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From Banking and Finance Law Daily, July 22, 2015

Congressional minds split along party lines re: Dodd-Frank

By Colleen M. Svelnis, J.D.

On the fifth anniversary of the Dodd-Frank Act, reactions from Congress are split along party lines. Democrats cited key accomplishments of the Dodd-Frank Act, such as the creation of the Consumer Financial Protection Bureau and mandatory stress testing. Republicans claimed broken promises have caused more economic instability and consolidation, and vowed to fight to repeal.

Reactions from House leaders. In her statement, Minority Leader Nancy Pelosi (D-Calif), defended the Act as the “most sweeping Wall Street consumer financial protections in history.” Pelosi said the Act “created tough new rules and strong independent watchdogs to protect Americans’ life savings, to end unfair, deceptive, and predatory lending practices, to restore confidence in our financial markets, and to shield our economy from another financial meltdown.” Pelosi highlighted the following accomplishments since the enactment of the Dodd-Frank Act:

  • the Dow Jones has moved from near 10,000 to above 18,000;

  • the economy has built the longest uninterrupted streak of private sector job creation in American history, 64 months and counting, and added more than 12 million new jobs; and

  • the CFPB has returned over $10 billion dollars to more than 17 million consumers who had fallen victim to unfair and deceptive financial practices.

Financial Services Committee Chairman Jeb Hensarling (R-Texas), spoke about the “unhappy results” since Dodd-Frank become law. Hensarling claims that the Dodd-Frank Act has made us “less financially stable,” less prosperous, and less free. He stated that “the financial crisis resulted not from deregulation but from dumb regulation.”

Hensarling said the Act, which was “the most dramatic and sweeping rewrite of our financial laws since the New Deal,” had the following results:

  • concentrated greater assets in fewer institutions, codifying into law “Too Big to Fail” and taxpayer-funded bailouts;

  • in the derivative market “Dodd- Frank did not lessen risk, it just centralized it and placed it on the taxpayer balance sheet;”

  • led to an “anemic” recovery that has created 12.1 million fewer jobs than the average recovery since World War II;

  • the share of able-bodied Americans in the labor force is “hovering at the lowest level in nearly 40 years”;

  • small business startups are at the lowest level in a generation;

  • CFPB’s “Qualified Mortgage” rule’s strict debt-to- income requirements disqualify too many from obtaining a mortgage to buy a home;

  • more than 9 million households don’t have a checking or savings account, principally because account fees are too high or unpredictable; and

  • community banks and credit unions are being dragged down by the Act's regulations.

Hensarling also railed against the Volcker Rule, which he said was “solving a problem that does not exist,” but ended up “creating a new problem that did not exist before: dramatically reduced liquidity in the corporate bond markets.” He called the CFPB arguably “the single most powerful and least accountable federal agency in our nation’s history,” citing its “almost absolute discretionary power to find any consumer credit product ‘unfair’ or ‘abusive’ and, thus, functionally outlaw it.”

Republican reactions from Congress. Representative Blaine Luetkemeyer (R-Mo) also marked the anniversary with a disapproving statement that the Act “has left Americans with fewer choices and higher costs.”

“Throughout the past five years, the economy has been stagnant, not lifted; community banks have been stifled with regulations; and unelected bureaucracies such as the Consumer Financial Protection Bureau and the Financial Stability Oversight Council have, despite their mission statements, raised serious doubt that any meaningful steps have been taken to protect taxpayers and consumers,” said Luetkemeyer.

Representative Tom Cotton (R-Ark) released a statement that “community banks across Arkansas and America have little to celebrate.” “President Obama promised Dodd-Frank would ‘lift our economy’ and prevent another financial crisis. In reality, it’s done much more harm than good. Today, Arkansas families are finding it more difficult to buy their first home, get a loan for a new tractor, or even open a simple bank account. And our community banks are struggling to keep their doors open as they deal with more bureaucracy and regulations.” He promised to “work to repeal Dodd-Frank and implement common-sense reforms” instead.

In a statement, Rep. Scott Garrett (R-NJ), Chairman of the Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises, recalled promises that the Act would “protect American consumers, make our economy more competitive, and end ‘too big to fail.’ Instead, Dodd-Frank has stifled economic growth, made it more difficult for Main Street businesses to obtain credit, and increased the likelihood that taxpayers will be on the hook for additional Wall Street bailouts. Most importantly, this law has and has made it harder for Americans to find a job, buy a home, and save money for their family’s future.”

Representative Lynn Westmoreland (R-Ga), Vice Chairman of the Housing and Insurance Subcommittee lamented that “we do not see the financial stability that was promised with Dodd-Frank Act … Although it was created with the intention of focusing on federal banking, community banks have been hit the hardest. On average, the country is losing at least one community bank or credit union a day. In order to repair the damage from the 2008 crisis, Georgia’s community banks need less government interference and opportunities to grow—however, Dodd-Frank has done nothing but crush those opportunities.”

Representative Ed Royce (R-Calif) said that “The legacy of Dodd-Frank should be judged not just by what was included in it, but also what was left out of it.” Royce said that the Act failed to address the “root of the financial crisis” in Fannie Mae and Freddie Mac and that “Policymakers owe it to the American people to wind down the GSEs before recent history repeats itself.”

Representative French Hill (R-Ark) also commented on the anniversary, attesting that “[f]ive years later, the concept of “too-big-to-fail” is stronger than ever, we are losing community financial institutions at a rate of about one per day, business formation is at the lowest point since the Carter Administration, and consumers are hurt by fewer choices and higher fees.”

Chief Deputy Whip Patrick McHenry (R-NC), Vice Chairman of the House Financial Services Committee, said the results of the bill have been the “exact opposite” of what was promised. “Dodd-Frank’s myriad—and still incomplete—regulations have led to the closure of community banks and credit unions, the elimination of vital financial services like free checking accounts, and—most troublingly—has codified federal bailouts into law.”

“Dodd-Frank’s greatest accomplishment has been further bloating and empowering our federal bureaucracy,” McHenry said “From the Financial Stability Oversight Council to the Consumer Financial Protection Bureau, unaccountable Washington bureaucrats now have vast powers to declare which financial institutions are secure and which products are acceptable.”

Democratic reactions. Representative Carolyn B. Maloney (D-NY) released a statement saying “[f]ive years after Dodd-Frank was enacted, this legislation has helped create stability so that more than 12 million private sector jobs could be created. The unemployment rate has been cut almost in half, and our economy continues to grow in part because of the reforms we put in place.”

Representative Keith Ellison (D-Minn) said “Our entire financial system is safer and more stable thanks to Dodd-Frank.” Ellison said that the “American people paid the price when the banks lost—they paid with their homes, their jobs, their retirements and college funds for their kids. When we passed the Dodd-Frank Wall Street Reform and Consumer Protection Act five years ago, we said no more. No more preventable crises. No more instability in our financial system.”

Democratic Senators reactions. Senate democrats released a joint statement about the Act. “Because of Wall Street Reform our financial system now works to help American families and small businesses instead of serving special interests that lead to Wall Street bonuses,” said Democratic Leader Harry Reid. “We cannot and we will not go back to the corrupt financial system that crippled our nation’s economy.?”

“Five years after Wall Street reform became law, our economy is getting stronger and we have a financial system that is safer, more stable, and works better for taxpayers, investors, and consumers,” said Sen. Sherrod Brown (D-Ohio), ranking member of the Committee on Banking, Housing, and Urban Affairs. “We’ve come too far to allow special interests and their allies in Congress to undermine reform and leave the American people exposed to the abusive lending and reckless Wall Street gambling that almost destroyed our economy.”

Senator Jeff Merkley (D-Oregon) emphasized the “critical protections” put in place with the Act like “putting bans on predatory mortgage practices, to preventing high-stakes gambling at big banks, to creating the first-ever dedicated consumer financial protection agency that has already returned billions of dollars to cheated consumers.”

“If Dodd-Frank opponents try to open up loopholes, weaken regulations, slash funding for our regulators, or kill Dodd-Frank with a thousand cuts, they’re going to find Senate Democrats standing arm and arm against them,” said Sen. Chuck Schumer (D-NY).

Senator Elizabeth Warren (D-Mass) reminded that “650,000 people have filed complaints online with the CFPB about their banks, payday lenders, credit reporting agencies, or other companies, and the CFPB has forced banks, credit card companies, mortgage lenders and other businesses to return $10 billion directly to families they cheated,” calling it “a reminder of what we need to keep fighting for.”

MainStory: TopStory CommunityDevelopment CFPB DoddFrankAct FinancialStability Loans Mortgages VolckerRule

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