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From Banking and Finance Law Daily, April 27, 2017

Following hearing, Hensarling formally introduces Financial CHOICE Act

By John M. Pachkowski, J.D.

The much anticipated formal release of the Republican alternative to the "failed Dodd-Frank Act" was accomplished on the House floor when Rep. Jeb Hensarling (R-Texas), the Chairman of the House Financial Services Committee, formally introduced H.R. 10, the Financial CHOICE Act of 2017. In addition, Hensarling released a brief Executive Summary of the bill.

According to the Congressional Record, the bill is intended "to create hope and opportunity for investors, consumers, and entrepreneurs by ending bailouts and Too Big to Fail, holding Washington and Wall Street accountable, eliminating red tape to increase access to capital and credit, and repealing the provisions of the Dodd-Frank Act that make America less prosperous, less stable, and less free."

The introduction of H.R. 10 followed an earlier hearing that examined a discussion draft of the Financial CHOICE Act of 2017, which the Committee publicly released on April 19, 2017. The Committee heard testimony from individuals that represented academia or groups advocating small government, libertarian, or free market interests:

  • Peter J. Wallison, Senior Fellow and Arthur F. Burn Fellow, Financial Policy Studies, American Enterprise Institute;
  • Dr. Norbert J. Michel, Senior Research Fellow, Financial Regulations and Monetary Policy, The Heritage Foundation;
  • The Hon. Michael S. Barr, Professor of Law, University of Michigan Law School;
  • Alex J. Pollock, Distinguished Senior Fellow, The R Street Institute;
  • Dr. Lisa D. Cook, Associate Professor, Economics and International Relations, Michigan State University;
  • Hester Peirce, Director, Financial Markets Working Group and Senior Research Fellow, Mercatus Center, George Mason University; and
  • John Allison, Former President and Chief Executive Officer, Cato Institute.

Dodd-Frank damage. During the hearing, Hensarling, in his opening statement, recited a partial list of damage Dodd-Frank has done to consumers and businesses, such as having "Washington elites . . . now allocating our capital to fulfill their agendas—devoid of any checks and balances or due process."

Another DOA version. The Committee’s Ranking Member, Rep. Maxine Waters (D-Calif), noted in her opening statement, "There is only one explanation for why we are here discussing yet another dead-on-arrival version of the Wrong Choice Act. It must be that the foreclosure crisis and the Great Recession somehow weren’t enough for the Majority, and so they irrationally want to clear the way for round two." She added, "I want to be very clear for anyone who is watching—that is exactly what this bill would result in. The Wrong Choice Act thoroughly dismantles Wall Street reform, guts the Consumer Financial Protection Bureau, and takes us back to the system that allowed risky and predatory Wall Street practices and products to crash our economy."

During his opening statement, Rep. Dan Kildee (D-Mich), the Vice Ranking Member of the House Financial Services Committee, said the bill was the "wrong choice for hardworking Americans" since it "puts Wall Street ahead of Main Street once again." He added, "This takes us back to the days where Wall Street practices nearly crippled our economy. Back to the days where millions of people lost their homes, lost their jobs, saw their retirement savings wiped out. The people that I represent have not forgotten these dark days and the Committee should not forget them either."

Recipe for disaster. Rep. Carolyn B. Maloney (D-NY), Ranking Member on the House Subcommittee on Capital Markets, Securities, and Investment, said, during the hearing, the Financial CHOICE Act "is a recipe for disaster that lays the groundwork for another financial crisis." She added, "I am hopeful this ‘new’ CHOICE Act has the same fate as the old one and ends up nowhere near the President’s desk."

Still the right choice. Before the hearing commenced, Rep. Al Green (D-Texas) said, "Wall Street Reform (Dodd-Frank) is still the right choice for consumers, investors, and the economy." He added, "The Congressional Republicans and President Trump are putting Wall Street first and Main Street last. Wall Street Reform has improved accountability in the financial system while protecting consumers, investors, and the economy from abusive practices. It must not be destroyed."

Calls for additional hearing. Once the hearing concluded, Committee Democrats sent a letter to Hensarling calling for additional hearings on the Financial CHOICE Act. In their letter, the Committee Democrats argued, "Given the scope and extent of the proposed legislative changes in the discussion draft, ranging from capital markets, banking, consumer protection, investor protection, financial stability, insurance, and monetary policy, it is critical that multiple hearings be convened to allow diverse and comprehensive testimony on these topics before the Committee marks up the measure."

It should be noted that media reports have indicated that Hensarling intends to mark up the Financial Choice Act on May 2, 2017.

The letter added that there was a total of 41 hearings related to financial reform prior to the passage of the House version of the Dodd-Frank Act and that "[o]ur constituents and the American public deserve a thorough vetting of this nearly 600-page bill, which has the potential to significantly change our economy."

Following the Democrats’ request, the Committee posted information that an additional hearing was to be scheduled on April 28, 2017.

Reaction to bill’s introduction. Once the bill was formally introduced, reaction fell along party and ideological lines.

Lifts red tape. Commenting on the bill’s introduction, Hensarling stated, "The Financial CHOICE Act guarantees that the era of big bank bailouts and ‘too big to fail’ is over. For banks that fail, there will be bankruptcy, not bailouts." He added, "Our plan lifts bureaucratic red tape intended for big banks on Wall Street off of community banks and credit unions on Main Street. It expands access to capital for small businesses and innovative companies so that they can grow and create jobs. This will foster economic growth for all Americans, not just those at the top." Addressing consumer protection, Hensarling noted, "Under Dodd-Frank, consumers are paying more and getting less. Their costs have gone up, and they have fewer choices, more hassles and less access to credit. True consumer protection comes from competitive, transparent and innovative markets that are vigorously policed for fraud and deception. This is precisely what the Financial CHOICE Act will do."

Restore prosperity. Rep. Warren Davidson (R-Ohio), a first-term congressman and member of the Financial Services Committee said, "The Dodd-Frank Act targeted Wall Street but ended up hurting Main Street most. When I meet with constituents and business leaders in the 8th District, they tell me how regulators are hindering growth by restricting access to working capital, driving up borrowing costs, and reducing options. It is time to restore prosperity for American families and businesses. I look forward to working together with the chairman to pass the Financial CHOICE Act."

Sustained economic growth. Finally, Secretary of the Treasury, Steven Mnuchin released a statement commenting on the bill’s introduction. He said, "As Secretary, I am committed to policies that will ensure sustained economic growth that is driven by Main Street and not held back by Washington. The existing regulatory system is limiting, not stimulating our economy. At the Treasury, we are focused on delivering regulatory relief that encourages banks to provide the capital and liquidity needed to create jobs and opportunities for growth, and that provides protection against taxpayer-funded bailouts."

On the other hand, a number of groups advocating financial reform were opposed to the newly-introduced Financial CHOICE Act.

Ignores lessons learned. Lisa Donner, executive director of Americans for Financial Reform said, "This terrible bill ignores the lessons of the financial crisis and includes a huge list of giveaways to Wall Street." She added, "Though it may work for Wall Street and assorted predatory lenders, it is dangerous policy that is bad for financial stability, bad for consumers, bad for investors, and bad for the real economy."

Foxes back in charge. Senior Legislative Counsel Yana Miles, of the Center for Responsible Lending, released a statement calling the legislation "extreme" and would "put the foxes back in charge of guarding the hen house by putting big banks and predatory lenders back in charge of our economy." She added, "This 'Wrong CHOICE Act' contains numerous provisions that prevent the consumer agency from doing its job of stopping the tricks and traps of predatory actors in the financial industry. The bill even specifically exempts payday and car title lenders—notorious for springing devastating debt traps for their already vulnerable customers—from any regulation."

No fair choices. Finally, the Consumer Federation of America said, "This bill will put our financial marketplace in a weaker position than it was before the crisis, making American consumers more vulnerable and more at risk. This bill does not create financial choices for consumers; it creates a financial marketplace of no fair choices. It creates a financial marketplace with higher risk, without a regulator with the authority, resources and independence to minimize risks for consumers. It would remove the key protections enacted after the crisis to restore a greater alignment of interests in the financial market among consumers, lenders, investors and taxpayers. This is not a choice that any consumer would knowingly make or that Congress should adopt."

Companies: American Enterprise Institute; Americans for Financial Reform; Cato Institute; Center for Responsible Lending; Consumer Federation of America; Mercatus Center; The Heritage Foundation; The R Street Institute

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