As a means of weakening, pushing back or replacing financial regulations potentially seen as burdens to commerce and growth, President Donald Trump recently signed an executive order aiming to repeal the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. As a result, many Americans are concerned about having the benefits of Dodd-Frank become undone. Here are a few issues raised regarding the potential repeal of Dodd-Frank.
Financial Choice Act
Dodd-Frank may be replaced with the Financial Choice Act, a bill that Republican Congressman Jeb Hensarling first introduced in 2016 that details seven Core Principles to regulate the U.S. financial systems. The Choice Act may negatively impact the middle class, retirees and investors by stripping away the protections they currently have. For example, one proposal of the Choice Act would grant payday lending a five-year exemption from regulations if a state or tribe requested a waiver. The U.S. would become less regulated, as it was before the 2008 financial crisis, and financial institutions may return to their ways of doing business and increasing profits despite negative impacts on the country.
Because the fiduciary rule hasn’t gone into effect, Trump may ensure it doesn’t become implemented. The fiduciary rule requires financial advisors and brokers to act in the best interest of their clients rather than put them in higher-fee funds solely for personal gain. Not implementing the fiduciary rule means investors may be at higher risk of not saving enough for retirement and being forced to work longer than anticipated.
Consumer Financial Protection Bureau
Repealing Dodd-Frank would eliminate the Consumer Financial Protection Bureau (CFPB). The CFPB has helped return billions of dollars to people who were taken advantage of in the financial system. The Bureau also helps implement plans for winding down large firms facing insolvency without taxpayer-funded bailouts. In addition, the CFPB regulates shadow banking practices such as payday lending; measures to protect retirement savers from abuse; disclosure requirements on derivatives and for oil companies on their payments to foreign governments; and the public’s ability to report complaints of illegal practices in the financial industry.
Financial Stability Oversight Council
Repealing Dodd-Frank would result in eliminating the Financial Stability Oversight Council (FSOC), which reviews institutions vital to the financial system. As a result, financial institutions would be able to increase lending, especially in areas such as mortgages and credit cards, as well as proprietary trading. The concern is that by continually extending credit without many safeguards, lenders may be encouraging another financial meltdown.
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