Administration looks to curb CFPB powers, change bank rules

Ever since Dodd-Frank regulations came into being like a pair of shackles for the Main Street America seven years ago, Republicans pledged to take it down.

SINGH: So what's your take on the House bill to undo parts of Dodd-Frank? "They are being crushed by the costly rules imposed on them by the Dodd-Frank Act".

Less protection from a consumer watchdog agency.

The report, described in a summary provided by the Treasury Department on Monday, gives the most detailed roadmap yet for President Donald Trump's promise to revisit a wave of regulations put in place after the last financial crisis, affecting activities from mortgage lending to Wall Street trading.

The Department of Treasury says its recommendations are focused on identifying laws, regulations, and other policies that inhibit regulation of the financial system.

Under the legislation, failing financial firms would be forced to go through the bankruptcy process rather than the "orderly liquidation process" run by regulators under Dodd-Frank. But Congress would need to pass legislation to actually revamp the law - for example, to change the CFPB's authority.

Before Americans jump on the Republican bandwagon and buy into the Financial CHOICE Act, let's briefly review the history of the Great Recession. CRA, which became law in 1977, is supposed to mandate that banks make loans in communities where they operate, particularly low-income neighborhoods.

The law required financial institutions to carry larger financial cushions and submit to regular "stress" tests to assess their stability, and it set out rules for their liquidation should they fail.

These include exempting many banks from certain "stress tests" that are supposed to gauge how they would weather future economic strains. This in turn will eliminate its ability to investigate bank practices and instead return power to banking regulators. Republicans moved a step closer to delivering rules they believe are affecting banks, restricting consumer growth and stagnating the economy. And in a fairly rare area of bipartisan agreement, some Democratic lawmakers have indicated support for this, at least in theory.

Business lobbyists and conservative think tanks have been largely supportive of the plans, which they argue will ease lending and help small companies create jobs.

However, probably the peak modification of the Dodd-Frank act will be that of enabling the president to gain a decision making factor in the Consumer Financial Protection Bureau.

The legislation would reduce those powers.

Instead of the bureau keeping its current financing through the Federal Reserve, it would be put into annual congressional appropriations and subject to the mercy of political whims and gyrations. No longer would the CFPB have a guaranteed funding stream from the Federal Reserve.

The bill's targeting of the CFPB especially rankles Democrats and consumer advocates.

The Financial Services Roundtable, an industry lobbying group, cheered the bill's passage, saying it would "modernise the financial regulatory system to advance the goal of boosting the economy without sacrificing important consumer and taxpayer protections". As a result of its enforcement actions, the CFPB says it has recovered almost $12 billion that it returned to 27 million consumers harmed by illegal practices.

The overhaul of Dodd-Frank was crafted by Rep. Jeb Hensarling of Texas, chairman of the House Financial Services Committee. He says the rollback will help everyday people and businesses get loans and mortgages. Due to the enormity of the task, Treasury will divide its review of the financial system into a series of reports.

  • Zachary Reyes