Washington — Michigan lawmakers are playing lead roles in the debate over legislation to roll back major elements of the 2010 Dodd-Frank Act in the U.S. House this week.
Rep. Bill Huizenga of Zeeland has helped lead the push to repeal parts of Dodd-Frank’s financial regulatory reforms as part of the Republican leadership on the House Financial Services Committee, and Rep. Dan Kildee of Flint Township has led the fight against the GOP bill as the panel’s vice ranking Democrat.
The 589-page Financial Choice Act passed out of the committee this spring on a party-line vote, following a 28-hour markup.
The bill would end the government’s authority to wind down large, failing financial firms; allow banks to opt out of enhanced capital requirements in certain cases; and scale back the authority of the Consumer Financial Protection Bureau to regulate large banks and payday and title lenders.
The legislation also would repeal what’s known as the Volcker Rule, which keeps government-insured banks from making risky trades with investments and owning hedge funds and private equity funds, which experts say led to massive losses during the financial crisis.
The House is expected to vote on the legislation Thursday. Republicans say it would provide a boost to the economy, freeing financial institutions from overbearing regulations.
Huizenga says the problem is that Dodd-Frank “has not acted as advertised.”
“It didn’t ultimately address the main driver of our economic downturn, which was a housing crisis,” said Huizenga, who chairs the Subcommittee on Capital Markets, Securities and Investment that has jurisdiction over capital market matters.
“In many ways, it was a social agenda waiting for a crisis. That’s why all of our automotive folks are dealing with issues like conflict minerals and CEO-pay ratios — all these things that had nothing to do with our economic downturn at all.”
Kildee has nicknamed the bill the “Wrong Choice Act,” saying that Republicans seem to have forgotten the pain of the housing meltdown that led to the adoption of Dodd-Frank in 2010.
“The heart and soul of this is to basically take us back to the same kind of financial and regulatory environment that was in place before the financial crisis,” Kildee said. “For the Democrats on the committee, we’re just not going there.”
Democrats are especially concerned about changes proposed for the Consumer Financial Protection Bureau, a federal agency that says it has returned almost $12 billion to customers who’ve been cheated by financial institutions.
“It is the cop on the beat that polices all sorts of nefarious activity that can take place between financial institutions and customers that are the subjects of unfair or deceptive practices,” Kildee said.
Republicans argue the bureau is unaccountable. They want to replace the director with a bipartisan governing board and make its funding dependent on congressional appropriations, so Congress may choose to fund it (or not).
“But the argument for the independence of the CFPB is to not be subject to the political pressures and for the director not be able to be fired by a president,” Kildee said.
Michael Barr, who was the assistant secretary for financial institutions at the U.S. Treasury for two years during the Obama administration and was an architect of Dodd-Frank, said the law’s opponents are trying to gut it.
“It would basically resurrect the problem of ‘too big to fail.’ You had these major firms that in the lead-up to the crisis there was no way to deal with them. The government had two choices, both of which were disastrous for the country: They could bail them out, as they did with AIG, or send them into bankruptcy, as they did with Lehman Brothers” Barr said.
“It’s as if this massive cloud of amnesia has descended on some in Washington, and they’ve forgotten all about the causes and consequences of the financial crisis.”
But others, like Cornell Law School professor Charles K. Whitehead, who testified before the Financial Services panel in March, said parts of Dodd-Frank like the Volcker Rule address the “wrong problem in the wrong way.”
“I believe it’s fair to say that the rule’s proponents were less interested in curing a particular cause of the financial crisis and more interested in championing the view that commercial banking should be separated from investment banking,” Whitehead said.
“Changes in the financial markets spurred by the Volcker Rule still expose banks to the kinds of risks that the Volcker Rule was intended to minimize or eliminate.”
Observers say the bill faces an uncertain future in the Senate, where Republicans need 60 votes to pass the legislation and will face opposition from Democrats such as Massachusetts Sen. Elizabeth Warren, who conceived the idea for the bureau before joining Congress.
“Some senators from the upper Northeast who had a hand in creating Dodd-Frank and CFPB have staked out the territory that any changes to Dodd-Frank are bad for consumers and somehow breaching the citadel of consumer protection and safety of the economy,” Huizenga said.
“That’s nonsensical. You’ve got broad consensus that there are issues within Dodd-Frank that are simply not working and need to be addressed.”