Banking and Finance Law Daily Financial Services begins marking up Financial CHOICE Act
Tuesday, May 2, 2017

Financial Services begins marking up Financial CHOICE Act

By John M. Pachkowski, J.D.

Following a series of two-minute opening statements by its members, the House Financial Services Committee began marking up H.R. 10, the Financial CHOICE Act of 2017.

The legislation would roll back or repeal various provisions of the Dodd-Frank Act.

Safer financial system. In his opening statement, the Committee’s Chairman, Rep. Jeb Hensarling (R-Texas) said, "When Dodd-Frank was passed nearly 7 years ago, Americans were promised it would lift the economy. Instead, we’ve had the slowest and weakest recovery of our lifetimes. We were promised Dodd-Frank would end bailouts. Instead, Dodd-Frank promises more taxpayer-funded bailouts for the Wall Street banks that unelected bureaucrats decree are too big to fail."

He also cited the loss of over 1,700 community banks and the "historic levels of illiquidity and volatility" in the corporate bond markets as evidence of a "not a more secure financial system."

Hensarling then cited the benefits of the Financial CHOICE Act in that it would end bailouts and too big to fail; create "a true cop on the beat to protect consumers;" hold Wall Street accountable with the toughest penalties in history for fraud and insider trading; "unleash a wave of capital formation to grow America’s economy – not Washington’s government economy;" and offer "desperately-needed regulatory relief for our community banks and credit unions."

He concluded, "It is time to make our financial system safer, stronger and more secure. And it is time for a healthier economy, with equal opportunity for all. It is time for the Financial CHOICE Act."

Invitation for another Great Recession. Maxine Waters (D-Calif), the Committee’s Ranking Member said, "The Wrong Choice Act is a vehicle for Donald Trump's agenda to get rid of financial regulation and help out Wall Street. Just last week, Trump’s Treasury Secretary said he welcomes the reintroduction of this bill." She added, "The bill destroys Wall Street reform, guts the Consumer Financial Protection Bureau, and returns us to the financial system that allowed risky and predatory Wall Street practices and products to crash our economy. It’s an invitation for another Great Recession, or worse. For most Americans, the memory of that economic disaster is still fresh. 13 trillion dollars in household wealth evaporated. 11 million people lost their homes."

Waters concluded her opening statement saying, "In the final analysis, the Wrong Choice Act is a deeply misguided measure that would bring harm to consumers, investors and our whole economy. The bill is rotten to the core, and simply carries water for Trump and his buddies on Wall Street. The bill is also dead on arrival in the Senate, and has no chance of becoming law. And so, I’d urge my colleagues on the other side of the aisle to vote to protect your constituents, rather than walking the plank with the Chairman on this senseless, harmful, dead-end bill."

The issues raised in the opening statements offered by the other Committee members fell along party lines with Republicans offering support for the Financial CHOICE Act to help with opening up credit in small communities. Democratic members called for improvements to the Dodd-Frank Act or regulatory relief for community banks only.

At times, some of the members’ opening statements were hyperbolic with one majority member addressing the public viewing the hearing by saying "welcome to the circus" and one minority member calling the Financial CHOICE Act a "593-page middle finger" to the public.

Rep. Barry Loudermilk (R-Ga), a first-time member of the Committee, stated, "I’m supporting the Financial CHOICE Act—because it pushes government out of the way and opens up an economy that works for everyone. Packed with fresh, new ideas, this legislation fosters our economy back to health and gives choices back to consumers. Americans deserve the opportunity to pursue a bright, promising future with financial freedom."

The committee conducted a voice vote to move forward on consideration of an amendment in nature of a substitute. An attempt to dispense with the reading of the amendment was thwarted and the Committee’s staff was instructed to read each line of the amendment. Subsequently, Rep. Carolyn Maloney (D-NY) motioned to dispense with the reading. Finally, the chairman indicated that recorded votes would not occur until a continuation of the hearing on May 3, 2017.

In advance of the markup hearing, support for and opposition to the Financial CHOICE Act fell along ideological positions with groups representing the financial services industry supporting the legislation and groups advocating financial reform opposing the bill.

Support. The Financial Services Roundtable called for repeal of the "Durbin Amendment," which caps interchange fees for debit card transactions. The FSR also supported H.R. 10’s aim to de-designate non-bank systemically important financial institutions and remove the power that allows the Financial Stability Oversight Council to make these SIFI designations. The FSR also called for the Consumer Financial Protection Bureau to be a more effective and transparent advocate for consumers. Finally, the FSR supported the full repeal of the Volcker Rule. It noted that if that could not be accomplished, any reforms should refine the scope of the Volcker Rule.

In a letter to the Committee’s leadership, Rob Nichols, president and CEO of the American Bankers Association, offered the ABA’s views on H.R. 10. The letter noted the lack of de novo activity and the onus of regulatory burden have not allowed banks to serve their communities. The ABA also supported repeal of the Durbin Amendment and provisions that would "bring some clarity to the [CFPB’s] mission and operations."

The U.S. Chamber of Commerce called H.R. 10 "an essential first step towards unlocking our capital markets and facilitating the financing of economic growth and job creation." However, the Chamber believes the Restarting the Growth Engine Plan "offers additional, common-sense policies that will well-serve the Committee in its continued deliberations." The Chamber released that plan in September 2016 as means to creating a regulatory system that embraces stability and growth (see Banking and Finance Law Daily, Sept. 13, 2016).

Finally, the Consumer Bankers Association reiterated support for repeal of the Durbin Amendment and changes in the CFPB’s structure.

Economy has thrived. Better Market, a non-profit, non-partisan, and independent organization that promotes the public interest in the financial markets, released an analysis that countered claims by supporters of the Financial CHOICE Act that sensible financial protection rules enacted under Dodd-Frank are incompatible with economic growth and healthy banks. Better Market’s piece stated, "America’s financial system today is healthier, more capitalized, less leveraged, and lending more with less risk, than it was before the 2008 financial crisis. Seven years after the passage of Dodd-Frank, the data give real time, real life evidence that financial protection rules have helped the economy—and banks of all sizes—to thrive."

In another piece, Better Markets said, "The Financial CHOICE Act is a radical and dangerous deregulation of Wall Street at a time when too much of America is still recovering from the devastating impact of the 2008 financial crisis. The CHOICE Act’s ‘trust-but-don’t-verify’ stance toward Wall Street is precisely the wrong approach to take with an industry that has repeatedly shown it will use over-leveraged, risky trading strategies to maximize short-term profits, regardless of the impact on the country’s economic stability or taxpayers’ wallets."

Deregulation frenzy. Public Citizen, a national, nonprofit organization that seeks to hold government accountable, released a blog posting entitled "Another Wall Street Bonus" noted that "Buried in [Chairman Hensarling’s] 590-page deregulation frenzy are two pages that repeal 40 separate securities-related provisions of the Wall Street Reform Act."

A free hand. Finally, in a short statement, Lisa Donner, executive director for the Americans for Financial Reform stated, "The committee, with the backing of the Trump administration, is gearing up to pass a bill that would give Wall Street and assorted predatory lenders a free hand to abuse consumers and investors, and raise the likelihood of another financial crisis. Congress should be looking for ways to enforce the rules on Wall Street, not reward their army of lobbyists."

Companies: American Bankers Association; Americans for Financial Reform; Better Markets; Financial Services Roundtable; Public Citizen; U.S. Chamber of Commerce

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