The future of Dodd-Frank and the Financial Choice Act

Unpacking the House bill that puts Dodd-Frank in its crosshairs

The federal government has hardly been silent about its plans to overhaul large swaths of the financial regulatory system. And though the discussion has been overshadowed by healthcare and tax reform, the looming changes are of significant interest—and consequence—to the financial technology sector.

As it stands, concrete actions remain a question mark, although one answer has come in the form of the Financial Choice Act. This bill, passed by the House of Representatives last week, would roll back provisions of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. Much of the established financial sector favors FCA, while consumer groups tend to oppose it.

The FCA is largely considered dead on arrival in the Senate (where some Democratic senators have even taken to referring to the bill as the Wrong Choice Act). Slim chances notwithstanding, it’s useful to unpack the bill’s key elements and what Congress has to say about it in order to understand what it might mean for fintech and future areas of legislation.

Here’s a quick summary of how the FCA would affect some current legislation and how that might impact fintech:

  • Volcker Rule: This rule, introduced as part of the Dodd-Frank Act, essentially restricts trading and limits ownership in hedge funds and private equity. Repealing the Volcker Rule is a big pillar of the FCA but would have little direct impact on fintech. A Senate proposal would probably preserve much of it.
  • CFPB: The financial sector’s independent watchdog, the Consumer Financial Protection Bureau, was also created under Dodd-Frank and has had a broad mandate—which it has used to wade into a number of areas of interest for financial technology, from lending to data access. The FCA would essentially gut the CFPB by changing its funding model, structure, and name; preventing its consumer complaint databases from being public; and removing its regulatory authority over entities like credit reporting agencies and payday lenders. The Senate, which has a smaller Republican majority, is more inclined to preserve the CFPB, but a recent U.S. Treasury plan would likewise curb the agency's authority.
  • Retirement advisers: Under the Labor Department’s Fiduciary Rule, retirement advisers have to put client interests ahead of their own. Not so, says the FCA. The Fiduciary Rule also has opponents in the Senate. If retracted, it could bring more bad actors to the retirement market—and therefore more need for innovative ways to protect clients.
  • Mortgage: The FCA could bring big changes to the mortgage industry, or else stall its progress. The FCA would allow the president to dismiss the director of the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac. Moreover, the FCA would allow financial institutions to charge higher rates on mortgages that they hold, as opposed to the loans they package and sell in securitizations. There could be further changes depending on what happens with the CFPB, which has begun to address questions on alternative uses of data in the lending market. It’s not clear where a Senate proposal would shake out on mortgage.
  • Too big to fail: The GOP proposal takes issue with Dodd-Frank’s approach to handling so-called too-big-to-fail banks. Dodd-Frank introduced the orderly liquidation authority and the living will process, which required banks to develop plans for how they could safely be unwound. The FCA delivers a new bankruptcy code provision and would bar the Federal Deposit Insurance Corporation from overseeing the living will process.
  • Interchange fees: Dodd-Frank’s Durbin Amendment caps the amount banks and card networks can charge merchants for processing. The FCA would lift that cap, which could be another big source of profit for financial institutions. This is one area that may likely remain intact in future versions of a bill.

Clocking in at 600 pages, the FCA is packed with proposals that would roll back financial regulations considered key provisions of Dodd-Frank. But despite the FCA’s passage in the House, there’s likely a ways to go before the fate of Dodd-Frank is final. And this isn't the only proposal that could affect the future of Dodd-Frank: The Trump Treasury plan revealed reforms that would be made mostly through regulators rather than Congress, and more proposals are expected. As it turns out, keeping up with banking regulations (and changes to them) in 2017 is a full-time job.

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