Can President Trump Roll Back Dodd-Frank?

Photo credit: Gage Skidmore

In the wake of the 2008 financial crisis, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act. Less than a decade after the worst economic downturn since the Great Depression of 1929, Congress and President Trump are poised to eliminate significant portions of this piece of consumer protection legislation.

The Dodd-Frank Wall Street Reform and Consumer Protection Act, commonly referred to as simply Dodd-Frank, added a new section to the Securities Exchange Act of 1934 called "Securities Whistleblower Incentives and Protection." Under this new section, the Securities and Exchange Commission (SEC) compensates whistleblowers for original information that leads to the recovery of more than $1 million in fines and sanctions.

On June 8, 2017, in a near party-line vote, House Republicans approved the Financial Choice Act, which would significantly scale back or eliminate many of the post-crisis banking rules enacted under President Obama after the 2008 financial crisis. This would include Dodd-Frank.

Republicans Claim Dodd-Frank Stunts Economic Growth

Republican proponents of the Financial Choice Act argue that Dodd-Frank imposes regulatory burdens on the economy that stunt economic growth. They claim that reform is needed because Dodd-Frank made mortgages tougher to obtain, forced banks to scale back fees that had allowed them to offer free checking accounts, and placed a heavy burden on community banks.

In an effort to increase lending, Republicans proposed the Financial Choice Act. If passed, it would:

• Eliminate a provision of Dodd-Frank which prevents government insured banks from using consumer funds to make risky financial investments
• Eliminate the requirement that financial advisors put their clients’ interests ahead of their own
• Significantly reduce the authority of the Consumer Financial Protection Bureau (CFPB), which regulates large banks and payday lenders
• Give the President the power to fire the heads of the both the CFPB and the Federal Housing Finance Agency, which oversees mortgage giants Fannie Mae and Freddie Mac, at any time, for any - or no - reason
• Give Congress oversight of the CFPB's budget, which means lawmakers could defund the agency entirely
• Bar the Federal Deposit Insurance Corp. (FDIC) from overseeing the “living will” process, which requires banks to write plans on how they would safely be unwound in the event of a collapse

Democrats Counter that Dodd-Frank Is Working, and Bank Profits Are Up

While Democrats recognize that there are problems with Dodd-Frank as it is currently written, they are unified in their opposition to the Financial Choice Act. Democrats see the Financial Choice Act, or Wrong Choice Act, as they call it, as an effort by Republicans and President Trump to reduce economic regulation and help out their friends on Wall Street.

Democrats argue that Dodd-Frank protects financial consumers, noting that bank profits are up and lending has increased since Dodd-Frank was enacted. According to the FDIC, bank profits hit a record $171 billion in 2016. Household debt, including mortgages and auto and student loans, has been rising for four years. Community bank profits increased 10% from a year earlier and, according to the Federal Reserve, commercial and industrial bank loans have increased 77% since hitting a post-crisis bottom in 2010. Consumer lending also has not been restrained in recent years.

Despite being approved by the House, the Financial Choice Act has little chance of passing the Senate and is seen more as a symbolic victory for House Republicans. If the Senate decides to roll back consumer financial protections offered under Dodd-Frank, their changes will likely be less sweeping and geared more toward helping regional and community banks.

If you have questions about Dodd-Frank, the Financial Choice Act, whistleblower lawsuits, and how this proposed legislation might affect you, contact the Kansas City whistleblower attorneys at Brady & Associates today. Call us at (913) 696-0925, or complete our online information form.