House Passes Bill that Would Roll Back Consumer Financial Protections

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The Republican-sponsored Financial Choice Act that is designed to undo Obama-era financial regulations enacted in the wake of the Great Recession passed the House on Thursday.

Now the Senate will have its turn to debate the merits of the bill.

The bill's opponents argue the legislation should die because it would dismantle key consumer safeguards, including weakening the Consumer Financial Protection Bureau. Proponents say it would jump start economic growth, in part by loosening some banking rules.

The Choice Act would roll back much of the Dodd-Frank Financial and Consumer Protection Act of 2010, which set strict banking standards, such as keeping banks from making risky financial bets using consumers’ deposits. Dodd-Frank also created the CFPB to regulate and police financial institutions.

“The bill would leave the successful CFPB as an unrecognizable husk,” says Ed Mierzwinski, consumer program director at U.S. PIRG, an advocacy organization based in Washington, D.C.

Opposing Views

The bill, which passed 233 to 186 in a strict party-line vote, was originally sponsored by Rep. Jeb Henasarling (R-Texas), chairman of the House Financial Services Committee and an outspoken critic of the Dodd-Frank reforms. Choice stands for creating hope and opportunity for investors, consumers and entrepreneurs.

Hensarling and others say the bill corrects for government overregulation of financial services. If it is passed by the Senate as written, small banks, credit unions, and other financial institutions would be able to lend with less red tape, proponents of the bill say.

The bill’s backers also say financial institutions would have more opportunity to create new financial services that could benefit consumers, businesses and the economy. Hensarling maintains the bill eliminates government bailouts for “too-big-to-fail” banks, and relaxes onerous rules that require lenders to verify that mortgage borrowers can pay back what they owe.

“The bill that passed today isn’t perfect, but will go a long way to correcting the problems within our financial system, restraining bureaucrat regulators and preventing future bailouts with taxpayer money,” says Norbert Michel, a financial regulations expert at the Heritage Foundation, a conservative think tank based in Washington, D.C.

Opponents of the bill say it could again usher in the days of expensive bank bailouts and leave consumers with few safeguards.

“Weak consumer protections helped trigger the financial crisis that cratered our economy and hurt millions of Americans,” says Pamela Banks, senior counsel for Consumers Union, the policy and mobilization arm of Consumer Reports. “This bill cripples the CFPB’s ability to stand up to the big banks and predatory lenders and puts hardworking families at risk of losing their money to unfair financial practices.”

Bill Aims at Dodd-Frank

The Senate could start the process of hearings and marking up its own version of the bill before the August congressional recess. Consumers Union’s Banks said that the Senate could try to unwind Dodd-Frank through several bills instead of one.

But either way, efforts to roll back Dodd-Frank could face a tougher road in the Senate. Proponents “need 60 votes in the Senate and I don’t see eight Democrats crossing the aisle for them,” says Isaac Boltansky, senior vice president and policy analyst at Compass Point Research & Trading, an investment firm based in Washington, D.C.

If the Choice Act became law as written, it would:

Severely limit the CPFB’s power. The bureau could no longer write regulations that govern financial institutions like banks, student loan servicers or credit card lenders. It also could no longer monitor and punish financial institutions involved in unfair, deceptive or abuses acts and practices. The CFPB would lose oversight over payday lenders, some of which have been fined for misleading consumers.

Change the CFPB’s funding and structure. The bureau’s annual budget is now independent of the legislative budgeting process. The bill would make the CFPB subject to the annual congressional appropriations process—a potential death knell. The bureau’s independent head, who currently can only be fired for cause, could be removed at will by the president, potentially politicizing the job.

Hide a popular complaint database from public view. Postings in the CFPB’s free Consumer Complaint Database, which has collected 1.1 million verbatim comments and complaints from financial institutions’ customers, would no longer be visible to consumers. That could prevent the public from making informed decisions about the banking institutions they use. The CFPB maintains that information from the database—and the resulting investigations—have contributed to its returning nearly $12 billion to wronged consumers in the past six years.

Reduce help for vulnerable populations. Offices serving veterans, students, seniors and minorities that were mandated under Dodd-Frank would be made optional. The CFPB’s education programs, such as one designed to educate people overseeing seniors’ and disabled people’s money, would be cut entirely.

“Dodd-Frank and the creation of the Consumer Financial Protection Bureau has created a fairer financial marketplace for consumers and has kept financial institutions accountable to the public,” says Yana Miles, Senior Legislative Counsel at the Durham, N.C.-based Center for Responsible Lending, a nonpartisan research and advocacy organization. “This basic accountability is especially important for low-wealth families and communities of color who were hit hardest by the financial crisis.”

Cut the rights of small investors. Only investors who held at least 1 percent of a company's stock for at least three years would be allowed to make shareholder proposals at corporate annual meetings. Currently, anyone holding either $2,000 worth or 1 percent of a company’s stock for at least a year can make such a proposal. The change would effectively shut out all but the biggest investment firms from proposing changes at major corporations.

Slow proposed financial regulations and enforcement. The CFPB would have to get congressional approval before it could take enforcement action against financial institutions. Any federal financial agency proposing a rule that could have a large financial impact on state or local governments would have to defend the rule through a lengthy process. 

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