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CHOICE Act faces big roadblocks ahead

Texas Congressman Jeb Hensarling’s bill to repeal much of the Dodd-Frank Act and curtail significantly the powers of the Consumer Financial Protection Bureau (CFPB) made it out of the House Financial Services Committee last week and will now move on to the full House.

The Financial CHOICE Act is significant in that it is the first bill to advance that would largely undo the Obama administration's signature regulations on the banking industry.

regulateIt is a sweeping bill that purports to offer regulatory relief to small lenders, and its supporters say it will remove crippling regulatory burdens that have hamstrung the economy’s growth, cut off consumer choices, and led to bank consolidations among smaller lenders.

Many parts of the bill are supported by the mortgage banking industry. Analysts, however, are giving the bill little chance of advancing in the U.S. Senate. The most likely scenario is that the less contentious sections of it get stripped out and taken up as smaller bills.

“It is kind of the opening salvo,” said Christopher Whalen, chairman of Whalen Global Advisors and a frequent media commentator on Wall Street and banking issues. “It comes down to really whether or not [Vice President] Mike Pence and the Trump administration can make the case that Senate Republicans ought to support most of these provisions, [but with] some of them, they just won’t.”

Of all the major issues before Congress this year, Whalen said regulatory reform has the best chance of becoming law; however, the CHOICE act will likely be substantially revised, or portions of it will be taken up in separate bills. 

“There are two very different parties in the Republican pantheon right now,” Whalen told Scotsman Guide News. “One is in the House, one is in the Senate. And they are very different.”

The core of the bill offers banks and financial institutions a way out of the Dodd-Frank supervisory regime and Basel III risk-capital requirements if the banks opt to maintain higher capital holding requirements. It also would abolish the Volcker rule, which prohibits banks from engaging in proprietary trading; and also will end the Durbin Amendment, which capped prices on debit-card interchanges. The bill purports to end “too-big-too-fail” by restructuring the bankruptcy code to allow for a failure of complex institutions without a government bailout. The CHOICE act increases the penalties for wrongdoing on Wall Street and would give the U.S. Securities & Exchange Commission more authority and resources to police Wall Street.

The bill also would overhaul the CFPB, taking away much of its supervisory authority and independence, enabling the president to fire the CFPB director at will and make its budget subject to congressional oversight. The CFPB would be renamed the Consumer Law Enforcement Agency.

The bill “emasculates the CFPB,” said Joseph Lynyak, a partner with the Washington, D.C.-based law firm Dorsey & Whitney.

“This is probably a nonstarter in many respects, not only in terms of what it does to the CFPB, but it is very much on the extreme side of conservative thinking that will not result in receiving 60 votes in the Senate,” Lynyak told Scotsman Guide News.

“It is a starting point for negotiations, probably nothing more,” Lynyak said.

Lynyak said U.S. Senate Banking Committee Chairman Mike Crapo, R-Idaho, and Ranking Member Sherrod Brown, D-Ohio, will likely take up regulatory reform this year in the committee, but their focus will most likely be on areas where there’s some common ground, such as providing relief for small lenders.

“Remember, what they need to do is get 60 votes in the Senate, and most of these provisions are not going to be subject to reconciliation,” Lynyak said. 


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