It seems there is a distinct lack of consensus in American politics these days, but the closest you’ll get to finding it in is on the Dodd-Frank Act. Even many of its admirers would concede that changes are required.
The main charge leveled against Dodd-Frank – that it is a complex, cumbersome piece of legislation holding back U.S. banks – finds support in the likes of Jeb Hensarling, Chair of the House Financial Services Committee and a virulent opponent of the Act, who has adopted its dismantling as the centerpiece of his political agenda.
Those hoping to see Dodd-Frank amended are often caricatured as avaricious bankers and politicians seeking a return to the worst excesses of pre-2008 Wall Street, but such a cartoonish portrait ignores the fundamental problems that Dodd-Frank has produced – particularly the Consumer Financial Protection Bureau (CFPB), which has been accused by some on the right of “terrorizing” consumers.
The CFPB is one of several contentious parts of the Act under threat.
Some of Dodd-Frank has already been chipped away. In February, Congress voted to repeal the “Publish What You Pay” provision under section 1504 of Dodd-Frank known as Rule 13q-1, which Trump duly signed in his first piece of legislation.
This transparency measure obliged U.S. energy firms to publish payments made to foreign governments and was stridently opposed by U.S. energy firms adamant it was a compliance burden. (The cost of compliance for the extractive industry was estimated at as high as $385 million annually.)
Scrapping an anti-corruption rule may seem to fly in the face of Trump’s election-campaign vow to “drain the swamp” of corruption, but the President’s commitment to “Make America Great Again” also means supporting U.S. businesses, which is evidently behind Trump’s decision to jettison the rule.
The Durbin Amendment’s widespread unpopularity is due to the perception that it was the result of overreach by the federal government – in other words, that Congress arbitrated between banks and retailers, which is the responsibility of the judiciary, and came down on the side of retailers.
Durbin introduced a limit on interchange fees on debit card transactions. This should have been a victory for consumers, but it has actually resulted in a placing a higher burden on them, along with small businesses, while reducing costs for larger retailers.
That Durbin was added last minute to Dodd-Frank with little debate still rankles its opponents. The Financial Choice Act is soon to be reintroduced by Hensarling and will likely include a repeal of the Durbin Amendment.
The financial benefits garnered from interchange fees prior to Durbin were especially advantageous for banks, bringing in billions of dollars. Its introduction was unpopular, but not as unpopular as the Volcker Rule.
Bank of America CEO Brian Moynihan spoke for all of Wall Street recently by stating the need to make changes to the Volcker Rule. A report earlier this year by the Federal Reserve seems to have further hastened the Rule’s decline.
Both the Volcker and Durbin provisions can expect to come under increased scrutiny now that there is an administration in the White House looking to cut regulation.
Dodd-Frank is unpalatable in some quarters because it places a great deal of power in the hands of regulatory agencies – the Consumer Financial Protection Bureau, the Federal Deposit Insurance Corp., for instance – which, currently, have Obama-era administrators at the helm.
These administrators, like Richard Cordray at the CFPB, are perceived by opponents to be too powerful, unaccountable and overzealous in prosecuting companies. It cannot be denied that allegations of overreach stick when it comes to the CFPB. Had the agency used its $600 million annual budget to greater effect during its first years – instead of employing tenuous methodologies to punish auto lenders – there would be more sympathy for it on Capitol Hill.
As it is, the agency is in the crosshairs. The intention behind the CFPB’s creation was a sensible one, and when it interposes reasonably, it is an effective and useful agency (for instance, imposing a $100 million penalty on Wells Fargo for opening illicit accounts), but its mistakes tend to overshadow its successes. Of all the aspects that make up Dodd-Frank, the CFPB is the most vulnerable.
It would be wise to take this White House administration on its word, and the President’s opinion of Dodd-Frank is well-known. Yet rhetoric and action should not be confused, and there is likely to be a chiseling away of some of the Act’s more controversial aspects rather than a wholesale removal. There are, after all, voices of support for Dodd-Frank from within the financial services industry.
The political battleground on Dodd-Frank will be fought over the scale of the repeals and amendments the more controversial aspects of the Act should undergo.
Regulation like Dodd-Frank is opposed on a fundamental level as being a case of government overreach, but the Trump administration will not be repealing Dodd-Frank. Instead, expect to see Trump-friendly chiefs leading the financial agencies and small-scale changes to the Act.
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Pekka Dare sits on the International Compliance Association Technical Advisory Board and has oversight of the delivery and development of ICA programmes worldwide, where he has developed a world class faculty that delivers best in class training and education programmes all over the world.
Pekka has extensive experience as a practitioner, including roles as an MLRO for a multinational life and pensions firm and Head of Financial Crime Prevention of a division of a major UK bank. A qualified solicitor in the UK and New Zealand, Pekka has conducted prosecutions for tax evasion and provided legal advice in respect of organised crime groups, complex frauds and corporate tax evasion. He has also worked for the UK Department of Trade and Industry (now BERR) in the investigation of corporate fraud and misfeasance. Pekka is chairman of the Money Laundering Officer’s Discussion Group (MLODG), a body which shares best practice amongst practitioners.