The Congressional Effort To Repeal The Dodd-Frank Act

• Posted on: May 30 2017

In previous posts, this Blog has written about certain parts of the recently proposed Financial CHOICE Act 2.0; namely, the provision that: (a) bars “co-conspirators” from recovering whistleblower awards under the SEC’s Whistleblower Program, (b) prevents the DOL’s Fiduciary Duty Rule from becoming effective, and (c) imposes a heightened pleading standard on plaintiffs claiming a breach of fiduciary duty under the Investment Company Act by their investment advisor.  (Here and here.) In today’s post, this Blog will discuss other provisions of the CHOICE Act 2.0 that are intended to repeal and roll back the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. (“Dodd-Frank” or the “Dodd-Frank Act”).

The CHOICE Act 2.0 (Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs) eliminates a number of financial regulations that many argue have stifled economic growth. In particular Republican lawmakers, including the bill’s sponsor Committee Chairman Jeb Hensarling (R-TX), believe that the Dodd-Frank Act has dramatically restricted lending to small businesses and limited consumer choices to financial products.

“There is no excuse in the United States of America for 2 percent growth,” said Hensarling. “Those are American dreams that will never be realized.”

The CHOICE Act 2.0 at a Glance

The CHOICE Act 2.0 takes aim at the Consumer Financial Protection Bureau (“CFPB”) established under the Dodd-Frank Act. Renamed the Consumer Law Enforcement Agency (“CLEA”), the CHOICE Act 2.0 scales back the agency’s budget and restricts its power to enforce consumer protection laws.

Most notably, the CHOICE Act 2.0 places the CLEA under the supervision of the political apparatus. For example, the CLEA director can be removed by the President, and the agency’s funding will be controlled by Congress through the appropriations process (unlike the CFPB, which is funded through the Federal Reserve (the “Fed”)).

In addition, The CHOICE Act 2.0 allows banks to opt out of Dodd-Frank, provided they have sufficient capital reserves. The federal stress tests for big banks would also be limited to every two years. Moreover, the Fed’s authority to label a bank “too big to fail” would be eliminated.

One controversial provision that Democrats strongly opposed eliminates the Fed’s Orderly Liquidation Authority (“OLA”) and replaces it with a special bankruptcy process that would guard the markets against the fallout of a failure by a big bank. Democrats introduced several amendments to preserve the OLA that were rejected by Republicans.

Finally, the CHOICE Act 2.0 repeals a rule that caps fees charged by debit companies to retailers for card processing.

The Takeaway

While opponents of the CHOICE Act 2.0 believe it will lead to the next financial meltdown, proponents believe it will create jobs, stimulate growth and restore discipline to the financial markets. Many analysts and political observers believe that passage of the Act is unlikely, noting that Senate Democrats will likely filibuster the legislation. Even some Republicans reportedly have misgivings about certain parts of the bill. Given the uncertainty, it remains to be seen whether the Act will get through Congress and in what form. This Blog will continue to monitor developments surrounding this legislation.