Earlier this month, the United States House of Representatives passed H.R. 10, otherwise known as the Financial CHOICE Act. Introduced by House Financial Services Committee Chairman Rep. Jeb Hensarling (R-Texas), the legislation aims to bring about sweeping changes to the Dodd–Frank Wall Street Reform and Consumer Protection Act and the Consumer Financial Protection Bureau.
If you’ve been following consumer finance politics recently, you’re no doubt familiar with the CHOICE Act. Perhaps you’ve heard that the legislation will “roll back” or “replace” the CFPB and Dodd–Frank. But despite the hopes of some of its proponents, the CHOICE Act probably won’t undo the last seven years of federal consumer finance regulations. The truth, as usual, is less sensational—but no less impactful for your business.
Here’s what you need to know about this latest development and what it most likely means for the future of Dodd–Frank and the CFPB:
The CHOICE Act Did Not Come From Nowhere
The CHOICE Act is in many ways a culmination of criticism of Dodd–Frank and the CFPB. (And if the name of the bill sounds familiar, it’s no coincidence: the CHOICE Act was originally introduced to Congress last year, and many are referring to this new draft as “2.0”.) In general, Republicans and industry lobbyists such as the American Financial Services Association believe that financial regulations are overbroad and that the current incarnation of the CFPB has too much unchecked authority.
The CHOICE Act would limit the CFPB’s reach and increase transparency at the bureau through numerous measures, including the following:
- The President could remove the CFPB director at will.
- The CFPB wouldn’t be able to regulate small-dollar credit.
- The CFPB would have no authority to regulate unfair, deceptive, or abusive acts and practices.
- The CFPB would lose independent funding, and be subject instead to the Congressional appropriations process.
- The CFPB would cease to publish the consumer complaint database.
- A new “Office of Economic Analysis” would review all enforcement actions through a cost–benefit analysis.
- The bill would nullify the CFPB’s 2013 indirect auto finance guidance.
(These are just a few highlights. For the full text of H.R. 10, “Financial CHOICE Act of 2017”, click here.)
Fair Lending in the Trump Era
The Senate Will Almost Certainly Produce a More Moderate Version of the Act
On June 8th, the CHOICE Act moved on to the Senate after passing the House by a vote of 233-186. Regardless of your perspective on financial regulations, it would be unwise to anticipate similar results in the Senate, at least not without a fight. Keep in mind that because the Senate has a slimmer Republican majority, the CHOICE Act will almost certainly become more moderate and limited in scope.
Most industry analysts agree: consumer finance companies should expect some version of the CFPB to remain in effect. These legislative moves will likely not dismantle the regulatory pendulum, but cause it to swing back toward the middle. Although media likes to accentuate phrases like “rollback” or “put in the crosshairs,” a better word would be “reform”: bills like the CHOICE Act tend to build upon and alter prior legislation rather than toss it out categorically.
Lawmakers Can’t Ignore the Executive Branch
Complicating the conversation is the current state of the Trump Administration. Like his Republican colleagues in Congress, the President doesn’t love Dodd–Frank, but his Administration seems to be inadvertently halting progress on consumer finance regulatory reform.
Right now, it seems that the best case scenario for reformers is a moderated CHOICE Act passing the Senate. Of course, recent history tells us that anything could happen—so keep an eye on our blog for updates. In the meantime, if you have any questions about the CHOICE Act and how your business can weather a turbulent regulatory environment, get in touch with us.