Push for Deregulation Puts Big Banks Against Consumers

Two major issues that surfaced during February were the possibility of the Federal Reserve raising the benchmark interest rate “fairly soon,” and the Trump Administration’s promise to undo many of the Dodd-Frank financial reforms of 2010. Throughout the month, the stock market rally continued to show strength, with the financial sector benefiting more than any other based on expectations that the Trump Administration will slash regulations that the President has deemed too onerous. Dodd-Frank aroused the ire of powerful enemies within the finance sector from the get-go, and certain Republicans have been trying to hobble the Consumer Financial Protection Bureau since its inception in 2012. Here’s a summary of the debate surrounding these two topics.

Financial Deregulation

President Trump has taken aim specifically at the Dodd-Frank reforms and put into motion a 120-day review of financial regulations to assess whether they meet “core principles.” It is considered unlikely that the Trump Administration will be able to achieve anything like a full repeal of the Dodd-Frank Act, which was created in response to the financial meltdown of 2007-2008. While pro-regulation politicos agree that simplification and principle-based regulations would help streamline the regulatory process, they are alarmed that oversimplifying banking regulations will end up seriously hobbling regulatory agencies, and that the overhaul will eliminate the only Federal Agency that protects consumers interests from unscrupulous lenders.

Critics argue that Wall Street bankers caused the crisis in the first place and that shackling independent regulators would give bankers free rein to cause another disaster in the not-so-distant future. They urge lawmakers to remember that, prior to the creation of the Consumer Financial Protection Bureau, neither the Federal Reserve nor the Office of the Comptroller of the Currency were involved in any meaningful consumer protection. By March 2007, when the enormity of the problem was evident, the Fed’s recommendation to banks that “communications with consumers should provide clear and balanced information about the relative benefits and risks of the products” was considered a mild rebuke that carried no real weight. 

Critics have also pointed to the weakness of Trump’s argument that bank credit – which he claims is tight as a result of onerous banking regulation – has meant that businesses can’t get loans, noting that recent records show that banks in fact are lending more not less. Banks have the deep pockets to pay the costs of compliance, though it is true that the financial costs of compliance have been more onerous for smaller lenders. The Consumer Financial Protection Bureau’s pursuit of wrongdoing by big banks, consumer credit reporting agencies, credit card issuers, student loan collection agencies, and financial institutions has benefited consumers. It is equally obvious that big finance will continue to lobby hard to gut it and to dismantle many other regulatory safeguards created by Dodd-Frank.

The Federal Reserve

The solid performance of the markets during the winter months probably will encourage the Fed to begin raising its benchmark interest rate soon. Although the minutes from the Fed’s most recent meetings stopped short of suggesting announcing an increase at the March meeting, they noted a high level of optimism amongst the business community – and that the second half of 2016 had seen an average job creation of 190,000 per month.

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