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Dodd-Frank, CFPB changes will unfold slowly

Speculation is running high that major changes and rollbacks will be coming to the Obama-era regulations on the mortgage and banking industries. Joseph Lynyak, a partner at the Washington, D.C.-based Dorsey & Whitney, runs the law firm’s bank-regulatory practice. He spoke with Scotsman Guide News about likely scenarios under the incoming Trump administration.  

Now that Republicans control all branches of government, how easy will it be for them to overhaul the Dodd-Frank Wall Street Reform and Consumer Protection Act, and other Obama-era regulations?

LynyakI don’t think anybody knows to what extent the new administration will take a populist view of financial regulation, as opposed to a Wall Street, traditional Republican, view. For example, while President-elect Trump has indicated that there are some aspects of Wall Street, which he was not particularly happy about, he also made several statements that he wanted to repeal the Dodd-Frank Act. That is going to have to resolve itself.

It should be noted that Dodd-Frank was passed about five years ago, and typically, after about two years, there is a follow-up bill to fix the problems that came up relating to comprehensive banking legislation. When you have major banking legislation, you never get it all right. The Obama Administration has been steadfastly preventing Dodd-Frank from being amended. So, as a result of the Republicans controlling the two branches of government, there is a much higher probability that something will occur.

Right now what is sitting out there is the Financial Choice Act [proposed by Congressman Jeb Hensarling, R-Texas], which creates a starting point for negotiations. In order for anything to pass, though, it has got to go through the Senate as well. There usually needs to be more cooperation there. Sen. Mike Crapo is going to be the chair of the Senate Banking Committee and Sen. Sherrod Brown is going to be the ranking member.

 Do the Democrats have any way to obstruct these changes?

Again, you have got a couple of things taking place. If this moves forward in the president’s first 100 days, it is usually very difficult [to obstruct] because of the fact that someone has been given a mandate. There are certain things which can form the basis for a compromise. If you end up with Sens. Crapo and Sherrod Brown agreeing on a list of acceptable modifications [to Dodd-Frank], I don’t think [the Democrats] would necessarily oppose a bill that contains centrist banking law amendments. 

With respect to the Consumer Financial Protection Bureau, what sort of restructuring do you think is likely?

With the exception of very strong proponents of the CFPB, you can probably say there has emerged a consensus that there should be a five-person commission led by a director. Whether or not you would also get congressional oversight in the budget process, it is not clear whether that would be part of a compromise. If you ended up with a commission structure for the CFPB, many of the criticisms that people have leveled against the CFPB can probably be addressed by the possibility of this different form of management at the CFPB. 

Do you think the CFPB could conceivably be scrapped or dismantled?

I think there is very little chance that might occur. If  you just take a look at historically how federal agencies have operated, once they are created, they very rarely ever go away. I can’t recall when that has ever occurred. There is a view that the CFPB has been overly aggressive in terms of its enforcement actions and often has acted in a manner that is in conflict with sound policy positions.Those things can probably be addressed very clearly by a commission. It would also be difficult for even conservative Republicans to say we don’t want to be in favor of a consumer protection agency.

But you do think there could be some significant changes to regulations?

Yes, and I go back to history. After major banking legislation, there is always a regulatory reform bill, fixing the things that they got wrong the first time. This is long overdue. There are things that can be legitimately tweaked.

Regulators have done a very good job in terms of better regulating and managing larger institutions. I don’t think anyone wants to [change] those regulatory authorities and provisions in such a way that, if there is another financial collapse, whoever voted for [the changes] would be blamed for it. There is a tension here. Some regulatory initiatives have been very useful and other ones, not so much. Again, the process will probably not play out immediately, but over the next year or so when the new administration comes in.

One last thing that I failed to mention is that the Treasury secretary will probably have a significant role in determining which way the administration wants to move in terms of financial reform. Watching that position, and who fills it, will be an important clue as to what the new administration wants to do. 


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