The Choice Act 2.0 Easily Passes The House In The First Step To Roll Back Core Regulations Under The Dodd-Frank Act

• Posted on: Jun 9 2017

Yesterday, the House of Representatives voted along party lines to repeal many of the regulations enacted after the 2008 financial crisis under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”). It was the first step for Republicans who have long-promised to eliminate regulations they maintain are hurting banks, restricting consumer credit, inhibiting small businesses, and slowing economic growth.

The legislation faces significant hurdles in the Senate because of Democratic opposition. Still, passage of the Act in the House furthers President Trump’s effort to dismantle key parts of the Dodd-Frank Act. (Discussed here.)

The Dodd-Frank Act includes many financial reforms, such as the prohibition on federally insured banks from engaging in risky trading, the creation of a liquidation authority to wind down faltering financial institutions to avoid future taxpayer bailouts, and the creation of the Consumer Financial Protection Bureau (“CFPB”) to oversee credit cards, mortgages and other financial products.

The Financial Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs Act, or the CHOICE Act 2.0 (in recognition of the second iteration of the Act), eliminates or scales back much of the Dodd-Frank Act. Its major provisions include repealing the trading restrictions, known as the Volcker Rule, and eliminating the liquidation authority, which some critics argue reinforces the notion that some banks are too big to fail, in favor of enhanced bankruptcy provisions designed to remove any chance taxpayers would be on the hook if a major financial institution collapsed.

“We will replace bailout with bankruptcy. We will replace economic stagnation with a growing healthy economy,” said Rep. Jeb Hensarling (R-Tex.), the Act’s author. “We’ll replace Washington micromanagement with market discipline.”

The CHOICE Act 2.0 also repeals the Department of Labor’s fiduciary rule (discussed here), which requires financial advisors who provide retirement advice to act in the best interests of their clients – that is, they are required to put their clients’ interests ahead of their own. (Discussed here.)

In previous posts, this Blog has written about other parts of the CHOICE Act 2.0, such as the provision that: (a) weakens the SEC Whistleblower program by barring “co-conspirators” from recovering awards under the program (here); and (b) imposes a heightened pleading standard on plaintiffs claiming a breach of fiduciary duty under the Investment Company Act by their investment advisor.  (Here.)

Significantly, the Act weakens the CFPB, curbs its oversight powers, and makes the agency’s director an at-will employee of the president. (Discussed here.) For example, the Act strips the agency of its ability to monitor firms for compliance with consumer protection laws and specifically prohibits the agency from writing any regulations on payday and car-title loans.  It also eliminates the bureau’s independent funding stream, making it subject to congressional appropriations where the majority party (now the Republicans) can restrict its budget.

Since 2011, when the CFPB opened its doors, the bureau has obtained approximately $12 billion in refunds, mortgage principal reductions and other relief for consumers. Recently, the CFPB recovered $100 million in fines from Wells Fargo & Co. in connection with the bank’s creation of about 2.1 million unauthorized deposit and credit card accounts.

Democrats and other opponents of the Act have labeled the legislation, the “Wrong Choice Act,” with Rep. Maxine Waters (D-Calif.), calling it “one of the worst bills I have seen in my time in Congress.”

“This bill would pave the way back to economic damage of the same scale (as the financial crisis), or worse,” Waters said in a statement.

Waters, who serves as the ranking Democrat on the Senate Financial Services Committee, has previously said that CHOICE Act 2.0 is “dead on arrival” in the Senate because of Democratic support for the Dodd-Frank Act and opposition to the CHOICE Act 2.0. Perhaps recognizing the strength of that opposition, Senate Republicans, led by Mike Crapo (R-Idaho), along with Senate Democrats, led by Sherrod Brown (D-Ohio), are working on their own bill, which many hope can garner the Democratic support needed for passage. These efforts largely preserve many parts of the Dodd-Frank Act, such as the CFPB, the Volker Rule, and the regulations that dictate the amount of capital lenders must hold in cases of losses.

This Blog will continue to monitor developments related to the CHOICE Act 2.0 as the legislation moves through the Senate.

Tagged with: Breach of Fiduciary Duty, SEC Whistleblower Representation, Securities, Securities Arbitration, Whistleblower Representation