Bipartisan legislation focused on easing regulations for small and midsize banks passed the House on Tuesday and headed to President Trump for his expected signature.
Although the bill provides some significant relief for larger financial institutions, it falls short of the sweeping overhaul of the Dodd-Frank post-crisis reforms that Trump and most Republicans wanted.
The beneficiaries of most of the changes are community banks, which have complained that tougher regulations spurred by the 2008 financial crisis have unfairly made it more difficult for them to operate.
They’ll get a break from new mortgage rules if they make fewer than 500 mortgages a year, which supporters of the bill said will give Americans more options for home loans.
And banks with less than $10 billion in assets will be exempted from the regulatory burden of complying with the Volcker Rule, which prohibits institutions from trading for their own profit and limits ownership of risky investments.
“This is a way to keep community banks more viable and have less costs in rules and regulations and spend more of that time, money and resources on customers,” said Paul Merski, executive vice president for congressional relations at the Independent Community Bankers of America, a trade group that strongly backed the legislation.
The bill adds new consumer protections after Equifax Inc.'s massive data breach last year. Credit reporting companies would be required to let consumers freeze and unfreeze their files for free. Active-duty members of the military would also get free credit monitoring.
There’s wide bipartisan agreement on easing some regulations on small banks and expanding consumer protections. But the legislation also helps many larger banks, and that limited Democratic support.
The House voted 258 to 159, with 33 Democrats joining all but one Republican to pass the bill, called the Economic Growth, Regulatory Relief and Consumer Protection Act.
The White House issued a statement ahead of the vote saying Trump’s advisors would recommend he sign the bill.
Opponents focused on a key provision of the legislation that removes Dodd-Frank's mandatory stricter oversight for about two dozen banks with assets of as much as $250 billion. Federal Reserve regulators also will get more flexibility in how they oversee large banks.
“This bill guts many of the protections Democrats put in place to reduce the risks of bank failures and bailouts and ensure that banks don’t bring down the economy,” Rep. Maxine Waters (D-Los Angeles) said in urging her colleagues to oppose the bill.
The financial industry isn’t suffering under Dodd-Frank, she said. Waters noted that the Federal Deposit Insurance Corp. reported Tuesday that U.S. banks had a record $56 billion in profits in the first quarter of the year.
The Dodd-Frank Wall Street Reform and Consumer Protection Act was enacted in the wake of the 2008 financial crisis with almost no Republican support. It was one of President Obama's signature accomplishments.
The legislation toughened bank regulations, sought to avoid future bailouts by creating a process to shut down teetering financial giants, established a powerful panel of regulators to watch for signs of instability and created the Consumer Financial Protection Bureau to oversee credit cards, mortgages and other financial products.
Republicans and bankers complained from the start that the changes were too heavy-handed.
Trump has called Dodd-Frank a “very negative force” in the economy and vowed during the 2016 presidential campaign to dismantle it. One of his early actions upon taking office last year was to order the Treasury Department to review the law and propose changes.
Last June, Treasury Secretary Steven T. Mnuchin recommended a major overhaul. But Democratic support in the Senate was necessary to make changes to the law.
Moderate Democrats wanted to focus on smaller banks and many of Treasury’s recommendations were not included in the bill, which was drafted by Senate Banking Committee Chairman Michael D. Crapo (R-Idaho) along with some of the committee’s Democrats.
Two frequently crticized pillars of Dodd-Frank were left intact.
The legislation does not remove the ability of regulators to designate large firms as a risk to the financial system and to try to shut them down if they’re on the verge of failing without causing spillover effects to other companies as happened in 2008.
And the bill makes no structural changes to the consumer bureau, whose authority Republicans have sought to significantly weaken in part by making its chief serve at the pleasure of the president instead of only being removable for cause.
House Republicans, led by Rep. Jeb Hensarling (R-Texas), had hoped to address those issues. But Senate Democrats made clear they would not support any additional rollbacks.
House leaders agreed not to amend the Senate-passed bill, although they said they would continue to push other legislation to makemore changes to Dodd-Frank.
But the Trump administration has other ways it can alter financial regulation.
Trump appointees to the Federal Reserve and other financial regulatory agencies are preparing to weaken the Volcker Rule for large banks. And Trump appointed Mick Mulvaney as the interim chief of the consumer bureau, where he has significantly scaled back the bureau’s activities.
Still, Hensarling said many provisions in the bill originated in the House and would help more Americans get access to credit.
“This is the most pro-growth banking bill in a generation,” Hensarling said. He lamented, “I wish it did gut Dodd-Frank,” but said it doesn’t.
Democratic opponents of the legislation said there were many good parts of the bill and that some changes in Dodd-Frank were needed. But they said the bill voted on Tuesday contained provisions that would weaken the financial system.
“It’s a bad bill under the guise of helping community banks,” said House Democratic Leader Nancy Pelosi (D-San Francisco).
The legislation would weaken the ability of regulators to enforce fair-lending requirements by exempting 85% of banks and credit unions from Dodd-Frank data-reporting requirements designed to help identify discriminatory practices.
The bill also includes some benefits for Equifax and other credit-reporting companies. They would get immunity from lawsuits over credit monitoring for active-duty service members, and another provision could make it easier for the firms to expand their businesses into providing credit scores for mortgages purchased by Fannie Mae and Freddie Mac.
The Congressional Budget Office estimated that the bill would add $671 million to the federal budget deficit over the next decade, largely because the changes would slightly increase the small chance that a systemically important financial institution would fail or a financial crisis would take place.
But the CBO admitted its estimate "is subject to considerable uncertainty" because of the difficulty of predicting a major bank failure or crisis.