House votes to scale back financial rules
Regulations were adopted in wake of financial crisis.
Bill would roll back regulations passed after the 2008 financial crisis and hobble Richard Cordray’s watchdog agency.
The U.S. WASHINGTON — House voted 233-186 Thursday on a bill that would drastically roll back the regulations passed by Congress in the wake of the 2008 financial crisis as well as effectively hobble the consumer watchdog agency headed by former Ohio Attorney General Richard Cordray.
The bill — which aims to fulfill a key campaign promise of President Donald Trump’s 2016 campaign — would roll back elements of the 2010 Dodd–Frank Act, allowing banks to opt out of certain Dodd-Frank rules if they have enough capital. It would also replace the bankruptcy process for banks imposed by Dodd–Frank with a new one that aims to protect financial markets from being impacted by the failing bank.
The bill also would revamp the Consumer Financial Protection Bureau, headed by Cordray, renaming it the Consumer Law Enforcement Agency and limiting its power.
Under the bill, the agency’s budget would be controlled by Congress — it’s currently funded through the Federal Reserve. The bill would also roll back the agency’s authority to crack down on practices that it finds unlawful or abusive.
All of Ohio’s Republican members of Congress voted for it. The state’s four Democrats voted against it.
Columbus-area Rep. Steve Stivers, R–Upper Arlington, said he thinks it’s appropriate for Congress to decide how to fund the agency. He also is glad that the power to create regulations would go back to the Federal Reserve, not the CFPB, under this bill. 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, Columbus Rep. Joyce Beatty, D–Jefferson Twp., said the bill “is technically going to gut the CFPB.”
“They’ve been the go-to entity to stand up for everyday Americans,” she said of the agency, adding that it has recouped some $12 billion for 30 million Americans since 2011.
Both 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 the 2009 meltdown from happening again.
Sen. Sherrod Brown, D-Ohio, the ranking Democrat on the Senate Banking Committee, said Democrats are willing to improve DoddFrank. But the House bill, he said, is “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 rulemaking, enforcement or other authority with respect to payday loans, vehicle title loans or other similar loans.”
Such loans were designed to serve as short-term fixes for people who are facing 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 pay for the first. A 2012 report by the Pew Charitable Trusts, for example, found that the typical payday loan borrower is in debt for five months of the year and pays some $520 in fees for a $375 loan.
The CFPB is in the process of imposing new rules on the lenders, including a rule that would require lenders 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 Responsive Lending, said the 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 had 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. “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?”
He said proponents of the bill argue that Dodd-Frank imposed limits on credit, meaning the people who really need credit can’t get it.