How Trump’s plans to change financial rules may affect you
Some proposals would ‘hit people directly in their pocketbook’
Debt collectors who refuse to identify themselves. Banks that aggressively upsell unwanted credit cards. Mortgage brokers who disregard borrowers’ ability to repay loans. Financial advisers who pitch high-fee annuities.
These are some of the financial industry players who have been in the crosshairs of the Consumer Financial Protection Bureau and the law that enacted the bureau’s enforcement powers, the DoddFrank Wall Street Reform and Consumer Protection Act.
President Trump, who has high-profile Wall Street bankers working as his top aides, has been clear about his intent to roll back Dodd-Frank’s regulatory reach and the CFPB’s independence. Put in place during the Obama administration after the financial crisis of 2008, Dodd-Frank and the CFPB established a wide range of rules and oversight designed to curb financial companies’ aggressive and risky practices that are harmful to consumers.
Friday, Trump stepped up his efforts, signing executive orders that direct Treasury officials to review oversight of “too big to fail” financial institutions.
Specifically, Trump called on Treasury Secretary Steven Mnuchin to review the use of the socalled orderly liquidation authority, as granted by Dodd-Frank. It lays out a process to quickly liquidate large, insolvent banks and financial companies.
Trump wants to review whether court-supervised bankruptcy may be a better way to wind them down. Some argue that bankruptcy procedures focus too narrowly on creditors’ claims and don’t have the tools to assess the broader effects of the failure on the financial system.
Trump wants to review how the Financial Stability Oversight Council, established by DoddFrank, designates non-bank financial institutions, such as insurance companies, as “systemically important” to the financial system. Those companies are then subject to additional oversight by the Federal Reserve.
In JanuaryK, Trump signed executive orders that called for re- viewing and possibly eliminating Dodd-Frank provisions. He halted the so-called fiduciary rule, which had been due to go into effect April 10 and would require financial advisers who work with retirement plans to act in the best interest of their clients.
In March, the Labor Department proposed to delay the implementation until June.
Critics of Dodd-Frank argue that it is too broad in scope, contains too many cumbersome rules that hinder new loans and business and costs banks too much money in compliance efforts.
Some executives and lawmakers complain that Dodd-Frank provisions are often applied without regard to the missions and market segmentation of different sub-sectors in the financial industry. For example, credit unions’ practices differ greatly from investment banks, and rules should be more tailored, critics say.
The American Action Forum, a center-right policy institute, estimates Dodd-Frank has cost the financial industry more than $24 billion in compliance-related expenses.
As for the fiduciary rule, companies are concerned that it would cost them millions in commissions and would be costly to implement, so much so that some smaller and independent financial advisers might not be able to afford the cost of keeping up with the new regulations.
According to consulting firm AT Kearney, the fiduciary rule will result in roughly $20 billion of lost revenue for the financial industry by 2020.
It would take 60 Senate votes and a major legislative push to kill Dodd-Frank, and few in Washington say that’s likely. The president, backed by the financial services industry and Republican lawmakers, is likely to chip away many rules by using a variety of tactics, such as denying funds to enforcement agencies, appointing industry-friendly regulators or simply easing back on enforcement.
Enforcement could be diminished, depending on what happens to the leadership of the CFPB, which is independently funded by the Federal Reserve. Trump wants to appoint his own head of the agency, even though the term of CFPB Director Richard Cordray doesn’t expire until 2018. Republicans have proposed replacing the agency’s director with a five-member bipartisan committee.
The CFPB has aggressively cracked down on fraudulent and misleading financial products since its creation under DoddFrank in 2010. The agency says it collected $11.7 billion in relief for more than 27 million harmed consumers since its creation and handled nearly 1 million consumer complaints.
The CFPB “is the most effective consumer protection agency in the history of the United States. By far,” says Dennis Kelleher, CEO of non-profit advoca- cy group Better Markets. The CFPB levied a $100 million fine on Wells Fargo Bank for its illegal practice of secretly opening unauthorized deposit and credit card accounts. Other financial institutions that had to pay CFPB fines include Citigroup, JPMorgan Chase Bank, Bank of America, Equifax, TransUnion and Moneytree.
“One way to substantially reduce consumer protection, even if you don’t have the votes to abolish the agency, is to starve it of its funds. And I’m afraid that’s what they may be in the process of doing,” Barney Frank, a former Massachusetts congressman and partial namesake of the law told USA TODAY. “If you don’t keep the rules we have in place to restrain irresponsible risk-taking, you’ll have, at some point, another crash.”
Also probably quashed would be dozens of pending CFPB rules aimed at curbing financial industry abuses.
One prominent rule pending is aimed at the payday lending industry, which charges consumers interest rates as high as 300% for emergency loans. The rule would require lenders to take steps to make sure consumers have the ability to repay their loans.
“These are things that hit people directly in their pocketbook,” says Michael Barr, a law professor at the University of Michigan and a key architect of Dodd-Frank when he worked as the Treasury Department’s assistant secretary for financial institutions.