The Republican-led House approved sweeping legislation Thursday to undo much of former President Barack Obama's landmark banking law created after the 2008 economic crisis that caused millions of Americans to lose their jobs and homes.
The largely party-line vote was 233-186, as Republicans argued the rules designed to prevent another meltdown were making it harder for community banks to lend and hampered the economy. No Democratic lawmakers supported the measure; only one Republican opposed it.
"Our community banks are in trouble," said Speaker Paul Ryan, R-Wis. "They are being crushed by the costly rules imposed on them by the Dodd-Frank Act. This law may have had good intentions but its consequences have been dire for Main Street."
House passage was widely expected, but the Republican overhaul of the 2010 Dodd-Frank law is unlikely to clear the Senate in its current form. Senators have said they'll spend the next few months trying to find common ground on legislation designed to boost the economy. Potential areas for compromise include changes to how much capital banks must maintain and decreasing the paperwork burden for small lenders.
President Donald Trump had said he wants to do "a big number" on Dodd-Frank, and the House vote marks progress toward that goal.
The overhaul bill targets the heart of the law's restrictions on banks by offering a trade-off: Banks could qualify for most of the regulatory relief in the bill so long as they meet a strict requirement for building capital to cover unexpected big losses.
Democrats defended the Dodd-Frank law, saying it has meant financial security for millions of people and that undoing it would encourage the kind of risky lending practices that invite future economic shocks.
They also oppose efforts to sharply curtail a consumer protection agency's power to pursue companies that it determines have participated in unfair or deceptive practices in their financial products and services. The Consumer Financial Protection Bureau has returned $29 billion to 12 million consumers who were victims of deceptive marketing, discriminatory lending or other financial wrongdoing.
"All we're doing is spending our time taking away protections for the American people and their futures. Have we learned nothing?" asked Rep. Steny Hoyer, D-Md.
Several Democratic lawmakers insisted they were willing to make some changes to Dodd-Frank, but that the Republican bill went much too far.
"The bottom line is we put an end to the Wild West of Wall Street, and were on a nice, steady playing field," said Rep. Michael Capuano, D-Mass. "We should be able to adjust it, but we should not throw it out."
The bill would repeal a rule that bans banks from engaging in trading for their own profit using federally-insured deposits, or forming certain relationships with private equity funds. It would roll back a proposed rule that investment advisers who collect commissions must put their clients' interests ahead of their own.
Also, financial regulators would lose the power to dismantle a failing financial firm and sell off the pieces if they decided its collapse could endanger the system. Instead, the bill would let banks fall under an expanded part of bankruptcy law.
The overhaul of Dodd-Frank was crafted by Rep. Jeb Hensarling of Texas, chairman of the House Financial Services Committee. Hensarling said that consumers have suffered as a result of Dodd-Frank.
"We see free checking cut in half at banks. Bank fees are up. The ranks of the unbanked have increased," he said. "For many credit-worthy borrowers, they are paying $500 more for an auto loan. Have you tried getting a mortgage recently? They're harder to come by and they cost hundreds of dollars more to close."
Trump started his attack on Dodd-Frank soon after taking office, ordering a Treasury Department review of the complex rules that have put the legislation into practice.
One part of that review is expected to be released soon. It could provide a blueprint for regulators to rewrite the rules. But it would take legislation to revamp the law — and that's far from a certain prospect.
The American Bankers Association applauded the House vote, saying the bill would "fix financial rules that are holding back the U.S. economy, and doing little to enhance safety and soundness." Consumers Union criticized the vote and called on the Senate to "reject this rollback of critical consumer protections." AARP also was among groups opposing the bill.
Rep. Walter Jones of North Carolina was the only Republican to vote against the bill.
The Federal Reserve has described the U.S. banking system as much more robust and resilient than it was before the financial crisis. Stronger capital requirements have improved banks' capacity to absorb economic shocks. But in the push to overhaul Dodd-Frank, Republicans said the biggest banks have only gotten bigger while local banks and credit unions are dwindling. Most of the reduction in the number of banks is due to mergers. Actual bank failures have fallen sharply since the end of the financial crisis, to about five or six a year. That compares with 157 at the peak in 2010.
Fed data show that the trend toward mergers far preceded the Dodd-Frank law. In the first quarter of 1984, there were 14,400 commercial banks in the U.S. As of May 1, there were 5,031.