The Financial CHOICE Act in the 115th Congress: Selected Policy Issues

Summary

The Financial CHOICE Act (FCA; H.R. 10) was introduced on April 26, 2017, by Representative Jeb Hensarling, chairman of the House Committee on Financial Services. It was ordered to be reported by the House Committee on Financial Services on May 4, 2017. The bill, as amended, is a wide-ranging proposal with 12 titles that would alter many parts of the financial regulatory system. Much of the FCA is in response to the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act; P.L. 111-203), a broad package of regulatory reform following the financial crisis that initiated the largest change to the financial regulatory system since at least 1999. Many of the provisions of the FCA would modify or repeal provisions from the Dodd-Frank Act, although others would address long-standing or more recent issues.

This report highlights major proposals included in the FCA but is not a comprehensive summary. In general, the bill proposes changes that can be divided into two categories: (1) changes to financial policies and regulations and (2) changes to the regulatory structure and rulemaking process.

Major policy-related changes proposed by the FCA include the following:

Leverage Ratio—allowing a banking organization to choose to be subject to a higher, 10% leverage ratio in exchange for being exempt from risk-weighted capital ratios, liquidity requirements, and other regulations.

Regulatory Relief—providing regulatory relief throughout the financial system to banks, consumers, and capital market participants, including by repealing the Volcker Rule, Durbin Amendment, fiduciary rule, and risk retention requirements for nonmortgage asset-backed securities.

Too Big To Fail—repealing the designation of systemically important nonbank financial institutions and emergency assistance and replacing an option for winding down systemic institutions with a new chapter in the Bankruptcy Code that is tailored to financial firms.

Structural and procedural changes that affect the balance between regulator independence from and accountability to Congress and the judiciary include the following:

Funding—subjecting regulators that currently set their own budgets to the traditional congressional appropriations process.

Rulemaking—requiring regulators to perform more detailed cost-benefit analysis when issuing new rules and to use cost-benefit analysis to review existing rules, as well as requiring congressional approval for a major rule to come into effect.

Judicial Review—requiring courts to apply a heightened judicial review standard for agency actions taken by financial regulators rather than applying varying levels of deference to the agencies’ interpretations of the law.

Enforcement—increasing the maximum civil penalties that could be assessed for violations of certain banking and securities laws and restraining certain agency enforcement powers.

CFPB—replacing the Consumer Financial Protection Bureau with the Consumer Law Enforcement Agency and modifying its powers, leadership, mandate, and funding.