Bill to ease Dodd-Frank rules gets chilly reception in House

Bipartisan legislation in the Senate to roll back parts of the Dodd-Frank financial reform law is running into trouble in the House.

The Senate Banking Committee last week advanced a bill that would scale back Dodd-Frank rules for small and mid-sized banks. 

Sponsored by Banking Committee Chairman Mike Crapo (R-Idaho), the legislation has enough support among Democrats to avoid a filibuster. That’s largely because it focuses on scaling back federal oversight of banks without touching other portions of Dodd-Frank that Democrats are determined to protect.

{mosads}But House Republicans pursuing a rival regulatory overhaul have given the bill a chilly reception, saying it doesn’t include the transformative changes needed for Dodd-Frank and the agency it created, the Consumer Financial Protection Bureau (CFPB).

“There’s nothing good about the CFPB, and if they don’t touch the CFPB then it’s a non-starter,” said Rep. Roger Williams (R-Texas), a member of the House Financial Services Committee, of the Senate bill.

Republicans struggled for years under former President Obama to amend Dodd-Frank, which was passed in 2010 to ramp up rules and oversight of the U.S. financial system after the 2007 crisis.

Democrats have fiercely defended Dodd-Frank’s new requirements for major banks and financial firms, saying the rules were necessary to prevent another economic catastrophe. Republicans insist the law went too far, hindering economic growth and lending in the midst of a recession.

President Trump’s election gave the GOP-controlled Congress a chance to open up Dodd-Frank for significant changes, so long as they can overcome a Democratic filibuster.

The House Financial Services Committee in June passed the Choice Act, a dramatic rollback of the law that would leave the CFPB nearly powerless.

Republicans say the bureau and its former director, Richard Cordray, damaged the economy with overly aggressive regulatory actions and fines.

Chairman Jeb Hensarling (R-Texas), a staunch conservative and fierce critic of the CFPB, sought to pass the most sweeping possible revision of Dodd-Frank. While banks and financial services companies praised the effort, lobbyists griped behind the scenes that the bill was far too conservative to pass the Senate.

Crapo’s bill, on the other hand, is more measured in its scope. It would exempt small and mid-size banks from the most stringent parts of Dodd-Frank and scale back federal oversight of the financial system on whole. However, it includes no structural changes to the CFPB, which Democrats have fiercely opposed.

The panel passed the bill by a 16 to 7 vote last week, with four moderate Democrats voting with all Republicans in favor. While GOP senators on the Banking Committee said they wished the bill did more to change Dodd-Frank, they can only go so far without losing Democratic support.

“The bill we are marking up today is the product of a thorough, robust process and honest, bipartisan negotiations,” Crapo said. “All of the sponsors have worked in good faith to include provisions from those who have offered them, including those who do not support the bill. And we will continue to do so after this markup.”

House Republicans praised the Senate for passing their attempt to amend Dodd-Frank, but warned the bill might not fly in their chamber.

“We’re excited they were able to get something done,” said Rep. Blaine Luetkemeyer (R-Mo.), a House Financial Services panel member. “We’re disappointed they didn’t do more, but I believe that if the Senate can pass the full bill, we have an opportunity to look at it here in the House, make some improvements.”

Luetkemeyer suggested changes to the standards that determine whether a bank is systemically important and expressed support for limits on the CFPB. Even so, he warned those would likely be “poison pills” in the Senate, costing Democratic support.

Rep. Dennis Ross (R-Fla.), another Financial Services member, said a lack of action on the CFPB was a “concern” for Republicans.

“We’d like to have the board if nothing else — getting rid of it is going to be tough to do — and at least having it accountable to Congress instead of to its own self and funded by the [Federal Reserve],” said Ross, referring to proposals to replace the CFPB director with a bipartisan commission and subject it to congressional control.

The Senate bill targets Dodd-Frank rules that were meant to curb risky behavior in the financial sector. Under the bill, banks with less than $250 billion in assets would be exempt from federal stress tests and higher capital requirements, a $200 billion increase from the current “systemically important” threshold.

Federal regulators would stress-test the largest systemically important banks less frequently, and community banks and credit unions would face fewer disclosure requirements.

Some House Republicans also expressed worries that the Senate bill doesn’t go far enough to help large regional banks that they say are safer than their size might indicate.

Republicans and some moderate Democrats have sought to change the systemically important threshold to a multi-prong test that factors a bank’s lending profile and business model into the picture.

“All they did was just raise the threshold basically, and that still leaves a few banks that their business model is such that they’re just big community banks,” said Luetkemeyer of the Senate bill.

“They’re not international players. Their risk model is something that’s not going to take down the economy.”