Last June, the House of Representatives voted to repeal key sections of the Dodd-Frank Wall Street Reform and Consumer Protection Act passed in 2010. The Act has long been in the cross hairs of Republicans who claim that it’s overzealous and anti-business.
Its rollback along with other deregulation proposals was a key theme in the Republican presidential campaign, and it was one of the first deregulatory legislative priorities of Congress and the new administration.
Dodd-Frank’s proponents cite the original intent of the Act – to prevent another financial collapse from occurring and the end to consumer mistreatment – as compelling reasons for keeping it intact. They point to key provisions such as the need for Federal oversight to prevent predatory lending practices that target consumers. The Act created the powerful Consumer Financial Protection Board, which has an independent budget and senior leadership.
While Dodd-Frank’s proponents claim that provisions are well-intentioned and have been protected consumers, banks have long complained that the costs associated with compliance are cutting deeply into their profits especially smaller community banks and credit unions. They point to the increased number of employees that are needed simply to ensure compliance. They also mention the punitive aspects of the Act as being too harsh: heavy fines can be levied against banks that do not comply. Banks have also been vocal about eliminating the Volcker Rule, which puts restrictions on banks’ ability to do certain trades.
The House’s replacement bill, the Financial Choice Act, would eliminate much of Dodd-Frank’s Federal oversight such as removing the CFPB’s independence and would require banks to maintain a higher capital level in return for no Federal policing. The June House vote followed party lines, with Republicans voting for it and Democrats unanimously opposing it. Given the political controversies about replacing the Act, the Senate will try to craft its own bipartisan bill that will ensure its passage: the legislation requires 60 votes to pass, which will require some Democrats to support it.
Given the recent partisan fight over Obamacare and the inability of the Republicans to replace it, the Dodd-Frank effort in the Senate will be an uphill fight unless a new Act’s provisions are a compromise. Despite bipartisan support for changing some features, Democrats have already signaled that the CFPB cannot be tampered with, and the Republicans have been vocal about eliminating it. To say the least, it will be an interesting process to watch.
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