What Would the Financial CHOICE Act Mean For Fintech?

The Financial CHOICE Act, proposed by Texas Congressman Jeb Hensarling earlier this year, is a measure aimed at overturning or heavily modifying many of the regulations put in place after the 2008 financial crisis.

The act has recently fallen under scrutiny from Wall Street as the president-elect championed a lessening of financial regulation during his campaign, such as the repeal of the Dodd-Frank law passed in 2010. So let’s ask the question: if the CHOICE act is passed, what will it really change for fintechs and the financial world?

Scott Wortman, Partner at law firm Warshaw Burstein, LLP, told Bank Innovation:

My understanding is that the Financial Choice Act is not expected to be adopted this year, but it could serve as a starting point for the debate over financial reform. In this regard, the President Elect has stated he wants to repeal much of Dodd-Frank, though I don’t believe he has detailed what aspects specifically he wishes to repeal or what aspects of the proposed Financial Choice Act he would adopt as part of his platform.

If the president-elect chooses to adopt the Financial CHOICE Act as it currently stands into his platform, the act would make significant changes to financial regulation, including providing “a Dodd-Frank off-ramp for certain banking organizations,” according to this breakdown and analysis by law firm Davis Polk.

Most importantly for fintechs such as marketplace lenders, would make significant changes to the powers and structure of the Consumer Financial Protection Bureau.

According to Wortman, the CFPB, “in its current form, can bring down or cripple any American business, simply by issuing a civil investigative demand. No trial is necessary.”

As previously reported, the structure of the CFPB was found unconstitutional by the United States Court of Appeals; the changes outlined in the Financial CHOICE Act would eliminate many of the points of censure brought up in that decision.

Most notably, the Act would replace the bureau’s single director with “a five-member bipartisan commission,” and would allow respondents which receive a civil investigative demand to “petition in federal court for an order modifying or setting aside the demand.”

These are all major changes and would doubtless have a profound effect on the current financial landscape; however, that relies on the Act being passed as is, and according to Davis Polk, Rep. Hensarling “has stated that he will work towards Financial CHOICE Act 2.0 soon.”

Whether Act 2.0 will be more or less strident than the current version is something we will have to wait and see, but it is clear that regulatory changes will be coming to finance within the next couple of years.

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