BLOG VIEW: The common wisdom has been that with the results of the last presidential election, Dodd-Frank was headed for the trash heap, along with the Consumer Financial Protection Bureau (CFPB). Both are loudly disliked by various members of Congress, as well as an assortment of financial lobbyists.
The main weapon directed against Dodd-Frank and the CFPB is the Financial CHOICE Act, legislation introduced by Rep. Jeb Hensarling, R-Texas, chairman of the House Financial Services Committee. In the normal scheme of things, when a committee chair introduces legislation, it flies through the legislative process. This happens because everyone wants to make committee chairs happy, and – by definition – committee chairs are members of the majority party.
The legislation is very similar to H.R.5983, the Financial CHOICE Act of 2016, a bill that got nowhere in the last session of Congress. In this session, the bill has been re-introduced as H.R.10, the Financial CHOICE Act of 2017. With an estimated 11% chance of enactment, its fate is not any brighter than the earlier bill.
The truth is that 11% might be too high. Senate Majority Leader Mitch McConnell, R-Ky., told Bloomberg News he’s not optimistic that the Hensarling proposal will pass. There’s opposition against it, he said, explaining that “the Democrats on the banking committee believe that Dodd-Frank is something akin to the Ten Commandments.”
But if Republicans control the House, the Senate and the presidency, then how are Democrats able to block the legislation? The answer is two-fold: First, not all Senate Republicans are likely to vote for replacement legislation. Second, the proposal needs 60 votes to pass in the Senate and the Republicans hold 54 seats. They need six Democrats for passage.
Why 60 votes? Why not 51? Institutional rules allow individual senators to debate bills forever. The only way to stop debate and actually vote is through a process called cloture. You need 60 votes for cloture.
H.R.10 – all 589 pages of it – passed in the House Financial Services Committee in early May by a vote of 34 to 26. On the committee are 34 Republicans and 26 Democrats.
McConnell has this right. Here’s why:
First, it’s hard to find a moderate middle on Capitol Hill that can swing votes. Just look at the straight-line party voting above.
Second, the House can pass whatever it likes, but without Senate support, the proposed legislation is going nowhere.
Third, if the House passes legislation and the Senate passes a different version, the competing versions need to be resolved in a conference committee. The resulting conference report must then be approved by both houses. With new provisions, final votes can change.
Beyond the legislative impasse on Capitol Hill, the bigger reason the H.R.10 legislation is not going anywhere is that things are good right now. Very good.
According to the FDIC, banks generated $171.3 billion in profits last year – up 4.9% from a year earlier. This compares with $85.49 billion in 2010, the year Dodd-Frank was enacted. Meanwhile, giant banks grew from 17% of the market in 1995 to almost 60% in 2014, according to the Institute for Local Self-Reliance.
The banking industry is doing great and, with less regulation, might see higher profits. The catch is that those higher profits would likely go to a handful of massive, multistate, financial service companies while local community banks lose more market share. We had 13,000 of them in 1985, but according to the 2016 Republican platform, fewer than 2,000 are left.
Local small banks and credit unions have a lot of political clout; they’re important to the communities they serve. For them, Dodd-Frank has some very nice attractions, especially to the extent that it imposes additional burdens on big players. As to the CFPB, it can be handled. Notice that the CFPB has different mortgage origination rules for small creditors in rural or underserved areas regarding such standards as maximum debt-to-income ratios, balloon payments and escrow accounts. Take away Dodd-Frank and maybe those artificial marketplace advantages will disappear, along with small creditor revenues and profits.
The complete demolition of both Dodd-Frank and the CFPB is unlikely if only because there are large numbers of representatives and senators who represent rural and underserved areas. What might pass are targeted changes: Instead of automatic funding through the Federal Reserve, the CFPB might be required to get cash through Congress. The single-director system could be replaced with a panel of commissioners.
“The mortgage industry itself is divided on the subject of what to do with the existing Dodd-Frank legislation,” explains Rick Sharga, executive vice president at Ten-X.com, an online real estate marketplace. “While there’s nearly universal demand for regulatory reform, many lenders don’t want to see wholesale changes happen instantaneously, after spending the past few years – and millions of dollars – re-engineering their processes and technology systems to ensure compliance with the new lending rules.”
But what about all the yelling and screaming on Capitol Hill, the speeches, the fund-raising letters, and the news releases? It’s like Broadway – entertaining but, in the end, just theater.
Peter G. Miller is a nationally syndicated real estate columnist. His books, published originally by Harper & Row, sold more than 300,000 copies. He blogs at OurBroker.com and contributes to such leading sites as RealtyTrac.com, the Huffington Post and Ten-X. Miller has also spoken before such groups as the National Association of Realtors and the Association of Real Estate License Law Officials.