Dodd-Frank on the chopping block

The Financial Choice Act would relax or remove many of the protections on the financial system created by Dodd–Frank. The possibility of its passage has greatly increased because Donald Trump was elected president. Experts say the bill will face a partisan battle in Congress, but the measure provides a preview of which Dodd-Frank rules may be weakened or gutted. The Choice Act provisions below were included when the bill was introduced during the 2015-2016 session of Congress.

An “off ramp” for regulations

What Dodd-Frank does: The law placed restrictions on some of the risky behaviors that led Wall Street to the 2008 financial crisis. The rules are meant to prevent another major collapse and to protect consumers from abuse.

What the Choice Act does: The act would allow financial institutions to avoid many of these rules. If financial institutions keep 10 percent of their assets to absorb potential losses, they would be exempt from increased scrutiny under Dodd-Frank, regardless of size.

“Too Big to Fail”

What Dodd-Frank does: The law provides a way for the government to wind down failing banks that are “too big to fail.” The bank would go through a government-led bankruptcy designed to prevent the damage a big bank’s failure may otherwise inflict on the financial system.

What the Choice Act does: The bill would replace these safeguards by adding a new chapter to the bankruptcy code for use by large financial institutions.

It also would repeal Dodd-Frank’s Volcker Rule, which now prohibits banks with access to the Federal Deposit Insurance Fund from making certain risky investments.

Consumer protection

What Dodd-Frank does: Dodd-Frank created the Consumer Financial Protection Bureau, a government agency with a mandate to protect consumers from “deceptive, unfair and abusive” practices. It polices how financial products, such as mortgages, are sold to consumers.

What the Choice Act does: The act would make structural changes, such as replacing the CFPB’s single director with a 5-member commission, which under a Trump administration would be controlled by Republicans. It also would substitute the CFPB’s current funding, from the Federal Reserve, with a budget approved by Congress, giving lawmakers more control over what the agency does. New rules issued by the CFPB would be subject to a cost-benefit analysis and other changes would allow the industry to more easily fight new regulations.

The act would remove the CFPB’s ability to ban products or services it deems “abusive” and repeals the agency’s latest rulings on high-interest lending and forced arbitration.

Also repealed would be the Labor Department’s “fiduciary rule,” which limits what financial services can be sold by retirement advisers. Currently, retirement advice sold by investors may involve conflicts of interest, which cost consumers an estimated $17 billion a year by some estimates.

Wall Street accountability

What Dodd-Frank does: The law created a panel of regulators from various agencies called the Financial Stability Oversight Council, which monitors too-big-to-fail banks. It also gave the council the power to oversee companies that weren’t banks, but which had become important to the financial system’s health. Among such companies is AIG, an insurance agency which backed many of the bad bets big banks made before the recession, and which was the recipient of the largest public bailout in history following the financial crisis.

The law also placed controls on short-term bonuses for executives to prevent Wall Street bosses from collecting huge bonuses for deals that later fail.

What the Choice Act does: The act would remove the council’s ability to single out companies such as AIG for increased regulation.

The bill would increase the financial penalties for institutions caught breaking the law but would remove many of the provisions Dodd-Frank enacted to hold individual bank officials accountable.

The act would remove the limits on bank executive bonuses. It also would limit “clawback” provisions that can undo bonuses based on shady accounting practices.