Here’s What’s in the House Financial Deregulation Bill

House Financial Services Committee Chairman Jeb Hensarling (R-Texas). image via flickr

After almost a year of deliberation, the Republican bill that would replace the 2010 Dodd-Frank Act is set for a vote in the House this week.

The chamber on Wednesday took its final procedural step before a final vote on the measure — the Financial CHOICE Act, H.R. 10 — by approving rules for debate. In the 231-188 vote, Rep. Walter Jones (N.C.) was the only Republican to vote against the rule, and Rep. Bill Keating (Mass.) was the only Democrat to vote in favor.

A handful of amendments are slated for a floor vote, including a proposal from Rep. Lloyd Smucker (R-Pa.) that would pressure consumer credit reporting agencies to boost identity theft protection and an amendment authored by Rep. Martha McSally (R-Ariz.) that would require the Treasury Department to file a report to Congress on how federal regulators deal with financial flows across the U.S. border with Mexico.

The House Rules Committee rejected several Democratic amendments, including one that would get rid of the measure’s provision to repeal the Labor Department’s conflict-of-interest rule for retirement investment advisers, also known as the fiduciary rule.

Lawmakers made their most significant alteration to the CHOICE Act on Tuesday, when the Rules Committee approved a manager’s amendment that omitted language repealing Dodd-Frank’s required limits on debit card swipe fees. That action — the culmination of a major lobbying victory for the retail industry — will prevent the House from having to vote on the limits, a divisive issue in Republican ranks.

Avoiding that vote will prevent GOP lawmakers from breaking a sweat this week and give previously on-the-fence Republicans an opportunity to vote without reservation for the legislation as a whole.

The nearly 600-page bill is unlikely to be enacted in its entirety because of political realities in the Senate, where moderate lawmakers from both parties aren’t expected to support some of the measure’s more drastic provisions. But the bill, authored by House Financial Services Committee Chairman Jeb Hensarling (R-Texas), could provide a blueprint for future action on individual financial issues.

Here are some of the key provisions of the Financial CHOICE Act:

Consumer Financial Protection Bureau

One of the biggest selling points for Republicans is how the bill would make significant changes to the Consumer Financial Protection Bureau, the independent regulator that was the brainchild of now Sen. Elizabeth Warren (D-Mass.) and a key Democratic priority during 2010 consideration of the Dodd-Frank Act.

Republicans have controlled the House for most of the CFPB’s existence, and their relationship with Director Richard Cordray has been characterized by friction and animosity. If the CHOICE Act is enacted, Cordray’s power would be severely curbed, and the president would be able to fire him at will. Under Dodd-Frank, the president can only fire the CFPB director for cause. That statute is currently the subject of a federal court challenge.

The House measure would subject the CFPB to the annual congressional appropriations process rather than maintaining the agency’s funding stream from the Federal Reserve. That would expose the CFPB to more political uncertainty, and could make the director’s funding priorities more directly related to congressional politics.

The CFPB also would lose some of its statutory enforcement authority and its ability to issue regulations independent from the White House budget office under the House bill. And in a mostly symbolic move, its name would change to the Consumer Law Enforcement Agency — a reflection of the transition from a body with a dual mission of enforcing laws and promulgating rules to one whose purpose is to investigate and police bad behavior in the financial industry.

Bank resolution processes

The CHOICE Act would remove a major provision of Dodd-Frank that outlines how the Federal Deposit Insurance Corp. has the authority to provide for the orderly resolution of a failing bank. Under that authority, the FDIC can act as the receiver of a failing major bank for as many as three years. To finance that effort, Dodd-Frank established the Orderly Liquidation Fund, which gathers funding by charging assessments to FDIC-insured banks.

The House bill would eliminate that FDIC authority and give banks access to the federal bankruptcy code in the event of a failure. Replacing orderly liquidation with bankruptcy is highly unpopular with Democrats, who have said that the federal government would once again be on the hook to bail out major banks.

Elimination of the authority was a central focus of the Congressional Budget Office analysis of the CHOICE Act. CBO’s analysts wrote in their May 18 score that estimates of the bill’s effect on federal coffers “are subject to considerable uncertainty, in part because they depend on the probability in any year that a systemically important firm will fail.”

Overall, CBO estimated that the reforms included in the CHOICE Act would save the government about $24.1 billion over 10 years.

Regulatory offramp for banks

Banks that hold a debt-to-equity ratio of at least 10 percent would have the option of being exempt from major federal regulations under the CHOICE Act. Advocates for the change say that requiring banks to build up capital as a condition for regulatory relief would help roll back the risk that federal regulations are intended to mitigate. Democrats say that banks could find loopholes in the examination process that measures each lender’s health.

It’s unclear whether the largest banks would take advantage of the regulatory offramp, even if they did maintain the required leverage ratio. That issue factored into CBO’s score, which projected that it’s “unlikely” globally systemically important banks would choose the deregulatory option. Hensarling has regularly cited that part of the CBO’s analysis as evidence that big banks would prefer maintaining the status quo with Dodd-Frank.

Financial regulatory regime

The bill proposes taking away the Financial Stability Oversight Council’s authority to determine if a nonbank financial institution is systemically important. FSOC, which by law is chaired by the treasury secretary, is already subject to an executive order putting a hold on nonbank SIFI designations. The council was established by Dodd-Frank.

The Fed Oversight Reform and Modernization Act, which would require the Federal Open Market Committee to provide Congress with additional details about its monetary policy decisions, is also included in the CHOICE Act.


Correction: A previous version of this story misstated the scope of Smucker’s amendment. 

Morning Consult