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Trump orders review of Dodd-Frank financial regulations, suspends retirement advisor rule

President Trump took a first step toward relaxing financial regulations Friday, ordering agencies to review two key Obama-era measures that were designed to protect consumers and the nation’s financial system but have drawn the ire of Wall Street and Republican lawmakers.

In calling for a review of the landmark Dodd-Frank Wall Street Reform Act —  as well as a separate rule that seeks to limit conflicts of interests by personal investment managers — the Trump administration is putting to the test whether it can meld the president’s populist message with moves cheered by Wall Street.

At a White House meeting with top corporate chief executives, including Jamie Dimon of JPMorgan Chase & Co., Trump vowed Friday that major reductions in financial regulations were coming — and signaled his intention to rely on Wall Street for advice on the matter.

“There’s nobody better to tell me about Dodd-Frank than Jamie,” Trump said before the meeting began.

He added that “we expect to be cutting a lot out of Dodd-Frank because frankly, I have so many people, friends of mine that had nice businesses, they can’t borrow money.”

“They just can’t get any money because the banks just won’t let them borrow it because of the rules and regulations in Dodd-Frank,” Trump said.

After the CEO meeting, Trump signed an executive order directing the Treasury secretary to consult with regulators about what needs to be done to fix the Dodd-Frank Wall Street Reform and Consumer Protection Act and to report back. That report is due in four months.

Trump’s nominee for Treasury secretary, Steve Mnuchin, has not yet been confirmed by the Senate. He could get a full Senate vote next week.

Jaret Seiberg, an analyst with brokerage and investment bank Cowen & Co., noted in a report Friday that the executive order may have little or no effect for some time.

“What this means is that the White House today is setting the stage for actions later in its first term,” Seiberg wrote. “This is a process that could easily drag into 2019 before banks see material changes in the regulations.”

Congressional Republicans and major financial firms have complained for years about Dodd-Frank. 

Passed in 2010 in the wake of the financial crisis, the legislation toughened capital requirements for financial firms, set up 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.

Trump has called Dodd-Frank “a very negative force” in the economy and vowed during the campaign to dismantle it. In particular, he has echoed industry complaints that rules aimed at curtailing risk have caused banks, especially smaller institutions, to cut back on lending.

The executive order does not call for any specific changes to Dodd-Frank, but rather says that the nation’s financial regulations should be based on several key principles.

The principles in the order call for financial regulators to focus on the health and vibrancy of the nation’s financial markets, not only on limiting risk and consumer harm, said Brian Knight, a research fellow at the free-market think tank Mercatus Center at George Mason University.

“It doesn’t lead with the notion of stability or protection,” Knight said. “It is a document that is moving away from the ‘avoid risk first’ model toward a ‘let’s have a vibrant, dynamic economy’ model.”

The executive order says regulations should prevent taxpayer-funded bailouts, foster economic growth, “enable American companies to be competitive with foreign firms” and advance U.S. interests in international financial regulatory matters.

Predictably, consumer groups called Friday’s move a clear sign that Wall Street will now get to write its own rules, while industry groups — including the U.S. Chamber of Commerce, the American Bankers Assn. and the Financial Services Roundtable — said that the easing of financial regulations would make it easier for banks to lend.

“Today marks the first step towards mending the dysfunctional regulation of the past and helping Main Street with the financing needed for growth and job creation,” U.S. Chamber President Thomas Donohue said in a statement.

Laura MacCleery, vice president of consumer policy and mobilization for Consumer Reports, had an opposite take, saying rolling back elements of Dodd-Frank would have dire consequences for American families and the economy.

“Dodd-Frank was put into place to raise standards for financial firms and ensure consumers are treated more fairly and honestly,” she said in a statement. “If we roll back these critical standards, we will once again be putting consumers and the economy at an intolerable risk.”

Though written in broad terms, the order appears to target the Consumer Financial Protection Bureau in particular. It says financial regulation should “empower Americans to make independent financial decisions” and “restore public accountability within federal financial regulatory agencies.”

Critics of the CFPB argue the bureau lacks proper accountability because it is run by an independent director without congressional oversight or control of its purse strings. They also contend that the bureau has sought to protect consumers by limiting their choices.

“My primary problem with the CFPB is that they appear to view part of their mandate to be to protect people from themselves,” Knight said.

Scott Pearson, a partner in the Century City office of law firm Ballard Spahr who focuses on financial regulatory issues, said that the executive order seems consistent “with the deregulatory signals the administration has sent” and that the consumer bureau is clearly one of the targets.

“This is a shot across the bow of the CFPB; there’s no doubt about that,” he said.

The agency has been praised by Democrats and consumer advocates for cracking down on abuses by financial firms. It was a key player in the $185-million settlement that Wells Fargo & Co. agreed to pay last year for the creation of as many as 2 million accounts without customer authorization.

Trump’s other focus on Friday was a rule set to take effect in April affecting retirement advisors. In a memo to the Labor Department, he called for a review of the rule. But it’s unlikely that review would be complete by April, meaning the rule could be suspended. Trump’s Labor secretary nominee, Andy Puzder, has yet to have a confirmation hearing.

Known as the fiduciary rule, it requires investment brokers who handle retirement funds to put their clients’ interests ahead of other factors, such as their own compensation or company profits.

The Labor Department rule was designed to prevent consumers from being steered toward IRAs and other retirement investments with higher fees or lower returns that benefit the advisors recommending or selling them. 

The Obama administration estimated that those conflicts of interest cost Americans $17 billion a year.

But opponents, including key players in the financial industry, say it would drive up the cost of investments by forcing asset management firms to spend money on implementation and make it more difficult for average Americans to get retirement advice.

White House Press Secretary Sean Spicer echoed those sentiments Friday, calling the rule a “regulatory overreach” by the Department of Labor.

“The rule’s intent may be to have provided retirees and others with better financial advice, but in reality, its effect has been to limit the financial services that are available to them,” Spicer said. “President Trump does not intend to put unnecessary limits on economic opportunity.” 

Congress voted last spring to overturn the rule, but Obama vetoed the measure.

Barbara Roper, director of investor protection for the Consumer Federation of America, has said the rule would counter a “toxic web of financial incentives” for brokers, insurance agents and anyone else offering retirement investment services that often run counter to the consumer’s best interests.

Financial companies, including Wells Fargo & Co., recorded big stock gains on the announcement during a day when a positive January jobs report also boosted the market. The Dow Jones industrial average jumped 187 points for its best performance in nearly two months.

Times staff reporter James Rufus Koren contributed to this article.

jim.puzzanghera@latimes.com

Follow @JimPuzzanghera on Twitter

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UPDATES:

3:10 p.m.: This article was updated with a comment from White House spokesman Sean Spicer and additional details about the fiduciary rule. 

1:50 p.m. This article was updated to reflect that the language of the final order did not include the principle to “make regulation efficient, effective and appropriately tailored.”

1:35 p.m. This article was updated with comments from the U.S. Chamber of Commerce, Consumer Reports, attorney Scott Pearson and research fellow Brian Knight.

11 a.m.: This article was updated with comments from Trump.

10:30 a.m.: This article was updated to note that Trump has signed the order and memo.

This article was originally published at 2:30 a.m.

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