By Ed Mierzwinski, U.S. PIRG
It’s high season for attacks on regulations designed to protect consumers from financial recklessness. On Friday, the House overwhelmingly approved a Wall Street-driven proposal to weaken oversight of private equity firms, taking a chunk out of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, the law passed after Wall Street recklessness took down the entire economy in 2008.
The vote on HR5424, the so-called “Investment Advisers Modernization Act of 2016” was 261-145 (Nay is the Public Interest Vote). Americans for Financial Reform, PIRG and others had a letter in opposition; this New York Times story has more. From our letter:
“H.R. 5424 would exempt private fund advisers from many basic investor protection requirements. This legislation would eliminate restrictions over advertisements containing testimonials and past recommendations, which tend to be fraudulent and misleading. In addition, it would eliminate key systemic risk information for regulators by dramatically reducing the number of funds who must report complete information on their leverage and holdings on a confidential form used to track risks to the financial system (Form PF). At a time when the Securities and Exchange Commission has found serious investor protection issues at over half of the private equity funds they examined, Congress should be increasing oversight at private funds, not pushing dangerous deregulation.”
But wait, there’s so much more: On Tuesday the House Financial Services Committee takes up the so-called “Financial Choice Act,” which eviscerates most of the rest of Dodd-Frank’s key reforms. Here are just a few highlights, many from the PIRG-backed Americans for Financial Reform letter opposing the bill.
Here are a few examples of “Financial Choice” provisions weakening regulatory authority to protect taxpayers and the economy:
- Title II of the Financial CHOICE Act completely eliminates the Dodd-Frank Orderly Liquidation Authority. Subtitle C replaces it with a procedure that would grant special privileges under the bankruptcy code to large financial institutions and their key directors; the procedure immunizes the directors of a failing financial company from personal liability for actions in connection with the bankruptcy.
- Title VI, Subtitle A contains a host of new analytic requirements a financial regulatory agency must complete before any rulemaking, any one of which could be material for a lawsuit by Wall Street interests seeking to block new rules. Subtitle B would require explicit approval by both houses of Congress of any significant new financial regulation. This unprecedented new requirement would make Wall Street oversight by administrative agencies subject to the same paralysis we see in Congress.
- Section 211 of the legislation would strip the new Financial Stability Oversight Council (FSOC) of most of its powers, including the power to designate extremely large non-banks such as the insurance giant AIG for increased regulatory oversight. During the 2008 financial crisis, AIG received the largest public bailout in U.S. history.
- Title IX of the bill repeals the Volcker Rule. The bill’s repeal of the Volcker Rule would allow banks to once again conduct proprietary financial gambles with depositors’ money.
Here are a few examples of “Financial Choice” Provisions defunding and defanging the successful Consumer Financial Protection Bureau (CFPB):
The CFPB turned just five years old on 21 July 2016. It’s already returned nearly $12 billion to 27 million victims of financial malfeasance. Last week, it announced its largest civil penalty to date, $100 million, against Wells Fargo Bank. To meet sales goals, staff opened “hundreds of thousands” of false and secret credit card and deposit accounts, misusing consumer personal information and causing them to incur fees for accounts that they did not know they had. (Our statement; more from LA Times.)
- Section 311 of the bill would change the structure of the CFPB from its current, effective single-director structure to a less effective five-member commission. A recent market analysis concluded “that shifting the CFPB’s governance from a directorship to a commission would double the bureau’s already elongated rulemaking timeline [and] cut its enforcement activity by 50% to 75%.”
- Section 312 would eliminate the CFPB’s independent funding. Since 1864, (yes, since the Civil War) Congressional policy has granted bank regulators independent funding, to insulate them from the highly-politicized appropriations process. CFPB would be the only bank regulator without independent funding.
- Other provisions would eliminate the CFPB’s authority to finalize its pending forced arbitration rule and reinstating consumer rights to join class actions; give states the power to delay its pending high-cost payday loan reforms and eliminate its powers to regulate the auto finance industry, which has been shown to be rife with discriminatory kickback practices.
Finally, while the bill’s proponents claim “it’s for Main Street, not Wall Street,” Section 325 of the bill would repeal Dodd-Frank’s PIRG-backed “Durbin Amendment” requirement that bank debit card fees charged by banks with more than $10 billion in assets be limited to the reasonable cost of the transaction. This would allow the nation’s largest banks to charge retailers and customers an additional $6 – $8 billion per year in card fees. It would do nothing to aid community banks, which are not covered by the rule and have actually increased their share of debit transactions since the regulation was implemented.
The Financial Choice Act is not the only threat to wallets and the economy before the Congress. Many of its provisions already exist in some form as free-standing bills or, worse, as “riders” inserted into the Financial Services and General Government and other appropriations bills. While these appropriations bills will not become law, Wall Street and payday lenders are pressuring Congress to add those riders into the substitute “Continuing Resolution” budget bill that will be used to fund the government. Opponents of environmental protection, opponents of all regulation and opponents of civil rights are among others seeking to load such ideological riders into the CR. U.S. PIRG is a member of the “Clean Budget Coalition” working instead for a “no riders” budget.
The consideration of the Financial Choice Act shows that many on Capitol Hill have a short memory. In 2008, reckless Wall Street practices destroyed our economy. Millions lost jobs, millions more lost homes, everyone lost trillions in retirement savings. We are still recovering from that collapse, the second largest in our history, only exceeded by the 1929 collapse that led to the Great Depression. But eliminating the reforms established by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act will not benefit small investors, consumers or taxpayers. Its passage would simply allow powerful special interests to run amok and wreak financial havoc yet again.