Regulatory rollback: financial services, etc.

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The Trump administration is committed to reducing regulatory burdens, which augurs well for the US economy. Perhaps the anticipated benefits of this strategy have contributed to recent economic results: GDP growth rate for the second quarter estimated at 2.6%, continuing job growth, and rising stock prices (e.g., Dow 30 index is up about 20% since the election). Economic uncertainties abound, however, and trends can’t be reliably inferred from short-term results.

Last week’s entry reviewed efforts being made to block or dilute federal regulations in the energy sector. The results in this area have been encouraging from a conservative standpoint, although many of the battles are ongoing and ultimate victory should not be taken for granted.

Efforts to ease regulatory burdens are also underway in non-energy areas, albeit with only scattered successes thus far. Here’s a status review as the administration nears the 200-day mark. Administrative action – Congressional Review Act – Dodd-Frank – Consumer Financial Protection Bureau.


A. Administrative action - It was recently reported that over 800 Obama-era regulations have been eliminated, but it should be noted that most of them had never been adopted (or in many cases formally proposed) in the first place. Trump eliminates more than 800 Obama regulations, Elizabeth Harrington, freebeacon.com, 7/20/17.

In a report, the Trump administration said it had withdrawn 469 planned regulatory actions that had been part of the Obama administration's regulatory agenda published last fall. Officials also reconsidered 391 active regulatory proceedings actions by reclassifying them as long-term or inactive "allowing for further careful review," the White House said.

Officials crowed that the administration was “eliminating 16 regulations for every new rule proposed,” a ratio that is hardly likely to continue. Still, it’s encouraging to see the tidal wave of regulatory projects that developed during the last administration abating.

B. Congressional Review Act – This law permits expedited congressional repeal (no filibusters) of previously approved regulations within a 60-working-days window. It had been used successfully only once before, but was seen as a potentially useful process for Republicans to roll back regulations adopted in the last few months of the Obama administration. A big cut to cut regulatory red tape, 2/6/17.

By mid-May, 14 regulations had been repealed under the CRA. The only GOP failure was a rule against methane emissions from oil and gas operations; Senator John McCain (who else?) cast one of the “no” votes to save the methane rule. As discussed last week, however, this rule is no longer supported by the EPA and will probably be eliminated via the rulemaking process. GOP rolled back 14 of 15 Obama rules by Congressional Review Act, Stephen Dinan, Washington Times,
5/15/17.

Of the regulations repealed under the CRA, the one with the biggest dollar impact was the “Stream Buffer Rule,” which severely restricted water runoff from surface coal mining and was expected to cause substantial reduction of coal mining jobs. It has been estimated that repeal of the 14 regulations will generate aggregate savings on the order of $40 billion per year.
Ibid.

The American Action Forum, a conservative-leaning think tank, calculated repealing the rules could save the economy millions of hours of paperwork and $3.7 billion in regulatory costs to the federal agencies, and perhaps $35 billion in compliance costs for industry.

Here’s a list of the regulations repealed under the CRA (other than the 14th one, which we weren’t able to identify). It demonstrates some of the ways in which unelected and largely unaccountable bureaucrats are making the rules in our supposedly free society and devising insidious ways to enforce them. Veritably, as George Orwell predicted in his novel 1984, “Big Brother is watching [us].” Ruled out: 13 Obama regulations rolled back under Congressional Review Act, Lisa Beilfuss, Wall Street Journal,
5/4/17.

1. Broadband privacy protections – Regulation required telecommunications companies (but not Google, Amazon, etc., go figure) to obtain customers’ permission in order to sell their web-browsing history to third parties.

2. Women’s healthcare rule – Regulation banned states from blocking the distribution of federal grant money to organizations that provide family planning services as well as traditional healthcare, e.g., Planned Parenthood.

3. Workplace safety – Regulation required applicants for federal contracts to disclose labor-law violations, thereby in effect acting as witnesses against themselves under penalty of perjury.

4. Gun limits for people with mental illnesses – Regulation required the Social Security Administration to report names of people deemed incapable of managing their finances due to mental illnesses (so much for the privacy of medical records) to the FBI federal background –check system.

5. Oil anti-corruption – Regulation required energy companies to report payments to foreign governments for the rights to develop petroleum and other mineral assets in investor information filings.

6. Stream protection – Regulation imposed onerous standards on coal mining near streams.

7. Limits on drug-testing for unemployment benefit recipients – Regulation was aimed at preventing clean drug tests from being used as a condition for receiving unemployment benefits.

8. Retirement-savings plans – Regulation was designed to foster public retirement income systems in which workers without employer retirement plans would be encouraged to enroll.

9. Alaska wildlife rule – Regulation largely banned hunting on millions of acres in Alaska.

10. School ratings – Regulation fleshing out requirements of the Every Student Succeeds Act (the actual title), which scrapped federal guidelines for defining school quality (No Child Left Behind) and required states to set up their own systems for measuring educational improvement.

11. Teacher prep programs – Regulation specified how data on teacher-preparation programs would be collected under the Every Student Succeeds Act.

12. OSHA records – Regulation set stricter standards for employer reporting of employment-related injuries or illnesses.

13. Land-use planning – Regulation updated government procedures for land-use planning on hundreds of millions of acres.

Republicans might be able to utilize the CRA for repeal of other Obama era regulations in some cases, but the general assumption seems to be that this window of opportunity is now effectively closed. White House faces rough road to deregulation as its favorite tool, the Congressional Review Act, expires, Sarah Westwood, Washington Examiner,
5/8/17.

C. Dodd-Frank – The financial crisis of 2007-2008 and accompanying recession were supposedly the result of “Wall Street greed” and a “too big to fail” financial system that forced the government to bail out major banks, etc. Some observers have suggested, however, that major mistakes were also made by government entities. Notably, the Federal Reserve Bank allowed excessive monetary ease for far too long, thereby permitting a $3 trillion bubble to develop in the housing market, and then (after Ben Bernanke took the rains from Alan Greenspan) slammed on the monetary brakes too quickly. The financial crisis and the free market cure, John Allison, 2013.

Enacted in 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was supposedly intended to correct the issues that had led to the financial crisis and thereby avert repetitions of this wrenching experience. Many of the provisions were expressed in general terms, with some half dozen government agencies being made responsible for drafting scores of regulations to spell out the details.

Dodd-Frank left many of the big issues unresolved, notably the “too big to fail problem.” The big banks were not broken up, in this regard, and the effect of the legislation was to institutionalize the bailout procedure (see table below) versus eliminating it. Other provisions had little to do with the causes of the financial crisis, e.g., formation of the Consumer Financial Protection Bureau (see discussion under the next heading). Senator Dodd’s Regulation Plan: 14 Fatal Flaws, James Gattuso, Heritage Foundation,
4/22/10.

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In June 2017, the House passed H.R. 10, the Financial CHOICE Act, a 500-page bill designed to overhaul the Dodd-Frank Act and lighten the regulatory burdens it had imposed on financial firms. [CHOICE stands for “Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs.”] House poised for vote to dismantle Dodd-Frank, Sylvan Lane, thehill.com, 6/7/17.

Allow banks meeting higher capitalization ratios, etc. an off-ramp from some Dodd-Frank requirements, reduce the frequency of federal stress tests and claw back Dodd-Frank expansion of the oversight powers of several federal agencies.

Recast the orderly liquidation process (see table above), eliminating the pivotal role of the FDIC.

Convert the CFPB into a consumer law enforcement agency, which would be required to obtain appropriations from Congress (CFPB is currently funded by an essentially limitless source of funds from the Federal Reserve). The agency’s director would be appointed by (and could be fired by) the president, and its authority to go after “unfair, abusive and deceptive practices” in the financial services industry would be curtailed.

Speaker Paul Ryan spoke of the CHOICE Act as the “crown jewel” of the GOP regulatory agenda, but all concerned expected the bill to be blocked in the Senate. While willing to negotiate, House Financial Services Committee Chairman Jeb Hensarling observed, he didn’t want to negotiate with himself, i.e., try to guess what kind of changes to the bill would be needed to attract 60 votes (there being no available exemption from the filibuster rule) in the Senate.
Ibid.

Over the past six weeks, so far as we have been able to determine, the CHOICE Act has been languishing in a Senate committee with no action of substance being taken. A recent report on the long list of unfinished business Congress will have to face after the August recess doesn’t mention the CHOICE Act – suggesting that it isn’t on the radar screen. Rest up, Congress, there’s a load of work awaiting in autumn, Alan Fram, apnews.com,
8/4/17.

D. Consumer Financial Protection Bureau – Many mistakes were made by financial services firms in the run-up to the 2007-2008 financial crisis, but predatory lending practices (excessive interest rates, unjustifiable service charges, failure to disclose terms, discrimination against certain economic or ethnic factions, etc.) didn’t cause the housing bubble that led to the crisis. To the contrary, lax lending practices were in vogue (and encouraged by various government policies). Many Americans obtained housing loans with terms (amounts, down-payments, interest rates, etc.) that didn’t adequately reflect the lending risks involved, as would become apparent when housing prices started going down instead of up.

Why was the creation of a powerful federal agency to combat predatory practices in the financial services industry included in Dodd-Frank? Simply put, liberals relished the idea of an agency that could bedevil banks, etc., and here was a chance to get it. “Never let a crisis go to waste,” as then White House Chief of Staff Rahm Emanuel put it.

This is not to say predatory practices don’t exist in the financial services industry, nor that government regulations to curb them are inappropriate. But there was already a well-developed regulatory system at the state level, not to mention numerous federal agencies (Federal Housing Finance Agency, Commodity Futures Trading Commission, Federal Deposit Insurance Corporation, Federal Reserve, Office of the Comptroller of the Currency, Office of Thrift Supervision, Securities and Exchange Commission) charged with oversight of the financial markets.

Of course, proposals to change the status of the CFPB at this point must be evaluated in light of the agency’s track record – which its supporters laud as stellar. Democrats: CFPB has saved $12 billion for consumers, mainly through controversial power, Joseph Lawler,
7/24/17.

According to [House Democrats], the bureau has carried out 129 enforcement actions under its authority to police deceptive or abusive practices. Those include instances such as banks tricking customers into incurring overdraft fees, mortgage lenders engaging in false advertising, and similar complaints against credit score companies, payday lenders and other financial institutions. The $10.8 billion figure [aggregate savings for consumers from the foregoing actions] includes not just money that the bureau has returned to customers, but also actions that resulted in the customers having their debt canceled or their balance reduced.

It doesn’t follow, however, that these reported savings have been beneficial for consumers. There is abundant evidence of the CFPB using its sweeping powers and massive resources to bully lenders, which tends to (a) discourage legitimate debt collection efforts, and/or (b) force lenders to incur extra costs (which must be passed on to borrowers if they are going to stay in business). As a result, credit for subprime borrowers may tend to dry up. CFPB under fire, Daniel Kerrick, SAFE newsletter,
Spring 2017.

If any reminder was needed of why conservatives view the CFPB with suspicion, the agency recently provided it by finalizing a rule to bar class-action waivers in arbitration agreements. Dodd-Frank banned the arbitration of mortgage financing disputes, but arbitration agreements are common in other financing arrangements and the new rule was understandably seen as a boon for trial lawyers. Furthermore, according to a Wall Street Journal editorial, issuance of the rule ignored the factual findings of the CFPB’s own study. Richard Cordray’s financial damage, Wall Street Journal,
7/12/17.

Of the 562 class actions the CFPB studied, none went to trial. Most were dismissed by a judge, withdrawn by the plaintiffs or settled out of class. The putative class victims received benefits in fewer than 20% of cases, and the average cash recovery was—wait for it—$32. Lawyers took an average 24% cut of the cash payments (about $424 million) in cases that settled.

Meanwhile, consumers were awarded relief in 32 of the 158 arbitration disputes the bureau examined, and rewards averaged $5,389—or about 57% of every dollar claimed. Consumers who used arbitration received relief on average in two months after filing claims. Class-action members had to wait two years.


The CFPB’s action did not go unnoticed, and the House swiftly voted to undo it. Further, the window of opportunity under the CRA will be open for 60 work days so the Senate can pass the bill without Democratic support. House votes to cancel CFPB rule favoring class action suits in finance, Joseph Lawler,
7/25/15.

Time will tell, but let’s hope Senate Republicans will stick together for a change. Furthermore, repeal of this rule might help build support for the CHOICE Act (or at least the portions thereof pertaining to the CFPB). One can at least dream!

Finally, it was just reported that Republican members of the House Financial Services Committee want CFPB Director Richard Cordray to be held in contempt for the agency’s lack of responsiveness to information subpoenas (re the “no arbitration” rule among other things). House Republicans push for contempt charges against CFPB director, Pete Schroeder, yahoo.com,
8/4/17.


**********FEEDBACK**********

#I think Senate Republicans may be well advised to abide by the legislative filibuster. If they went nuclear, Democrats “would remove all rules barring a 51% vote and change everything they could” as a means of exacting revenge. – SAFE director

Restraint by the GOP while they are in majority won’t necessarily be reciprocated by Democrats when they regain power (experience shows that the political pendulum swings back and forth). Under the current rules, the Senate is ceasing to work as an institution and something needs to change. See, e.g., Kill the filibuster before it’s too late, Andy Biggs, Wall Street Journal, 8/6/17.

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