Senate Clouds Dodd-Frank Overhaul
Supporters of the House's highly partisan process to overhaul Dodd-Frank are likely to face a stark political obstacle in the coming months: The United States Senate.
In the coming weeks, the House is likely to ram through a highly partisan bill that would, among other things, vastly decrease the power of the CFPB. But enactment of any regulatory overhaul is likely to require 60 votes in the Senate – a high hurdle that will require some compromise with Democrats.
And many Democrats are fans of the CFPB.
“If there is no bipartisan compromise, the CFPB will stay as it is presently structured because meaningful reform is going to require 60 votes in the Senate and that will be impossible to get without Democrat votes,” former NCUA Chairman Dennis Dollar said.
The House Financial Services Committee is scheduled shortly to mark up its plan to change the financial regulatory regime. The committee approved similar legislation last year, with Democrats condemning the bill and declining to try to amend it.
The legislation never made it to the House floor. This year, the House is likely to pass the plan proposed by House Financial Services Chairman Jeb Hensarling (R-Texas) with only Republican votes.
“That's his goal – to not have to negotiate a compromise,” Brad Thaler, NAFCU's vice president of legislative affairs, said. “The chairman only wants to enact this measure.”
And the latest draft of the legislation is not likely to gain much Democratic support. Hensarling's plan would cut most of the CFPB's supervisory powers, make the agency subject to the annual appropriations process and give it a single director who serves at the will of the president.
Financial Services ranking Democrat Maxine Waters (D-Calif.) quickly condemned the bill.
“Republicans and Donald Trump have once again prioritized the needs of Wall Street over the needs of hard-working Americans, with a proposal that would take away much needed protections and put our economic security at risk,” she said.
And she added, “The new version, which is even worse than Chairman Hensarling's first draft, cannot be allowed to become law. There is too much at stake for consumers and for our economy at large.”
Hensarling is likely to push for quick floor consideration after the committee approves the bill, in an effort not to keep it pending for too long, according to Ryan Donovan, CUNA's chief advocacy officer.
“Milk tastes very good, but if you leave it on the counter too long, it's not going to taste very good,” Donovan said.
Hensarling's bill is not likely to become law since any regulatory overhaul must pass the Senate.
And new Senate Banking Chairman Mike Crapo (R-Id.) has made it clear he wants to craft a bipartisan measure.
“We’ve been encouraged by the bipartisan approach in the Senate,” Donovan said.
Toward that end, Crapo and the committee's ranking Democrat, Sen. Sherrod Brown (D-Ohio), asked interested parties last month to submit their ideas about how to foster economic growth.
“Ranking Member Brown and I have designed an orderly process for consideration of proposals that will help consumers, market participants and financial companies responsibly participate in the economy in a more effective and efficient manner,” Crapo said. “We welcome input from all interested stakeholders to that end.”
Crapo wants – and needs – Democratic support for any measure that he develops.
“We have seen that he wants to craft a bipartisan bill that can pass his committee and pass the Senate,” Thaler said.
And if the House passes Hensarling's bill and the Senate passes a bipartisan measure, it could make for a difficult conference committee whose responsibility would be to craft legislation that could pass both Houses.
The two committees haven't had to negotiate on major legislation since the enactment of Dodd-Frank, Thaler said, adding that it is difficult to predict how the talks may proceed.
For instance, the committees could simply rely on staff to hammer out deals, or they could do it during an old-style conference committee, where members attempt to reach compromise.
Regardless of the form the conference takes, conferees are going to be under pressure to come to an agreement.
And that likely means some compromise on the makeup of the CFPB.
“My prediction would be that, if there is a possibility of a bipartisan compromise after the Senate weighs in on CHOICE after it passes the House, any compromise would likely retain the CFPB as a regulatory body – but with a board and congressional budgetary oversight,” Dollar said.
The Dodd-Frank overhaul legislation that was approved by the House Financial Services Committee last year called for a CFPB commission. However, in drafts of this year's legislation, Hensarling called for an agency run by a single director, with greatly diminished power.
A commission could be a middle ground, Donovan said.
And of course, the Trump Administration remains a wild card in the legislative process. Treasury Secretary Steven Mnuchin has been soliciting recommendations from the financial regulatory agencies.
Based on Mnuchin's report to Trump, the administration could make a deal easy or more difficult, Donovan said.
“They certainly can pour gasoline on the fire or they can pour water on it,” he said.