As expected, yesterday the U.S. House of Representatives passed the Financial CHOICE Act, which would significantly alter – among other things – the structure of the Consumer Financial Protection Bureau (CFPB). The bill passed along party lines; it is not expected to survive the Senate.

House Financial Services Committee Chairman Jeb Hensarling (R-Texas) sponsored and has been aggressively promoting the CHOICE Act as essential to rolling back onerous regulations imposed by Dodd-Frank. He claims that Dodd-Frank has contributed to the worst economic recovery of the last 70 years.

With a tagline “growth for all, bailouts for none,” Hensarling says the Act would replace bailouts with bankruptcy, and would provide regulatory relief for small banks and credit unions. The following are the key principles of the Act:

  1. Taxpayer bailouts of financial institutions must end and no company can remain too big to fail;
  2. Both Wall Street and Washington must be held accountable;
  3. Simplicity must replace complexity, because complexity can be gamed by the well-connected and abused by the Washington powerful;
  4. Economic growth must be revitalized through competitive, transparent, and innovative capital markets;
  5. Every American, regardless of their circumstances, must have the opportunity to achieve financial independence;
  6. Consumers must be vigorously protected from fraud and deception as well as the loss of economic liberty; and
  7. Systemic risk must be managed in a market with profit and loss

Among the Bill’s details is a restructured CFPB, including:

  • Change the name of the CFPB to the “Consumer Law Enforcement Agency (CLEA),” and task it with the dual mission of consumer protection and competitive markets, with cost-benefit analyses of rules performed by a newly-formed Office of Economic Analysis.
  • Restructure the agency as an Executive Branch agency with a single director removable by the President at will, and make the agency subject to Congressional oversight and the normal Congressional appropriations process.
  • Eliminate the CFPB’s supervisory function and hold it responsible for enforcing the enumerated consumer protection laws.
  • Remove the agency’s opaque and ill-defined “unfair, deceptive, or abusive acts and practices” (UDAAP) authority.
  • Establish an independent, Senate-confirmed Inspector General.
  • Eliminate the CFPB’s sweeping market-monitoring function and require the Agency obtain permission before collecting consumers’ personally identifiable information.

Hensarling says that large financial institutions have not supported the CHOICE Act. The Congressional Budget Office reports that they would be unlikely to raise enough capital to meet the bill’s requirement for substantial regulatory relief.

Reports suggest that the Act in its current form is extremely unlikely to pass the Senate, but that the Trump administration has urged lawmakers to identify adjustments that would allow it to pass. Democrats are aggressively opposed to the bill, staunchly defending the CFPB and Dodd-Frank as essential to leveling the financial playing field for average Americans.

insideARM Perspective

Certainly if the CHOICE Act became law in its current form, leadership changes at the CFPB might produce a different set of rules for the debt collection market. However we do believe that the CFPB will indeed produce debt collection rules – there is significant agreement from all sides that clarity is needed, and that clarity is unlikely to come from Congress.

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