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Bill Targeting Dodd-Frank, CFPB Passes First Hurdle in the House

Updated May 9, 2017

Legislation that would overhaul the CFPB and end taxpayer-funded bailouts of large financial institutions, among other mandates, moved one step closer to law May 4. The House Financial Services Committee approved the Financial CHOICE Act of 2017 (HR 10), which was reintroduced last month by U.S. Rep. Jeb Hensarling (R-Texas), in a 34-26 vote along party lines. The bill now heads to the House for review.

Hensarling’s bill includes myriad changes to the responsibilities and structure of the CFPB, such as giving it a dual mission of consumer protection and promoting competitive markets—with all proposed rules subject to a cost-benefit review by a newly formed Office of Economic Analysis, according to an executive summary of the bill. Like the previous version of the legislation, HR 10 would require the agency to obtain permission before collecting consumers’ personally identifiable information, and it would be subject to the congressional appropriations process. The bill also would establish an independent, Senate-confirmed inspector general to oversee the CFPB. That provision mirrors legislation U.S. Sen. Rob Portman (R-Ohio) introduced in March.

Durbin Amendment also under Fire

Although the Durbin Amendment is never mentioned by name in the nearly 600-page bill, the Financial CHOICE Act of 2017 addresses it under Sec. 735: Prohibition of government price controls for payment card transactions. The bill repeals Section 1075 of the Consumer Financial Protection Act of 2010 (Dodd-Frank), which includes the Durbin Amendment that required the Federal Reserve to create regulations capping debit interchange fees.

The National Retail Federation appealed to the House Financial Services Committee to remove language from the legislation that would repeal interchange regulations. “Swipe fees are a major concern, especially for small retailers,” David French, NRF senior vice president for government relations, said May 2. “If debit swipe fee reform is repealed, costs to retailers will only increase, meaning higher prices for consumers and less opportunity for retailers to grow their businesses, provide jobs and support community efforts.” Two days later, the committee approved the legislation with the Durbin Amendment’s repeal intact.

The NRF suspects the bill could be scheduled for a vote by the full House as soon as this month, and the association is calling on retailers to contact lawmakers to implore them to protect interchange reform.

Opponents of debit interchange fee caps have argued that any cost saving retailers promised would benefit consumers never materialized.

In a departure from Hensarling’s previous version of the Financial CHOICE Act, which called for Director Richard Cordray’s position to be replaced with a bipartisan, five-member commission, the new bill calls for the agency to be led by a single director removable by the president at will. Also, the bureau would be renamed the Consumer Law Enforcement Agency. Since President Trump took office, a plethora of bills has been introduced to limit the power of the CFPB, change its structure or even abolish the agency.

The legislation also goes after what Hensarling calls “too big to fail” bank bailouts with measures that include retroactively repealing the Financial Stability Oversight Council’s authority to designate firms systematically important FIs and prohibiting the use of the Exchange Stabilization Fund, an emergency reserve fund of the U.S. Treasury, to bailout financial firms and creditors.

The bill “ends bailouts so Washington can never again pick taxpayers’ pockets and hand the money over to big banks,” Hensarling said after the bill’s passage. “There will be bankruptcy for failed banks, not bailouts. Our plan replaces Dodd-Frank’s growth-strangling regulations on small banks and credit unions with reforms that expand access to capital so small businesses on Main Street can grow and create jobs.”

Hensarling also says the bill would impose harsher penalties for financial fraud and insider trading, and increase transparency of financial regulations’ costs to state and local governments and private sector entities.

Vice President Mike Pence recently showed support of the legislation while addressing the Independent Community Bankers of America May 1. The vice president described dismantling Dodd-Frank as a top priority and vital issue for the administration. He also praised Hensarling’s bill, which he said “is an enormously important step toward real reform and would unburden community banks and spur growth.”

Although the legislation is likely to pass in the House, according to The Hill, the D.C. news outlet says its prospects in the Senate don’t appear as clear cut. “Instead, the Senate committee is likely to start with housing finance reform and relief for community banks, two areas of wide bipartisan agreement,” the report said.

Meanwhile, the Senate approved a $1.1 trillion federal funding bill April 4 to avoid a government shutdown, and the House approved the legislation a day earlier. President Trump signed the bill into law before the deadline of midnight May 5. The bill will fund the government through September.

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