal law by President Barack Obama on July 21, 2010. A response to the financial crisis of 2007–2008, Dodd-Frank brought the most significant changes to US financial regulation since the regulatory reforms following the Great Depression. It made changes in the American financial regulatory environment affecting all federal financial regulatory agencies and nearly every component of the nation’s financial services sector.
TRUMP ON DODD-FRANK
Trump criticized Dodd-Frank during his campaign for the White House and has pledged to take apart the law passed in 2010 with hardly any Republican support. Trump issued an executive order on Feb. 3 for Treasury Secretary Steven Mnuchin to review the law.
At an April 21 Treasury Department event, Trump signed memoranda calling for separate reviews of Dodd-Frank’s Orderly Liquidation Authority (OLA) and the SIFI designation process wielded by the Financial Stability Oversight Council (FSOC).
While the reviews are underway, the Treasury secretary will be directed not to use OLA, and no new company will be designated under FSOC.
THE FINANCIAL CHOICE ACT
The head of the U.S. House of Representatives’ Financial Services Committee, Jeb Hensarling (R-TX), has unveiled the Republicans’ most ambitious plan so far to loosen financial regulations, a 600-page bill, called the Financial CHOICE Act, to replace the Dodd-Frank financial reform law.
This bill will protect taxpayers and consumers from anti-growth Dodd-Frank regulations, and help hardworking Americans achieve financial independence, says Rep. Bill Huizenga, a Republican congressman from Michigan who chairs the House Financial Services’ Subcommittee on Capital Markets, Securities & Investment.
According to Huizenga, This commonsense legislation will protect consumers by restoring accountability, ending taxpayer bailouts, and providing regulatory relief for community financial institutions.
The draft bill repeals the authority Dodd-Frank gave bureaucrats to bail out large financial institutions with taxpayer dollars and instead replaces it with a new chapter of the bankruptcy code. In addition, the CHOICE Act eliminates the government’s authority to anoint large financial institutions as too big to fail by repealing FSOC’s discretion to designate firms as systemically important.
DODD-FRANK IS BROKEN
Unlike some of the largest banks, community financial institutions can’t afford to hire hundreds of lawyers and compliance officers to sort through Dodd-Frank’s red tape. These regulatory costs are passed on to consumers in the form of increased fees, fewer products and services, and more limited credit options. The Financial CHOICE Act eliminates this one-size-fits-all regulation by providing commonsense relief that allows community banks and credit unions to utilize their resources for lending and meeting the needs of their customers.
“Republicans are eager to work with the president to end and replace the Dodd-Frank mistake with the Financial CHOICE Act because it holds Wall Street and Washington accountable, ends taxpayer-funded bank bailouts, and unleashes America’s economic potential,” Hensarling said in a statement.
OPPOSITION TO THE DODD-FRANK REPLACEMENT BILL
Lisa Donner, executive director of Americans for Financial Reform, said in an emailed statement that getting rid of the OLA would make financial crises and bailouts more likely.
Rep. Maxine Waters (D-Calif.) referred to Trump’s actions as “two steps back to the risky financial system that brought us the Great Recession and very nearly dragged our economy into a death spiral.”
Waters is ranking member on the House Financial Services Committee and has dismissed Hensarling’s bill.
“The new version, which is even worse than Chairman Hensarling’s first draft, cannot be allowed to become law. There is too much at stake for consumers and for our economy at large,” she said in a statement earlier this month.
But Hensarling’s ambitious approach, which would eliminate huge portions of Dodd-Frank, faces an uncertain political future beyond the House. At least eight Democrats would need to support a financial reform bill in the Senate for it to pass, and the major changes proposed by Hensarling are not expected by industry experts to garner that type of support.
The Financial CHOICE Act also severely restricts the power of the Consumer Financial Protection Bureau, while bringing it under much stri
cter oversight by Congress. The measure is likely to be met with strict opposition by Democrats in Congress.