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Regulatory Insiders: Repeal of Dodd-Frank Possible But Unlikely

November 17, 2016

By Gregory Arroyo

WASHINGTON, D.C. — On Tuesday, Republican House Majority Leader Kevin McCarthy of California and 20 other Republican committee heads delivered a letter cautioning government agencies against finalizing pending rules until the inauguration of President-elect Donald Trump, who has stated that he plans to dismantle the Dodd-Frank Act. 

The letter also warned that any finalized regulation would be subject to review and potential reversal under the Congressional Review Act, which gives Congress 60 legislative days to overrule a regulation. Prompting the letter was a promise White House Chief of Staff Denis McDonough made earlier this year. Speaking this past January at a breakfast hosted by The Christian Science Monitor, he said the Obama administration will “do audacious executive action through the course of the rest of the year.”

“As you are aware, such action often involves the exercise of substantial policymaking discretion and could have far-reaching impact on the American people and economy,” the letter stated, in part. “By refraining from acting with undue haste, you will ensure that agency staff may fully assess the costs and benefits of the rules, making it less likely that unintended consequences will harm consumers and businesses.

“Moreover, such forbearance is necessary to afford the recently elected Administration and Congress the opportunity to review and give direction concerning pending rulemakings.”

Automotive trade groups offered a similar message when asked if the election of Donald Trump could mean an end to the industry’s three-year battle with the Consumer Financial Protection Bureau (CFPB) regarding its targeting of dealer participation.

President-elect Donald Trump has said regulatory reform would be one of his three main policy objectives, noting on his administration’s www.greatagain.gov website that his Financial Services Policy Implementation team will be working to “dismantle the Dodd-Frank Act and replace it with new policies to encourage economic growth and job execution.” Trade groups like the American Financial Services Association (AFSA), however, declined to speculate on what that could mean for the auto finance industry.

“It would be inappropriate for the American Financial Services Association to comment on items on the incoming administration’s website,” the association said in a statement issued to F&I and Showroom. “As with any new administration, AFSA looks forward to engaging with members of the new administration to help them understand the issues affecting the auto finance industry and the entire consumer credit industry.”

If possible, repealing the Dodd-Frank Act, which was signed into law on July 21, 2010, is a long way away, say regulatory insiders. They note that there are two ways the Trump administration could reach that conclusion, although they doubt either scenario has a high probability of success.

A constitutional challenge would be one way the Dodd-Frank Act could be undone, although insiders believe that ship has sailed. A federal appellate court did rule in October that the CFPB’s single-director structure is unconstitutional. Although it stopped short of calling for the bureau to be shut down in its ruling, the appellate court did give the president the authority to remove the bureau’s director at will.

The ruling also gave the president the power to supervise and direct the director. However, bureau officials have said the bureau is reviewing its options for challenging the ruling, which means an appeal is likely.

Another possibility is for the Dodd-Frank Act to be repealed and replaced. A replacement bill, the Financial CHOICE Act of 2016 (H.R. 5983), was passed in September by the House Financial Service Committee. The legislation contains language found in 73 other bills introduced during the 114th Congress, including two bills, S. 2663 and H.R. 1737, that aim to repeal the CFPB’s March 2013 guidance on dealer participation. The House bill has remained in a House subcommittee since September. 

One insider said replacing Dodd-Frank would require new federal laws that would have to pass the House and the Senate, noting that the “Democrats are not without power.”

“They can block any Senate measure that doesn’t have 60 votes, unless the Republicans invoke the ‘nuclear option,’ changing the cloture requirement to a bare majority,” the insider said in an email. “Even if they did that, there are a few Republican senators, I think, who would stop far short of dismantling Dodd-Frank.

“If that is correct, any attempt to change Dodd-Frank will have to have bipartisan support to pass the Senate.”

Repealing Dodd-Frank, however, doesn’t necessarily mean the CFPB will be eliminated, as it exists independent of the law that created it. “For our industry, the real question is whether ‘dismantling Dodd-Frank’ means abolishing the CFPB,” the insider said. “I do not think that will happen. The House of Representatives bill that will weaken the CFPB may pass, but the CFPB, I predict, will survive.”

The National Automobile Dealers Association (NADA) declined to comment on the Trump administration’s stated intention to dismantle the Dodd-Frank, but spokesman Jared Allen said the NADA does “generally believe the regulatory environment will be more favorable going forward.”

“What’s most important to NADA is that there is a serious reevaluation of the tact of the CFPB’s regulation of the auto finance market,” he said. “We’ve consistently said that the regulatory process should be open and transparent. And we’re hopeful that a much more open and transparent process is adopted going forward.”

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