Back around the time when I first started this blog, I predicted that the next president following Obama would sign into law a repeal of most, if not all, of the Dodd-Frank Act. And sure enough, with little fanfare as the media is largely focused on Russian phantoms or (more understandably) the destruction of what little public healthcare exists, the end of most of Dodd-Frank is proceeding down the legislative pipeline. Any hopes that the “populism” of a real estate mogul president would lead to tougher bank regulations is fading fast.
The Financial CHOICE Act 2.0, like the Republican’s repeal of the Affordable Care Act, is most in danger of being stopped by its own sloppy contradictions rather than opposition by the Democrats. But like the ACA repeal, the far right and extra far right are likely to put aside their differences and get some form of the CHOICE Act through (possibly with some Democratic support, though so far it only has Republican cosponsors).
So what is on the chopping block? There are main provisions: (1) repealing Orderly Liquidation Authority and replacing it with a new chapter of bankruptcy; (2) repealing the legal assignation of “too big to fail” and various emergency procedures the Federal Reserve uses for systemic risk; (3) gutting the Consumer Financial Protection Bureau; (4) giving financial institutions impunity from predatory conduct; (5) various reforms, especially around transparency, on the Federal Reserve (which I’ve covered before so I won’t be covering here); (6) deregulate private equity funds; (7) repeal the Volcker Rule; (8) repeal the Durbin Amendment; (9) eliminate the Office of Financial Research; and (10) slash most of Title IX of Dodd-Frank, including the infamous Department of Labor fiduciary rule and regulations on incentive-based compensation (which hasn’t even been implemented yet). Don’t worry, I will not be covering all of this, I just want to give you a sense of just how much this bill would deregulate. If you do want the whole thing, you can read the executive summary or the bill itself.
As I previously discussed, Orderly Liquidation Authority (OLA) has long been despised by financial institutions for actually providing the government with an instrument for, well, the orderly liquidation of financial institutions. It requires several hurdles that I am not going to bother reiterating here, but nevertheless if Hillary Clinton or Bernie Sanders had won there’s a chance that it could have been used on some bad apple bank. While President Trump made many gestures towards breaking up the big banks, it is doubtful that will ever happen and far more likely this repeal will happen before he even gets the chance.
The CHOICE Act would eliminate OLA and replace it with a new chapter of bankruptcy. The bill’s executive summary gives lots of reasons for the preference of bankruptcy over OLA – what is not given is why there needs to be a new chapter of bankruptcy (or what that new chapter would look like as opposed to the current Chapters 7, 11, and 13). But it is not hard to draw out: the system, including bankruptcy, prior to Dodd-Frank was obviously insufficient to prevent the large financial institutions from creating recession-triggering shocks. So to obfuscate that they are returning the financial system to its previous risk, which is exactly what they are doing, they are arbitrarily tacking the word “new” on. They have no plan for preventing the next recession and they likely do not care: after all, it has never hurt them much before.
Systematically important financial institution (SIFI), or “too big to fail,” designations are the sort of corporate welfare measures that a socialist like myself disdains more than any others. But the enemy of my enemy is not necessarily my friend, and the repeal of SIFI by the CHOICE Act does nothing to eliminate the problems created by SIFIs. The socialist does not question why public funds should insure systemic investment but rather why that funding does not come with democratic control over finance itself.
The proponents of the CHOICE Act pretend to be repealing SIFI because they want to get tough on the banks and do not want tax payer money going to bailout the banks when they fail. What the repeal of SIFI is actually about is deregulating the biggest banks, as the most strenuous regulations (i.e. OLA) only apply or apply most strongly to SIFI. One of the most common complaints about the Dodd-Frank Act by the SIFIs and their buddies is the infamous stress tests. Ending or significantly curtailing regulations like the stress tests by the elimination of SIFI designations would be an enormous windfall for the SIFIs themselves, both from ending regulatory capture as well as being able to layoff substantial amounts of their compliance staff.
But doesn’t the end of SIFI mean less corporate welfare for the big banks? Probably not. One of the more ridiculous and empty gestures of the CHOICE Act is the repeal of Section 13(c)(4)(G) of the Federal Deposit Insurance Act. If this repeal were binding and final (i.e. an actual prohibition from emergency injections), it would actually be quite troublesome, returning the markets to the instability that saw frequent panics since the only way to verify you would get back your deposits is withdrawing them. But even if this repeal somehow makes it into the final version (and it won’t) and passes into law, Congress and the Executive will just replicate it or something similar the next time a recession happens. All it would do is delay the ability to stop market free-fall, and as always the cost of that delay will fall mostly on people of color and the working class.
The Consumer Financial Protection Bureau (CFPB) has been the greatest benefit to working class people from the Dodd-Frank Act, particularly through its broad ability to go after financial institutions for unfair, deceptive, or abusive acts and practices (UDAAP). The CHOICE Act would eliminate the CFPB’s UDAAP power and allow its previous interpretations to be overridden, eliminating most of what the CFPB has done since its creation. In addition the CHOICE Act would change the source of the CFPB’s funding (the only thing currently protecting it from being overhauled by the new president), eliminating its independence. Also laughably the CHOICE Act would change the CFPB’s name to the “Consumer Law Enforcement Agency,” probably because “Blue Lives Matter” or some such nonsense.
It is not surprising that the bill proponents have evoked the historical example of the Federal Trade Commission in the 1970s. The FTC was, at least for federal government, a progressive agency and was poised to eliminate television advertisements targeting children. It even won a court challenge against the Chair that argued he had made the decision without considering the arguments of the rule’s opponents. But Congress did then what the CHOICE Act will now likely do to the CFPB: purge its more progressive members, gut its funding, and eliminate most of its power. TV ads targeted towards children are now generally accepted as one of the reasons for the US epidemics of diabetes and other sugar-poisoning conditions.
The CHOICE Act also plans to eliminate the ability of all regulatory federal agencies to investigate predatory behavior by financial institutions in the name of “due process.” I would be remiss to not point out how disgusting it is to cry crocodile tears over the loss of due process by wealthy financial institutions when it has been largely eliminated for those accused of crime and is almost non-existent in realms of the law like immigration. As always, the “anti-bureaucracy” Republicans plan on protecting their friends in finance by erecting wall after wall of red tape to prevent investigations, adding six new major notice and reporting requirements and making many of the previous ones more stringent (with exceptions made as always to attacks on the enemy states of US imperialism).
Many of the new hurdles are based on the Right’s ideology around separation of powers and Chevron deference. Again, while they have no qualms about depriving ordinary people of due process through consumer arbitration or police officers acting as judge, jury, and executioner, the idea that government can tell a bank what to do without having to do a marathon of notices, reporting, and subsequent litigation upsets the far right. Which is ridiculous because, for all the good it has done, neither Chevron nor Dodd-Frank has brought about the democratic will when it comes to financial institutions.
Proponents claim that they are the ones actually concerned about consumers, particularly their ability to access credit. From a purely anecdotal perspective, it’s hard to treat this claim seriously when a client of mine was sent a new credit card (and line of credit) when the company was still in the process of suing her over the unpaid debt from the old one. Unfortunately stories like hers, though extreme, are indicative of how “access to credit” obfuscates that the subprime credit being given is predatory, made to keep people in a debt trap.
The Financial CHOICE Act seeks to undo most of the Dodd-Frank Act with little to no plan for how to prevent another recession. It is purely class warfare, redistributing fines, regulations, and reparations that benefited working class people to the wealthy. But an even more disheartening truth lies under the Republican greed. Many of these rules (OLA, Volcker, and the SEC rule of incentive-base compensation to name just a few) never got a chance to be implemented seven years after the Dodd-Frank Act was passed into law. It is easy to laugh at the childish and silly ideas of the Republicans (I’m still not over “Consumer Law Enforcement Agency”), but the truth is that the Democrats have failed at seriously holding the parasites of finance accountable for their crimes against humanity, failed to close the wealth gap, failed to prevent student loan and auto lending debts from both reaching over a trillion dollars, failed to repeal the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) that is partially responsible for the growth of student loan debt, and failed to stop financial institutions from funding devastating anti-social projects like the Dakota Access Pipe Line.
We should oppose as much as possible the Financial CHOICE Act because it will directly harm the working class while profiting and protecting the capitalist class. But do not have any illusions that protecting Dodd-Frank is enough: the awful situation we are in is because liberal reformism cannot and will not resolve capitalism’s contradictions. Only socialism will end the abuses of the banks once and for all.