What Is the Financial CHOICE Act?

The Financial CHOICE Act is a bill introduced in the United States Congress in 2017 that's designed to roll back regulations set forth in the 2010 Dodd-Frank Act. Republicans have long targeted Dodd-Frank as an example of regulatory overreach, despite some studies suggesting Dodd-Frank was likely responsible for increased financial stability.

Key Takeaways

  • The Financial CHOICE Act repeals provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act and other laws.
  • The bill was passed by Congress in 2017 under the Trump administration, and eliminates several financial regulations put in place following the 2008 financial crisis.
  • Critics argue that the bill creates the same unregulated incentives that led to the last financial crisis and is simply setting the economy up for another.

Understanding the Financial CHOICE Act

Much of the bill focuses on rolling back regulations introduced by the Dodd-Frank Act signed into law in 2010. Dodd-Frank was passed in response to the 2008 financial crisis, which many observers felt was caused by a lack of effective regulations targeting financial institutions.

Some of the Dodd-Frank’s provisions increased transparency into financial products, particularly derivatives, streamlined the regulatory process, eliminated regulatory exemptions, provided for a more orderly winding up of bankrupt firms, and improved consumer protections.

Banks and other financial institutions complained that they were spending a significant amount of resources on complying with the Dodd-Frank’s provisions, and that the benefit from complying with more rigorous standards has not had the intended economic benefit. Wall Street has claimed that removing regulations would make it easier for them to lend, and would invigorate the economy.

After winning control of Congress in 2017, Republicans made unwinding many of the Obama-era laws a top priority. Representative Jeb Hensarling (R-TX), the chairman of the House Financial Services Committee, introduced the Financial CHOICE Act.

The bill passed in the House of Representatives along party lines, 233-186, on June 8, 2017. As of February 2018, the bill has not reached Congress.

Touted as a 'Jobs Bill'

The Financial CHOICE Act has been touted as a “jobs bill” by its proponents. The bill would allow the president of the United States to fire the heads of the Consumer Financial Protection Bureau (CFPB), a consumer watchdog, and Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, at anytime and for any reason.

Much of the bill targets the CFPB. It would also give Congress oversight of the CFPB’s budget, which is currently managed by the Federal Reserve. It would also limit the CFPB’s scope, and would prevent it from prohibiting “unfair, deceptive, or abusive Acts or Practices,” and pushing for restricting arbitration as a resolution mechanism.

The bill would also eliminate the Orderly Liquidation Authority, a provision of Dodd-Frank that allows the federal government to keep large financial institutions from collapsing if the collapse would cause market turmoil.

Critics of the bill have pointed out that rolling back regulations is unlikely to provide the benefits that its proponents have claimed, that returns seen by Wall Street have not been negatively impacted by having to comply with stricter standards, and regulations are not causing economic stagnation. Congressional opponents of the bill are almost exclusively Democrats.