House passes CHOICE Act that would gut consumer protections

Bill would undo much of Dodd-Frank and dismantle the Consumer Financial Protection Bureau

By  |  Published: June 8, 2017

Fred O. Williams
Senior Reporter
Expert on consumer credit laws and regulations

House passes CHOICE Act

The House of Representatives passed the Financial CHOICE Act Thursday, a broad deregulation bill that would – if enacted – roll back financial consumer protections and let debt buyers raise interest rates beyond state-set limits.

The party-line, 233-186 vote sends the measure to an uncertain future in the Senate, where a companion measure does not exist. The CHOICE Act repeals and replaces large parts of the Dodd-Frank Wall Street Reform and Consumer Protection Act – a Republican priority that faces fierce opposition from Democrats and consumer advocates. 

“This bill will take us back to the regulatory stone age,” Rep. Carolyn Maloney of New York said during debate in the House. A member of the House Financial Services Committee, Maloney had earlier called the act “a 591-page middle finger to consumers” during a committee hearing in May.

Republicans say cutting red tape on lenders will restore consumers’ access to credit and rejuvenate job creation. They blame Dodd-Frank’s regulatory burdens for the consolidation of nearly 2,000 small lenders since it was enacted in 2010.

“Big banks have gotten bigger; small banks have disappeared at an alarming rate,” Rep. Bill Huizenga of Michigan argued during debate. The CHOICE Act “eliminates one-size-fits-all regulatory structure that is strangling” community lenders.

While Democrats have signaled willingness to ease regulations for small lenders, without cutting consumer protections, consumer advocates have mounted a campaign against the bill, calling it the “Wrong Choice Act” that will leave consumers open to financial deception and unfair tactics. The bill sharply cuts the powers and autonomy of the Consumer Financial Protection Bureau, a centerpiece of Dodd-Frank.

“This bill puts big banks and predatory lenders back in charge of our economy,” said a statement from Yana Miles, senior legislative counsel at the Center for Responsible Lending.

“This bill will take us back to the regulatory stone age.”

A weaker consumer protection watchdog
While much of the bill deals with the banking system, several parts would affect consumers more directly.  Here’s a rundown of those provisions, and policy analysts’ predictions:

  • Provision: Erase CFPB authority to supervise financial services and to crack down on “unfair, deceptive or abusive practices,” a special power under Dodd-Frank. It used the power to gain $11.7 billion in refunds and debt forgiveness for consumers, including $2.8 billion for credit card holders who paid for deceptive balance protection insurance.
  • Prediction: This is a pillar of the CFPB, which Sen. Sherrod Brown, the Senate Banking Committee’s ranking Democrat, and other Democrats have vowed to support, making the stripping of agency powers unlikely. However, appointment of a deregulation-minded director when Director Richard Cordray’s term ends in 2018 could soften the agency’s stance toward industry.
  • Provision: Forbid the CFPB from issuing rules on payday loans or arbitration clauses, which the agency has been studying and working on for years.
  • Prediction: The GOP has effectively jammed these rules already. It can repeal them, if issued, with simple majority votes in the House and Senate through the Congressional Review Act. Although an attempt to repeal the agency’s prepaid card rule fell short, that effort lacked unified support from the card industry.
  • Provision: Allow debt buyers to charge the maximum contract rate on credit card balances and other bank loans, without regard to state caps on interest rates. 
  • Prediction: Could be enacted in some form, but language could be tightened to prevent creating a loophole for high-rate lenders to bypass state-level usury limits. The financial industry is seeking a clarification that would allow mainstream bank loans to be transferred without running afoul of 50 state-level laws in interest rates.
  • Provision: Funding for CFPB budget put under Congress’ control instead of Federal Reserve, exposing it to political pressure.
  • Prediction: Could be achieved without Democratic help through budget reconciliation process, if unified Republicans produce 51 votes. However, unilateral action would poison attempts at bipartisan compromise on other issues.
  • Provision: Make the director of the CFPB – currently Obama-appointee Cordray – removable at will by the president. Currently, directors can only be fired for cause during their five-year term.
  • Prediction: Possible bargaining chip in deal to restructure CFPB leadership as a bipartisan commission, an idea both parties have considered in the past. A separate court action challenging the director’s independent status is expected to fail.

Uncertain future in the Senate
Congress-watchers predict that the massive bill will be carved up so lawmakers can deliberate on ideas separately. The measure would need 100 percent GOP support plus eight Democrats to pass the Senate under current rules, making bipartisan cooperation key.

The Senate Banking Committee Thursday marked out a very different course for its approach to Dodd-Frank reform. It held the first of a series of hearings aimed at a “meaningful and bipartisan reform package,” Chairman Michael Crapo, an Idaho Republican, said.

Brown said, “There’s obviously no point in paying for red tape we don’t need.” The committee also released reform proposals it has gathered from groups – including the AFL-CIO and Public Citizen, as well as banking and business organizations.

“The Senate will ultimately determine the fate of legislative regulatory reform,” said Isaac Boltansky of Compass Point Research & Trading in a research note. The White House has assured its support for the bill, Republican leadership has said, putting the Senate in the driver’s seat.

So-named because it would allow banks to forgo Dodd-Frank review in return for keeping a high ratio of capital to loans outstanding, the CHOICE Act was written by House Financial Services Committee Chairman Jeb Hensarling.

See related: Court hears arguments on CFPB constitutionality, Sweeping deregulation proposal targets the CFPB


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Updated: 10-20-2017

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