Emerging Markets Law

Financial Choice Act

Posted In Government

This week, the House of Representatives will consider and vote on the Financial Choice Act (“FCA”), sponsored by Rep. Jeb Hensarling of Texas – chairman of the House Financial Services Committee. The FCA is a response to the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), and not a nice one. It essentially guts that bill which was itself a response to the financial crisis that began in 2007. After his election, President Obama called for a "sweeping overhaul of the United States financial regulatory system, a transformation on a scale not seen since the reforms that followed the Great Depression" and Dodd-Frank was basically the result.

The FCA does a lot of things but we’ll highlight the most relevant pieces. In a sentence, the bill provides banks with relief from the regulations of D0dd-Frank – as long as they meet a strict basic requirement for the capital they build to cover unexpected big losses. This includes

  • removing the power of federal regulators to dismantle a failing financial firm and sell off the pieces if they decide its collapse could endanger the system
  • repealing the Volcker Rule, which prohibits banks from proprietary trading of "risky" assets and from "certain relationships" with risky investment funds, including acquiring or retaining "any equity, partnership, or other ownership interest in or sponsor[ing] a hedge fund or a private equity fund"
  • removing the power of the Consumer Financial Protection Bureau specifically to scrutinize the practices of virtually any business selling financial products and services, such as credit card companies, payday lenders, mortgage servicers and debt collectors
  • repealing the Financial Stability Oversight Council's ability to designate nonbank financial firms as “too big to fail” and subject them to enhanced regulation (the firms subject to these regulations have said they’ve been stifling)

In a nutshell, Republicans generally don’t like Dodd-Frank but like the FCA. Democrats generally like Dodd-Frank but don’t like the FCA. We know this because no Democrat voted for the bill when it passed out of the Financial Services Committee. And it’ll be further confirmed when (maybe) a handful or (possibly) zero Democrats will vote for it this week when it’s voted on by the full House of Representatives. From there, it’ll go to the Senate where it’s expected to die.

So, why should you care? Because what’s in this bill gives piercing insight into how the party in power thinks when it comes to financial regulation and what their priorities are. It means something that the chairman of the Financial Services Committee sponsored this bill. The FCA won’t go anywhere in its current form, but some aspects of it will most likely see the light of day at some point. We’ll continue to track this to see exactly what – and it’ll inure to the benefit of financial service firms to be able to prepare for what’s coming.

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