Determined to push forward with its Dodd-Frank Act reform legislation agenda, on April 11 the US House Financial Services Committee (Committee) released a summary of changes that it intends to make to the Financial CHOICE Act (CHOICE Act)—Dodd-Frank Act reform legislation that was introduced in the House of Representatives last fall but was not enacted before the end of the 114th Congress. Dubbed “CHOICE 2.0,” the summary outlines a number of significant changes that the Committee says will be included in the legislation when it is reintroduced in the House, possibly later this spring. On April 19, the Committee released a CHOICE 2.0 discussion draft that reaches almost 600 pages. The Committee’s current plan is to hold hearings on CHOICE 2.0 later this month.

For the most part, the changes proposed in CHOICE 2.0 are not material changes from the core themes outlined in the original version of the CHOICE Act, including (i) the proposed “off ramp” from most systemic regulation and supervision for large, well-capitalized banks; (ii) the elimination of Financial Stability Oversight Council authority to designate nonbank financial institutions and financial activities as systemically important; (iii) the repeal of the Volcker Rule; (iv) the replacement of the Dodd-Frank Act Title II “Orderly Liquidation Authority” with a Bankruptcy Code–based resolution framework; and (v) the reconfiguration of the organization and activities of the Consumer Financial Protection Bureau (CFPB). Instead, the changes would be incremental in nature, albeit with a few important modifications, including the following:

  • Making changes in banking organization stress-testing requirements to eliminate annual supervisory stress tests and put the Federal Reserve Board’s Comprehensive Capital Analysis and Review (CCAR) program on a biannual cycle.
  • Eliminating the requirement for “off ramp” eligibility where a qualifying banking organization has received a 1 or 2 CAMELS composite supervisory rating, instead requiring only that a qualifying firm have a 10% average leverage capital ratio, and eliminating Federal Reserve Board stress-testing requirements for qualifying “off ramp” banking organizations.
  • Replacing the CHOICE Act’s proposal for a multimember commission to run the CFPB with a single CFPB director who is removable at will by the president.
  • Eliminating the CFPB’s examination and supervision authority, thus restricting it to enforcement activities only (and renaming it the Consumer Law Enforcement Agency) and eliminating its authority to act against unfair, deceptive, and abusive acts and practices (UDAAP).
  • Requiring financial regulatory agencies to conduct detailed cost-benefit analyses of major regulations and select the least costly, most cost-effective, and least burdensome alternatives.
  • Bringing the federal financial regulatory agencies, including the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the CFPB, and the nonmonetary policy functions of the Federal Reserve Board, under the congressional appropriations process.

For observers of the US Securities and Exchange Commission (SEC), CHOICE 2.0 proposes a number of substantive and operational changes that were not in the original CHOICE Act and that should be of interest. The numerous SEC-related proposed changes include the following:

  • Taking various measures designed to increase flexibility offers and sales of securities by, and provide other regulatory relief to, small business enterprises, business development companies, employee benefit plans, venture capital funds, and new pooled investment products subject to the Investment Company Act of 1940.
  • Streamlining the regulation and oversight of nationally recognized statistical rating organizations.
  • Extending the JOBS Act’s “testing the waters” authority to all public issuers.
  • Narrowing the right of public issuer shareholders to make shareholder proposals.

Takeaways

The continuing question, of course, is whether this legislation has any chance of actually being enacted into law. Although the GOP majorities in both chambers of Congress and the Trump administration favor major changes to the Dodd-Frank Act, a large number of the CHOICE Act’s provisions will not attract significant (if any) Democratic support, meaning that the chances for its passage in the Senate—where, for the time being, 60 votes are still needed to pass most legislation—at the present time are poor.

Although there is bipartisan support for some changes to the Dodd-Frank Act in selected areas, the ability of Republicans and Democrats to work together to formulate a mutually acceptable Dodd-Frank Act reform bill certainly is not in evidence right now, and the two parties have fundamentally different views on the benefits and costs of the Dodd-Frank Act. All of this must be viewed through the lens of consumers (voters) who continue to turn to the CFPB with complaints regarding their treatment by the financial industry. The CFPB’s complaint database is as active as ever, and voter backlash against efforts to hamstring this agency is reportedly a concern for both the White House and Congress.

Therefore, the most that we are willing to predict at this point is that in the near term, the House will consider and may act to pass CHOICE 2.0, after which point the legislative environment for further action becomes much more challenging.