Effort to Repeal Dodd-Frank Act Receives Mixed Reviews
SAN JUAN – The Financial Choice Act, approved earlier this month by the U.S. House of Representatives, would repeal or ease most regulations imposed on banks after the 2008 financial crisis, but would also rescind many consumer safeguards.
At first glance, Dimas Rodríguez, incoming president of the Mortgage Bankers Association, said the legislation seeks to ease the regulations of the 2010 Dodd-Frank Act, allowing banks to take more risks, something that will help consumers.
Rodríguez said eliminating regulations will allow banks to provide more products to consumers and ease regulations that restrict lending such as the safe harbor rule.
“We will not have the straightjacket that we have now,” he said.
Aurelio Alemán, president & CEO of FirstBank, said the bill does not deregulate banks, but makes adjustments that in the end will enhance the availability of credit to consumers. He said the cost of regulations for banks is very high. In the case of FirstBank, whose cost is $350 million, it represents 5% to 7% of its operations.
“This will align the banking system to help support the economy,” he said. However, Ramón Ponte, incoming president of the Society of Certified Public Accountants, doubted the bill, which faces an uphill battle in the U.S. Senate, would lead to greater lending to consumers or small businesses because banks consider prevalent economic conditions when providing loans.
The bill is touted by its authors as holding Washington, D.C., and Wall Street accountable and ending bailouts, but in reality it repeals many of the provisions of the Dodd-Frank Act approved to prevent a financial crisis similar to the one in 2008.
Many elements of Dodd-Frank to be repealed
Title VII of the Choice Act would restructure the Consumer Financial Protection Bureau (CFPB) by moving it outside the Federal Reserve System and enabling its director to be removed by the president. While the agency will be renamed the Consumer Law Enforcement Agency, it would be unable to bring actions for unfair and deceptive practices against banks or insured depository institutions. The new entity will no longer have rulemaking authority related to employee benefit compensation plans or persons regulated by the Securities & Exchange Commission. The CFPB is the agency where people file complaints to correct errors in credit reports or obtain information about complaints against banks. The changes mean the CFPB will not be able to act against banks trying to rip people off.
The proposal also eliminates the so-called Durbin Amendment that imposes caps on fees for the use of credit and debit cards.
Section 546 of the bill would require the federal regulatory agencies to tailor future regulatory actions based on the risk profile and business model of each type of institution or class of institutions subject to the regulatory action. Title VI of the Choice Act would enable qualifying banking organizations (QBOs) to opt out of federal laws and regulations that set capital and liquidity requirements and would prohibit regulators from considering a QBO’s effect on the financial stability of the banking system. To qualify as a QBO, a banking organization would need to have an average leverage ratio of at least 10%. The leverage ratio is defined as the Tier 1 capital divided by total assets plus off-balance sheet exposures.
The bill would repeal the so-called Volcker Rule, which prohibits banks from investing or trading on hedge funds or equity funds and the U.S. Labor Department’s fiduciary rule that requires retirement investment advisers to act in the best interest of clients.
Section 111 of the proposal would repeal Title II of the Dodd-Frank Act on the Orderly Liquidation Authority (OLA), a fund—paid for by large financial institutions—that helps pay for the operations of entities while they go through a resolution. The OLA would be replaced by a process under the Bankruptcy Code. It would also take away the ability of the Federal Deposit Insurance Corp. (FDIC) to provide liquidity, but it will continue to insure depositors.
While the Dodd-Frank Act established the Financial Stability Oversight Council (FSOC) to oversee systemic risk and designate non-bank institutions as systemically important, the Choice Act would repeal FSOC’s authority to designate non-bank financial institutions and financial market utilities as systemically important.
The proposed bill would also require the Consumer Law Enforcement Agency; the FDIC; the Office of the Comptroller of the Currency; the Federal Housing Finance Agency; the National Credit Union Administration; FSOC; and the non-monetary policy functions of the board.