The Financial Choice Act—Much Ado About Nothing

From Ulmer’s Broker Dealer Law Corner Blog

While most of DC was watching the Comey hearing, the House of Representatives passed the Financial CHOICE Act, which would significantly alter the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. Dodd-Frank created the Consumer Financial Protection Bureau (CFPB).

The Financial CHOICE Act passed the House with a vote of 233 to 186; a vote straight down party lines with the exception of one Republican who voted against the bill.  However, there is little chance of the bill surviving a Democratic filibuster in the Senate.   To survive a filibuster, it takes 60 votes to proceed to a vote on a bill.  Currently, the GOP has 52 seats in the Senate, which would require 8 Democratic Senators to vote with the GOP.   Rather than face these numbers, the Senate will likely draft a companion bill, with the same intent to reform Dodd-Frank.

As passed in the House, the CHOICE Act seeks to reform the Dodd-Frank Act, but does not completely change the consumer protection landscape.  Instead, the Financial Choice Act seeks to limit regulations aimed at supervising financial institutions.  Specifically  the CHOICE Act looks to provide an alternative to banks who maintain higher levels of capital, thus avoiding additional regulations.  The Dodd-Frank Act supervised financial institutions, with particular focus on banks deemed “Too Big to Fail” and non-bank financial institutions who were deemed as “systematically important.”   Further, it would ease some of the regulations that currently apply to smaller financial institutions, such as credit unions and community banks.  The CHOICE Act would also repeal the Volcker Rule and the Fiduciary Rule, which would require retirement advisors to put their clients’ interests before their own.

As passed by the House, the CHOICE Act also restructures the CFPB from a bureau to a consumer law enforcement agency, subject to the congressional appropriations process. This change would also permit the President to fire the head of the CFPB at any time and without reason. The constitutionality of a bureau with a director who can only be removed for cause was one of the key issues in the PHH Case, which was argued to the U.S. Court of Appeals for the D.C. Circuit on May 24th. If the director of the CFPB or a consumer law enforcement agency can be removed without cause, the director would follow the policies and priorities of the President, which could change every election cycle.

Until the Senate drafts and votes on a companion bill or votes on the CHOICE Act, Dodd-Frank and all its regulations remain. With the current makeup of the Senate, it remains risky to attempt to predict the outcome of reform efforts.