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Bill to loosen financial rules would save $24 billion — and slash consumer protection bureau funds

Bill to loosen financial rules would save $24 billion — and slash consumer protection bureau funds
Rep. Jeb Hensarling (R-Texas), chairman of the House Financial Services Committee, speaks during a Capitol Hill hearing on May 2. (Manuel Balce Ceneta / Associated Press)

The House Republican legislation scaling back Dodd-Frank financial regulations would reduce federal budget deficits by $24.1 billion over the next decade — in part by slashing funding for the Consumer Financial Protection Bureau, according to an estimate by the nonpartisan Congressional Budget Office.

The Financial Choice Act, which was approved by a House committee this month, would subject the bureau to the congressional appropriations process instead of allowing it to draw the funds it needs directly from the Federal Reserve. That change would reduce federal spending by $6.9 billion from 2018 through 2027, the CBO said in a report issued Friday.

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The bureau received $565 million in the 2016 fiscal year. Under current law, funding is expected to rise each year.

The House Republican legislation would reduce the bureau's funding to $485 million in 2018, and the CBO estimated that Congress would keep annual funding at about that level, adjusting for inflation, over the next decade.

The consumer bureau has recovered nearly $12 billion for 29 million consumers since it began operation in 2011, and it played a key role in sanctioning Wells Fargo & Co. for its unauthorized-accounts scandal.

Ed Mierzwinski, consumer program director at the U.S. Public Interest Research Group, said the legislation's backers want to "brutally" cut the bureau's budget.

"They place reducing the deficit over the needs of families and consumers," he said.

The legislation's author, Rep. Jeb Hensarling (R-Texas), has been an outspoken critic of the consumer bureau — he says its regulations on credit cards, mortgages and other lending reduce access to credit.

His bill, which faces tough odds in the Senate, would reduce the bureau's power, allow the president to replace its director for any reason and rename it the Consumer Law Enforcement Agency.

Hensarling argues that the director of the independent agency is too powerful because of a five-year term that allows removal only "for cause," such as neglect of duty.

Supporters of the consumer bureau say the director, who requires Senate confirmation, needs to be protected from political interference. They also say the bureau has enacted regulations that are needed to prevent the predatory lending and other abuses that helped cause the Great Recession.

The biggest cost savings from Hensarling's bill — $14.5 billion — would come from eliminating regulators' ability to shut down large financial firms if they were on the verge of failing, the CBO said. That ability is known as "orderly liquidation authority."

But the CBO warned that its "estimates are subject to considerable uncertainty, in part because they depend on the probability in any year that a systemically important firm will fail."

Orderly liquidation authority, along with creation of the consumer bureau, was a pillar of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. The provision gives regulators the ability to use taxpayer money to wind down a company whose failure would threaten the stability of the financial system.

The money is supposed to be recouped from the sale of the company's assets or an assessment on the financial industry. But critics of Dodd-Frank have called the process a taxpayer-funded bailout.

The CBO said the probability of such a failure is small in any given year but that "the potential cash flows would probably be large."

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President Trump, who has vowed to dismantle Dodd-Frank, has directed Treasury Secretary Steven T. Mnuchin to specifically look at the orderly liquidation authority as part of a broader review of potential changes to the law.

Hensarling said Friday's CBO report showed that his legislation should be enacted.

"The Financial Choice Act ends bank bailouts forever, holds Wall Street and Washington accountable, unleashes America's economic potential and reduces the deficit by billions," he said. The bill would replace the liquidation authority by enhancing bankruptcy laws.

Hensarling, chairman of the House Financial Services Committee, also touted a finding by the CBO that the largest banks would be unlikely to take advantage of one of the legislation's key features.

Banks could avoid tougher regulatory oversight if they held capital that was at least 10% of their assets. The current requirement is 3% for most banks and 6% for institutions considered systemically important.

The CBO estimated that the nation's eight largest banks — including JPMorgan Chase & Co., Citigroup Inc. and Bank of America Corp. — would be unlikely to choose the option. Hensarling said that finding shows the legislation would help community banks and credit unions, not big banks.

Twitter: @JimPuzzanghera

UPDATES:

11:35 a.m.: This article was updated with additional details and with comment from Ed Mierzwinski.

This article was originally published at 10:25 a.m.

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