Bill focuses on Cordray’s bureau, Dodd-Frank
WASHINGTON — The House is scheduled to vote today on a bill that would drastically roll back the regulations passed by Congress in the wake of the 2008 financial crisis. It also would, in effect, hobble the consumerwatchdog agency headed by former Ohio Attorney General Richard Cordray.
The bill — which aims to fulfill a key promise of President Donald Trump’s 2016 campaign — would roll back elements of the 2010 DoddFrank Act, allowing banks to opt out of certain rules if they have enough capital.
It would also replace the bankruptcy process for banks imposed by Dodd-Frank with one that aims to protect financial markets from the failure of the bank.
The bill also would significantly revamp the Consumer Financial Protection Bureau that Cordray leads, renaming it the Consumer Law Enforcement Agency and limiting its power. Under the bill, the agency’s budget would be controlled by Congress rather than through the Federal Reserve. The bill also would rein in the agency’s authority to crack down on practices it finds unlawful or abusive.
Rep. Steve Stivers, R–Upper Arlington, said it’s appropriate for Congress to decide how to fund the agency. He also is glad that the power to create regulations would revert to the Federal Reserve, not the bureau.
The agency, he said, has not done a good enough job of telling people what “the rules of the road” are. Instead, banks and other organizations under the agency’s jurisdiction are often left to read enforcement actions to divine the rules.
“If I’m driving in my car, I depend on the speed-limit signs to tell me how fast to go,” he said. “The CFPB won’t tell everyone what the speed limit is. In order to find out what the speed limit is, you have to read everybody else’s speeding tickets.”
By contrast, Rep. Joyce Beatty, D–Jefferson Township, said the bill “is technically going to gut the CFPB.”
“They’ve been the go–to entity to stand up for everyday Americans,” Beatty said of the agency, adding that it has recouped $12 billion for 30 million Americans since 2011.
Both central Ohio lawmakers are members of the House Financial Services Committee.
Supporters of the bill say the regulations imposed by Dodd-Frank have stunted economic growth and restricted access to credit. The bill, said Heritage Foundation research fellow Norbert Michel, “neither reformed Wall Street nor protected consumers.”
Michel has conducted research indicating that the bill would increase federal revenue by $340 billion through 2026 as businesses choose to increase investment.
But Dodd-Frank supporters say the law created necessary protections aimed at preventing another meltdown like the one in 2008.
Sen. Sherrod Brown, D– Ohio, the ranking Democrat
on the Senate Banking Committee, said Democrats are willing to improve DoddFrank, but he called the House bill “partisan, dangerous” legislation.
“Democrats have shown we’re willing to work with Republicans to tailor the rules where it makes sense, but not if it means killing the reforms that have made the financial system safer and fairer,” he said.
The legislation also includes a one-line proposal that says federal authorities “may not exercise any rule-making, enforcement or other authority with respect to payday loans, vehicle-title loans or other similar loans.”
Such loans are designed to serve as short-term fixes for people in financial straits. But in practice, the high interest rates make it virtually impossible for borrowers to repay the original loan. Many take out additional loans to repay the first one. A 2012 report by the Pew Charitable Trusts, for example, found that the typical payday-loan borrower is in debt for five months and pays about $520 in fees for a $375 loan.
The consumer agency is working on new rules for lenders, including one that would require them to determine in advance whether a borrower can make payments on the loan without defaulting on other expenses.
Diane Standaert, executive vice president for the Center for Responsible Lending, said the GOP provision is “a free pass” for payday lenders.
“In essence, while the CFPB has been hard at work over the last year to advance a rule on stopping the payday-lending trap. Congress, on the other hand, has been hard at work defending the payday lenders,” Standaert said. “This is a huge gift to a broad range of predatory lenders.”
David Wessel, a senior fellow of economic studies at the Brookings Institution, said the bill underscores a deep philosophical disagreement over whether the regulations imposed to protect the nation from future financial crises did more harm than good.
“It’s almost a libertarian argument,” he said of the payday-lending provision. “If somebody wants to lend you money at 75 percent interest, and you want to borrow it, who is the government to say you shouldn’t do that?”
Wessel said that proponents of the bill argue that Dodd-Frank imposed limits on credit, meaning that the people who really need credit can’t get it.
Kalitha Williams of Policy Matters Ohio, a left-leaning research group, said the bureau “has done an amazing job of uncovering deceptive and unfair practices of the financial-services industry.”
Williams said that although consumers have traditionally thought of such bad actors as being from “skeevy storefronts” or “foreign crime rings,” many of the lenders that Cordray’s office has cracked down on have been trusted banks. For example, the bureau went after Wells Fargo after the discovery that it had opened up to 2 million fake accounts without the customers’ permission.
“If CFPB wasn’t here to uncover that fraud, would any of us have even known about it?” she said.