Lessons Not Learned

Rep. Hensarling Introduces A Plan To Dismantle Dodd Frank

Rep. Hensarling Introduces A Plan To Dismantle Dodd-Frank

As the 2016 presidential primary season finally comes to its grinding end, Republican lawmakers have a new plan to woo Republican Presidential candidate Donald Trump. The proposal? Dismantle Dodd-Frank, Congress’s massive package of Wall Street Reforms that was passed in the wake of the Great Recession.

Yesterday, House Financial Services Committee Chairman Jeb Hensarling (R-TX) rolled out his plan to do just that. In a sign of his commitment to the plan Hensarling said recently, “I will not rest—and my Republican colleagues on the House Financial Services Committee will not rest—until we toss Dodd-Frank onto the trash heap of history.”

Dodd-Frank overhauled the financial sector with the goal of tightening up enforcement and increasing consumer protections. Unsurprisingly, Hensarling’s proposal—the Financial Choice Act—would gut large parts of the legislation, loosening enforcement and decreasing consumer protections. The plan does include increasing certain penalties for fraud, but those increased penalties come at the cost of gutting some of Dodd-Frank’s most essential protections. In addition to undermining the significant work done to repair the United States’ financial infrastructure, Hensarling’s proposal would also burden regulators with a pile of procedural duties that would make enforcing the rules he proposes almost impossible. Here are just three (of the many) harmful things Hensarling’s proposal would do:

  • Eliminate independent funding for financial regulators. A key component of Dodd-Frank was the creation of the Consumer Financial Protection Bureau, or CFPB—the only financial regulator dedicated to protecting consumers. In its few years of existence, the CFPB has helped return more than $11 billion to more than 25 million consumers in addition to protecting Americans from predatory lenders and deceptive mortgage practices. Hensarling’s proposal takes specific aim at the CFPB by blocking the bureau from acting against discriminatory auto lending and moving forward on a proposal to curb the use of forced arbitration clauses that prevent consumers from suing banks and lending companies—a key instrument of Wall Street accountability. The Financial Choice Act would also strip CFPB—and all federal financial regulators—of their independent funding, making them vulnerable to Congress’s political whims by forcing them to rely on annual congressional appropriations.
  • Tie the hands of Wall Street cops. Hensarling’s proposal would require Congressional approval of any new financial rules meant to protect consumers, investors, and financial stability—which would essentially slow to a halt any rulemakings in the public interest. The plan also includes a series of overly burdensome requirements like onerous cost-benefit analysis rules that would allow special interest groups to relentlessly challenge rules in court.
  • Allow some banks to opt out of Dodd-Frank supervision. With the goal of placing limits on risky bank trading activity, Dodd-Frank requires a bank’s entire balance sheet to be subject to supervision. Hensarling’s proposal would remove that requirement by allowing banks that meet a leverage ratio of 10 percent to opt out. Effectively, this would incentivize banks to focus on the riskiest, highest-earning activities, which often come at the expense of consumers.

The Financial Choice Act proves, once again, how short House Republicans’ memories are. Dismantling Dodd-Frank would turn back the clock on progress made to repair our financial infrastructure and protect against another Great Recession.

BOTTOM LINE: House Republicans have shown yet again that they failed to learn the lessons of the 2008 financial crisis. Instead of grandstanding in favor of Wall Street, Republican lawmakers should work to ensure a safe and accountable financial system that works for the real economy, American families, and small businesses.

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