Should banking expect the end of Dodd-Frank? Maybe, but probably later rather than sooner.
President Trump’s stance on financial regulation has been clear from the campaign trail. Though the President has expressed a wish for the overhaul or even the removal of regulation—promising to cut 75% of the existing ones—when it comes to the Dodd-Frank rule, actually disbanding the law would prove…challenging.
“[Dodd-Frank] was massive, it was enormous,” said Pam Perdue, chief regulatory officer for the regtech firm Continuity. “Even if an executive order went out tomorrow that said, ‘this law is [gone], don’t enforce it,’ that would require undoing almost 300 regulations, and an order like that would almost certainly be subject to judicial review. I would encourage the industry not to speculate on the removal of Dodd-Frank, because I’m not sure much is going to happen with it. Moving forward in the real world outside of ideology is going to be difficult.”
For fintechs, removal of the Dodd-Frank and other regulations would narrow the regulatory capabilities of agencies such as the Consumer Financial Protection Bureau, or CFPB, which could have quite an impact on online lenders and other fintechs.
Scott Wortman, partner at Warshaw Burstein, LLP, told Bank Innovation:
…I’m fairly certain that most fintechs are for reducing arbitrary regulation — leading to gratuitous lawsuits, where the cost of defense is ultimately passed down to the consumer… the CFPB has been a surprising supporter of fintech innovation related to providing access to credit to 45 million consumers with little to no credit history. On the other hand, given the CFPB’s penchant for issuing thousands of pages of unrestrained regulations based on unverified consumer complaint statistics, and the CFPB’s legal actions taken against fintech companies, especially online lenders – any mitigation of unnecessary regulation could encourage fintechs to take bold and prudent steps to resolve and disentangle uncertainty in the credit markets.
According to Wortman, the President’s opening move is not likely to be an executive order completely repealing Dodd-Frank (which, as reported above, would be a massive undertaking) but rather the replacement of CFPB Director Cordray.
The Republican stance on financial regulation is normally for a lighter hand, a stance in keeping with President Trump’s recent executive order mandating the removal of two past regulations for any agencies adding one. On the campaign trail, Trump said he would reinstate Glass-Steagall, and Treasury Secretary-designate Mnuchin has affirmed this may be the path the administration follows. The act, passed in 1933 and repealed in 1999, prevented banks from combining deposit-taking and lending from investment banking.
According to Perdue, Trump’s executive order means acts such as the proposed OCC charter for fintechs are unlikely to get much traction, and this executive order doesn’t necessarily mean regulatory bodies such as the CFPB will start removing regulation.
“What we’re going to see is, rather than the agencies try to [remove] regulations, they’re going to put a stop on creating new things,” said Perdue. “I see a shift to enforcing the rules that are already there.”
The regulatory framework of the U.S is over 100 years old, and an average of 300 new regulations per year specific to banks and credit unions are passed each year, according to Perdue, often without addressing the needs of technology and innovation within fintech.
“We live on the razor’s edge—we need to innovate, and sometimes regulation gets in the way of it,” said Perdue, adding that the “fundamental” challenge for the future of the industry would be bridging the gap between regulatory experts and technologists. “What would benefit our industry the most would be a standardization of the regulatory framework for compliance.”
**Updated Feb. 3rd: Today the White House has stated its intention to repeal the law, though the executive order reportedly will not dismantle it immediately, but rather conduct an investigation to learn how that might be accomplished.**
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