The House of Representatives took a step toward wiping out Dodd-Frank banking reforms Thursday by passing the Financial Choice Act of 2017. Here’s a look at what the bill is, where it stands and how it could affect your wallet.
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What it is
The House voted to roll back core parts of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act passed after the Great Recession of 2007-09. That wide-sweeping law brought a number of restrictions, including preventing commercial banks — those that offer federally insured checking and savings accounts — from putting client money into risky investments such as hedge funds and proprietary trading.
The Financial Choice Act would let banks that have a healthy enough balance sheet avoid some of these restrictions. It would also weaken other financial industry regulations as well as consumer protections.
What it isn’t
The Financial Choice Act is not law. Republicans were responsible for passage in the House, and the bill’s chances in the Senate in its current form are slim because Republicans aren’t expected to get enough votes to approve it.
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The bill is worth paying attention to, however, because any regulatory changes could affect the way banks do business with their customers.
What it could mean for you
- Less protection from a consumer watchdog agency. If it becomes law, the Financial Choice Act would diminish the power of the Consumer Financial Protection Bureau to enforce consumer protection laws. This would affect the work of the CFPB, which recently reached a settlement on behalf of Wells Fargo customers. The bank agreed to pay over $100 million in fines and refunds for opening unauthorized consumer bank accounts. Since its formation in 2010, the CFPB has collected consumer complaints against financial institutions, many of which resulted in fines and settlements. (Disclosure: NerdWallet CEO Tim Chen is a member of the CFPB Consumer Advisory Board.)
- It could be easier to get loans. Many consumers found that the easy credit environment before the financial crisis changed to one in which it was tough to get approved for a mortgage or credit cards. “The pendulum may swing more to the middle” with changes to Dodd-Frank and encourage banks to offer more loans, says Christopher Krell, a certified financial planner and principal at Virginia financial advisory firm Cassaday and Co. Easier credit could come at the risk of fewer safeguards, however, if consumer protection laws aren’t enforced.
- Your investment advisor may not put your needs first. The bill would repeal the Labor Department’s fiduciary rule requiring advisors to act in their client’s best interest when offering retirement savings advice.
- No federal oversight of payday loan companies. The bill would remove federal oversight of payday loan merchants and similar companies. Payday lending is highly controversial and effectively banned in more than a dozen states.
The Financial Choice Act is a major first step toward repealing many Dodd-Frank regulations. It remains to be seen if the bill will become law, but it has the potential to affect anyone with a bank account or a loan.