House Approves Financial CHOICE Act

June 15, 2017

On June 8, the House passed the Financial CHOICE Act (CHOICE 2.0), its comprehensive financial regulatory reform bill, by a 233-186 party line vote. On April 19, House Financial Services Committee Chairman Jeb Hensarling (R-Texas) released this modified version of the financial regulatory reform legislation that he introduced in the last Congress. The revised discussion draft, CHOICE Act 2.0, builds on and retains key features of the original CHOICE Act adopted in the Committee last year, including its targeted approach of amending, repealing, or replacing individual provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), rather than repealing it altogether.

On May 4, Republican efforts to overhaul the existing financial regulations took a step forward as the House Financial Services Committee approved H.R. 10, the Financial CHOICE Act of 2017 in a party-line vote, 34-26. The vote concluded a two week period that included both a three-day markup, of the Republican-backed legislation—during which several Democrat committee members sought, unsuccessfully, to remove various provisions of the bill—and, a two-day hearing that included testimony from 18 different witnesses.

Some of the reforms under the Financial CHOICE Act are provisions reining in the Consumer Financial Protection Bureau (CFPB). According to some, for years the CFPB has been able to unilaterally ban certain financial services and products it deems “abusive” and has been able to collect personally identifiable information on consumers at will. The CFPB is also not subject to the appropriations process, leaving Congress with little oversight over the Bureau’s actions.

The Financial CHOICE Act would repeal the CFPB’s authority to ban bank products and services it deems “abusive” as well as requiring the Bureau to obtain permission before collecting personal information from consumers. The measure would also repeal the CFPB’s authority to prohibit arbitration, and would replace the current director with a five-member commission subject to congressional oversight and appropriations.

Included in the FCA 2.0 is a provision to repeal the NSBA-supported Durbin Amendment, removing requirements that guided how much credit card networks could charge retailers for processing debit card transactions. The legislation claims that the Durbin Amendment resulted in the elimination of free checking accounts at banks and pushed consumers out of the mainstream banking system, while providing no discernible benefits to retail consumers.

The Durbin Amendment was part of the 2010 Dodd-Frank Act to lower costs to retailers and increase competition in the market–dominated by some credit card companies–for processing debit card transactions, and NSBA was an outspoken supporter of the language. Each time a shopper uses their debit card at a checkout, the merchant pays a fee to the bank that issued that card. Prior to the reform, if merchants wanted to accept debit or credit cards issued by the card networks they were required to pay the fee, which is set by the networks and non-negotiable. Under the Durbin Amendment, banks with over $10 billion in assets would have to charge debit card interchange fees that are “reasonable and proportional to the actual cost” of processing the transaction. After much wrangling, these swipe fees were ultimately capped at $.21, about half of the pre-reform average. Additionally, the measure included provisions which allow retailers to refuse to use credit cards for small purchases and offer incentives for using cash or another type of card.

The Financial CHOICE Act would also hold financial regulators accountable by requiring that financial regulations pass a cost-benefit analysis before enactment and that “major” regulations be passed by Congress instead of unilaterally by unelected bureaucrats.

Other reforms to Dodd-Frank contained in the Financial CHOICE Act include:

  • Repealing the Volcker Rule’s restrictions on proprietary trading;
  • Replacing “Orderly Liquidation Authority” which allows the bailout of financial institutions at the expense of taxpayers;
  • Repealing the authority of the Financial Stability Oversight Council (FSOC) to designate firms as systematically important institutions (SIFIs);
  • Repeal the CFPB’s indirect auto lending guidance; and
  • Make all financial regulatory agencies subject to the REINS Act.

Looking ahead, the bill will likely need to pick up a minimum of 60 votes—including support from several Democrats—in order for it to pass in the Senate.