On the issue of financial regulation, Donald Trump sounds very much like he does on the NAFTA file. It’s a “disaster,” or “some aspects you could leave,” or a plan will be released that will come “close to a dismantling of Dodd-Frank,” or “we expect to be cutting a lot out of Dodd-Frank.”
Even after the president signed an executive order Friday directing a 120-day review of the Dodd-Frank Wall Street Reform and Consumer Protection Act there’s no street consensus on how much of the act will get undone.
Predictably, the president’s scant specifics are viewed through personal experience. So the fact that “friends of mine that have nice businesses . . . can’t borrow money, they just can’t get any money because the banks just won’t let them borrow because of the rules and regulations of Dodd-Frank” is a problem for the president. Trump was referring there to imposed higher capital standards.
The act is a little more complicated than that. Passed by Congress six years ago, Dodd-Frank covers a vast landscape in its 848 pages, including swap markets, whistle blower protections, mortgage reform, anti-predatory lending and conflict minerals. It was Dodd-Frank’s push for transparency in the chain of minerals fuelling war in the Congo, and Canada’s inaction on the same issue, that prompted an on-the-ground Star investigation of artisanal miners near the Congo’s eastern border.
So what we’re talking about here is legislation far more sweeping than that which affects Trump’s own “friends.”
But let’s stay on that point for a bit.
When Trump referred to the banking woes of his pals, he was speaking at a gathering of his newly formed Strategy and Policy Forum, including JPMorgan Chase CEO Jamie Dimon (“There’s nobody better to tell me about Dodd-Frank than Jamie”) and Larry Fink, CEO of the supersized asset manager BlackStone (“Larry did a great job for me. He managed a lot of my money, and, I have to tell you, he got me great returns last year.”)
What the putative populist has neglected to mention is that Dodd-Frank was of two-fold design: attempting to prevent another financial crisis by reining in the big banks and their risk-taking behaviour was one (who can forget the image of the collapsing Lehman Brothers in the fall of 2008). Protecting the little guy was the other.
The part of the act that’s most vulnerable in Main Street terms is Title X — the Consumer Financial Protection Bureau (CFPB), referred to by White House Press Secretary Sean Spicer as an “unconstitutional new agency that does not adequately protect consumers.”
I have written about the bureau before, both for its clamping down on payday lenders and for the $100-million (U.S.) fine it levied against Wells Fargo for its “illegal practice of secretly opening unauthorized deposit and credit card accounts.” Remember, thousands of Wells Fargo employees were pushed to meet cross-selling sales targets and created phantom accounts to meet those goals. Massachusetts Sen. Elizabeth Warren tore a strip off Wells Fargo CEO John Stumpf before the Senate Banking Committee last September, saying that Stumpf should be both fired and criminally investigated. Stumpf was out the door a month later.
Warren, zealous both in her advocacy for the little guy and her fight for rigorous financial industry regulation, was central to the bureau’s creation. In November, the bank disclosed that the U.S. Department of Justice and the Securities and Exchange Commission were looking into its sales practices.
It would be interesting to case study duped Wells Fargo clients to see how many voted for Trump in the belief that he would be the standard bearer for the average American once elected. To date the CFPB has collected $11.7 billion as a result of enforcement actions, and itemizes on its web page actions against misleading reverse mortgage advertising, pawnbrokers failing to disclose the true cost of loans, improper debt collection practices and on and on.
As critics of the bureau point out, the Los Angeles Times first broke the story of the sales culture at Wells Fargo. Perhaps giving newspapers the power to take enforcement action and levy fines is the answer to the media’s financial challenges. That’s not going to happen. But a diligent free press and a well-armed consumer protection agency does make a potent force.
The CFPB was a Republican target before Trump’s election. In October, the U.S. Court of Appeals declared the bureau’s single-director model unconstitutional, which could clear the way, if upheld, for Trump to remove Richard Cordray as head of the agency and introduce a commission model.
Jeb Hensarling, the Republican chair of the Financial Services Committee, has been pushing to rename the bureau the Consumer Financial Opportunity Commission, with a mandate to protect not just consumers but markets.
Undoubtedly, the president’s friends will like the sound of that. It’s the rest of us who won’t much like how it feels.
jenwells@thestar.ca
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