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FAQ: How would the Financial CHOICE Act change current compliance regs?

In this FAQ, we examine how the Financial CHOICE Act of 2017 would change U.S. regulatory compliance mandates targeting the finance industry's business practices.

The Financial CHOICE Act of 2017 is a 600-page bill aimed at dismantling many of the safeguards established following the 2008 financial meltdown. The legislation was introduced by Rep. Jeb Hensarling (R-Texas), and would amend the Wall Street Reform and Consumer Protection Act of 2010 (known as the Dodd-Frank Act) and a number of other laws. The act passed the Republican-led House of Representatives strictly along party lines on June 8, 2017.

The Financial CHOICE Act would repeal numerous financial rules, which its supporters claim harm economic growth by creating excessive regulatory compliance complexity. They argue that the measure would ease lending, promote job creation, hold Wall Street and regulators accountable and improve the economy.

The Trump Administration supports the legislation, calling it a "necessary and important" step for U.S. financial reform. In a June 6 statement, the White House said that the bill reflects the administration's core principles for regulating the financial system, including preventing taxpayer-funded bailouts and making regulatory measures more efficient.

This FAQ is part of SearchCompliance's IT Compliance FAQ series.

Who opposes the Financial CHOICE Act?     

Democrats in Congress vehemently oppose the Financial CHOICE Act. Opponents have dubbed it the "Wrong CHOICE Act," and argue that it would eliminate some of the most important rules preventing a repeat of the 2008 financial crisis. House Minority Leader Nancy Pelosi (D-Calif.) called the legislation "a dangerous, Wall Street-first bill that would drag us right back to the days of the Great Recession."

Numerous unions and consumer advocacy groups have also spoken out against the legislation. The AFL-CIO warned that deregulation led to the 2008 financial crisis, and the deregulatory initiatives outlined in the Financial CHOICE Act would harm working people. The Consumer Federation of America cautioned that if the safeguards established by Dodd-Frank are reversed, the financial system will be exposed to greater instability. 

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How does the Financial CHOICE Act address the idea that some banks are "too big to fail?"

Backers of the Financial CHOICE Act argue that banks must not be allowed to remain "too big to fail." The bill would retroactively repeal the authority of the Financial Stability Oversight Council (FSOC) to designate some companies as "systematically important financial institutions," aka, "too big to fail." Companies given this designation are subject to extra regulatory oversight and restrictions.

The bill's authors accuse the FSOC of having a "highly politicized structure and penchant for secrecy," and claim that the council "injects unprecedented levels of political risk into the financial system by equipping a council composed largely of Presidential appointees with the authority to dictate the range of acceptable activities and the size and scope of private financial firms."

The bill would also eliminate the Federal Deposit Insurance Corp.'s Orderly Liquidation Authority, which allows regulators to intervene if a large financial institution is about to collapse in order to prevent the failure from spreading to the rest of the financial system. The bill would establish a new bankruptcy chapter in place of the current FSOC and FDIC rules designed to protect the U.S. financial system from the failure of a single institution.

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What will happen to the Consumer Financial Protection Bureau if the Financial CHOICE Act becomes law?

The Financial CHOICE Act would move the Consumer Financial Protection Bureau into the executive branch and empower the president to fire the bureau head at will. The bill would rename the bureau the "Consumer Law Enforcement Agency" and limit its ability to act against institutions for unfair, deceptive or abusive practices. It would also give Congress additional oversight of the bureau, including authority over its budget, which effectively enables it to hobble an agency by eliminating its funding.

The president would also be able to fire the head of the Federal Housing Finance Agency, which oversees the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation.

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How would current rules change under the Financial CHOICE Act?

The Financial CHOICE Act would repeal the Volcker Rule, which restricts banks from making certain speculative investments in an effort to prevent them from taking big risks at taxpayer expense. The bill's authors called the Volcker Rule (named after former Federal Reserve Chairman Paul Volcker) "a solution in search of a problem," and claims that it increases borrowing costs for businesses and reduces economic activity. The Financial CHOICE Act would also repeal the Department of Labor's "Fiduciary Rule" requiring brokers to act in the best interest of their clients when providing retirement advice.

Supporters of the Financial CHOICE Act maintain that it would promote greater accountability from Wall Street by imposing enhanced penalties for acts such as financial fraud and self-dealing. The bill would allow the Securities and Exchange Commission to triple monetary fines sought in certain cases where penalties are linked to a defendant's illegal profits. It would also give the SEC the authority to impose sanctions equal to investor losses in cases involving "fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement," and where the loss or risk of loss was significant. Individuals and firms convicted of insider trading and other corrupt practices could face greater criminal fines under the Financial CHOICE Act as well.

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What are the chances of the Financial CHOICE Act becoming law?

The strictly partisan Financial CHOICE Act has slim odds of becoming law as written. In the Senate, the measure would require support from at least eight Democrats to garner the necessary 60 votes. (At present, Republicans hold 52 seats in the Senate.) A more likely scenario is that the Senate will craft a separate, less expansive financial reform initiative. Many of the CHOICE Act proposals could inform future debate on U.S. financial reform, however, and some could eventually become law.

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Now that the House has voted to reform Dodd-Frank, what comes next?

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This was last published in July 2017

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