The House overwhelmingly voted on Thursday to kill 2010 Dodd-Frank financial regulations. The Financial Choice Act, introduced by House Financial Services Chairman Rep. Jeb Hensarling (R-TX), would weaken the ability of the Consumer Financial Protection Bureau and the Federal Housing Finance Agency to do much of their oversight and enforcement work — which has experts worried about the next financial crisis.
The Thursday vote was split mostly among party lines, with 233 Republicans voting in favor of the bill and only one Republican voting against it.
The Financial Choice Act would let the president fire the heads of the Consumer Financial Protection Bureau (CFPB) and Federal Housing Finance Agency (FHFA) at will, and the CFPB would rely on Congress for funding. This would allow members of Congress to de-fund the agency.
Yana Miles, senior legislative counsel at the Center for Responsible Lending, a nonprofit research and policy organization, said this move would politicize the agency.
“The director of an agency would be moving with the political wind,” Miles said. “If there is a law on the books that already says if there are big problems with how someone handles an agency, there is process for removing them, why make it at-will? That just politicizes the agency.”
In addition, the bill would limit the CFPB’s ability to use and make public their consumer database, which allows people to make complaints against companies. This database lets the agency identify patterns of abuse and allows the public to learn more information about companies — so limiting its use is dangerous for consumers. The Choice Act would also allow financial institutions to get exemptions from requirements that test how banks would weather a financial downturn. In terms of oversight over mortgages, Miles said the bill “blows truck-sized loopholes” through standards that prohibit creditors from disregarding a consumer’s ability to repay the loan when they make a high-priced mortgage loan.
“This is what caused the financial meltdown. When we remove safeguards put in place specifically to avoid another recession, we’re asking for another recession,” Miles said.
House Republicans made the claim that Dodd-Frank is harming small businesses and has harmed the country’s economy. Before the House voted on the bill, Rep. Hensarling said the credit unions and community banks were “suffering under load of the Dodd-Frank Act.”
But that argument that the law hurt lending isn’t supported by the facts. Lending to businesses and consumers has gone up since 2010, and the economy is adding hundreds of thousands of new jobs, according to an April CNBC report.
“When that was being discussed, people said there would be no lending to people of color and they would get no loans and there would no lending again,” Miles said. “What we have actually seen since 2014, is a steady but modest increase in lending, including to communities of color.”
Rep. Steven Lynch (D-MA) called the bill the “single worst piece of legislation I’ve ever seen.”
“This is an amalgamation of terrible ideas that basically destroys the work we did to try to secure banks during the financial crisis. It lets off bad actors and hamstrings financial regulators. It will destroy our only consumer financial protection agency,” Lynch said.
The bill still has to go through the Senate, and Senate Republicans plan to work with Democrats to pass the bill. Senate Republicans say they will craft a companion measure. Changes to Dodd-Frank will also need approval from posts in the Fed, FDIC, and Comptroller of the Currency, however, CNN reported, and many of those posts have not been filled.