House to Vote on Bill That Undoes Dodd-Frank Regulations

The Dodd-Frank Wall Street Reform and Consumer Protection Act, commonly referred to as the Dodd-Frank act, was drafted in 2008 during the Great Recession. In 2010 the bill was signed into law. Since then, Republicans have made it their mission to get the bill repealed claiming that its regulations kill jobs and hurt the financial industry.

The act’s main purpose was to set up regulatory measures to help ensure that an economic crisis like the one America faced in 2008 would not be repeated. The Act required the Financial Stability Oversight Council to oversee financial firms other than banks and if a company got too big, the Federal Reserve would step in to tell the company to increase its reserve requirement. This would mean that the firm would have to hold on to more cash to secure itself rather than loan it out and make interest on the loan.

The Dodd-Frank Act has a clause called the Volcker rule, named after former Chair of the Federal Reserve who authored the rule, Paul Volcker. The rule prohibits banks from using or owning hedge funds to try to make a profit that does not benefit their customers. These banks were using customer deposits to buy hedge funds which were seen as a gamble.

Another clause of Dodd-Frank put more regulations on hedge funds by making them register with the Security and Exchange Commission and provide all data about their trades to that the SEC could access market risk. An Office of Credit Ratings was created at the SEC to regulate credit-rating agencies to ensure that securities were not being overrated as they were with the mortgage-backed securities of 2008.

The Consumer Financial Protection Bureau was created to oversee credit reporting agencies and consumer loans. It protects homeowners by requiring them to understand risky mortgage loans. It also requires banks to verify borrower’s income, credit history and job status.

Dodd-Frank created a new Federal Insurance Office under the Treasury Department.  It identifies insurance companies that create a risk for the entire system. It makes sure affordable insurance is available to minorities and other underserved communities.

The Trump administration and Republicans want to prevent the supervising of large firms by the Fed, ease up on the enforcement of the Volcker Rule, replace the director of the CFPB or defund the bureau, and relax supervision over insurance companies.

The Financial Choice Act will be presented to the House of Representatives to vote on this week. A bill needs 218 of the 435 members of the House to vote “yes” in order for it to pass through the house. The bill is expected to pass with only Republican support with 239 members of the House being Republican. Republicans hold 52 seats in the Senate with Democrats holding 46 and Independents holding 2. If the bill needs 60% of the Senate to agree on the bill, Democrats will need to offer support of the bill for it to make it passed the Senate and on to President Trump to sign into law.

Speaker of the House, Republican Paul Ryan stated the Financial Choice Act would “come to the rescue of Main Street America. The Dodd-Frank Act has had a lot of bad consequences for our economy, but most of all in the small communities across our country.”

Norbert Michael, a Heritage Foundation Research Fellow, is another critic of the Dodd-Frank Act stating, “the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act is among the most inappropriately named laws ever enacted in the U.S. It neither reformed Wall Street nor protected consumers, and it imposed massive new regulations on banks far away from Wall Street.”

The push for deregulation from the Trump administration and Republicans comes from their goal to increase economic growth by an annual rate of three percent. Banks are supportive of the Financial Choice Act and agree will make it easier to lend out money and therefore help small companies grow and create jobs.

Critics of the Financial Choice Act include Marcus Stanley, policy director at Americans for Financial Reform who stated, “This legislation would be better dubbed Wall Street’s Choice Act as it would have a devastating effect on the ability of regulators to protect consumers and investors from Wall Street exploitation and the economy from financial risks created by too-big-to-fail megabanks.”

Democratic Representative Maxine Waters agreed with this by claiming, “the Wrong Choice Act is a vehicle for Donald Trump’s agenda to get rid of financial regulation and help out Wall Street. It’s a deeply misguided measure that would bring harm to consumers, investors and our whole economy.”

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