Financial CHOICE Act: Boon for Business, Bane for Individual Investors

Update: On June 8, 2017, The House of Representatives passed the Financial CHOICE Act, which rolls back the Dodd-Frank Wall Street Reform and Consumer Protection Act implemented in 2010. However, it is not expected to gain enough votes to pass in the Senate.

On May 4, 2017, the House Financial Services Committee approved the Financial CHOICE Act. The bill would undo provisions of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, which placed regulations on financial institutions to increase the nation’s financial stability through accountability and transparency. 

The Financial CHOICE Act would:

• Impose stiffer penalties for financial fraud;
• Prohibit the federal government from deeming a bank “too big to fail”;
• Eliminate bailouts of institutions on the brink of collapse;
• Weaken the Consumer Financial Protection Bureau, allowing for removal of the director at will;
• Propose a repeal of the Durbin amendment, which caps the fees that banks can charge retailers for debit card transactions;
• Allow banks with sufficient assets to opt out of certain regulations; and
• Repeal the Department of Labor’s fiduciary rule. 

Passage of this legislation could lead to more opportunity for small businesses, but relinquishes some consumer protections as a consequence.

Less government regulation could spur business growth, set back individuals

Supporters of the bill argue that governmental regulation of financial institutions inhibits opportunities for business growth because of restricted access to credit and capital. Small banks may benefit from less regulation, reducing the cost of doing business. They may enjoy a more competitive market compared with large institutions. 

Repeal of the fiduciary rule is expected to change how financial advisers and broker-dealers work with individuals regarding investment products and compensation structures. Dodd-Frank requires financial advisers to act in the best interests of their clients regarding investment accounts. That law was established to shield workers and retirees from inappropriate, high-cost investments that could eat into retirement savings. However, those opposing Dodd-Frank say the rule incentivizes financial advisers to drop investors with modest retirement accounts.

The Financial CHOICE Act would also severely restrict the Securities and Exchange Commission’s (SEC’s) power to enforce regulatory breaches. SEC enforcement authority would be formalized, requiring greater due process, analysis, and reporting by the agency and applying greater oversight by multiple agencies.

CHOICE Act looks to weaken consumer protection laws

Bank regulation is a hot-button topic. After the U.S. financial crisis in the late 2000s, banks and other monetary institutions faced tighter controls on their actions. Reducing regulations, as the Financial CHOICE Act would do, could spur new businesses startups, new jobs, and easier access to credit for individuals and companies. But will there be proper enforcement of consumer protection laws?

The Financial CHOICE Act will head to the House of Representatives for a vote. Observers speculate, however, that the chance of passage is low.

Paychex will monitor this issue and post pertinent updates. Financial advisors: Learn more about our retirement services, as well as products and services for your clients.