The Republican-led House approved sweeping legislation Thursday to undo much of former President Barack Obama's landmark banking law created after the 2008 economic crisis that caused millions of Americans to lose their jobs and homes.
The largely party-line vote was 233-186, as Republicans argued the rules designed to prevent another meltdown were making it harder for community banks to lend and hampered the economy.
"Our community banks are in trouble," said Speaker Paul Ryan, a Wisconsin Republican. "They are being crushed by the costly rules imposed on them by the Dodd-Frank Act. This law may have had good intentions, but its consequences have been dire for Main Street."
House passage was widely expected, but the Republican overhaul of the 2010 Dodd-Frank law is unlikely to clear the Senate in its current form. Senators have said they'll spend the next few months trying to find common ground on legislation to boost the economy.
President Donald Trump had said he wanted to do "a big number" on Dodd-Frank, and the House vote marked progress toward that goal.
The GOP-led overhaul of Dodd-Frank was crafted by Representative Jeb Hensarling of Texas, chairman of the House Financial Services Committee.
The bill targets the heart of the law's restrictions on banks by offering a trade-off: Banks could qualify for most of the regulatory relief in the bill as long as they meet a strict requirement for building capital to cover unexpected big losses.
Democrats overwhelmingly opposed the Republican bill, saying the Dodd-Frank law has meant financial security for millions of people and that undoing it would encourage the kind of risky lending practices that invite future economic shocks.
They also oppose efforts to sharply curtail a consumer protection agency's power to pursue companies that it determines have participated in unfair or deceptive practices in their financial products and services. The Consumer Financial Protection Bureau has returned $29 billion to 12 million consumers who were victims of deceptive marketing, discriminatory lending or other financial wrongdoing.
Representative Steny Hoyer, a Maryland Democrat, said the bill "takes the referee off the field one more time" and called it a dangerous piece of legislation.
"All we're doing is spending our time taking away protections for the American people and their futures. Have we learned nothing?" Hoyer asked.
Several Democratic lawmakers insisted they were willing to make some changes to Dodd-Frank, but that the Republican bill went much too far.
"The bottom line is we put an end to the Wild West of Wall Street, and were on a nice, steady playing field," said Representative Michael Capuano, a Massachusetts Democrat. "We should be able to adjust it, but we should not throw it out."
The bill would repeal a rule that bans banks from engaging in trading for their own profit using federally insured deposits, or forming certain relationships with private equity funds. It would roll back a proposed rule that investment advisers who collect commissions must put their clients' interests ahead of their own.
Letting banks fail
Also, financial regulators would lose the power to dismantle a failing financial firm and sell off the pieces if they decided its collapse could endanger the system. Instead, the bill would let banks fall under an expanded part of bankruptcy law.
"The big banks are bigger, the small banks are fewer," Hensarling said. "We're losing a community bank or credit union a day."
"We see free checking cut in half at banks. Bank fees are up. The ranks of the unbanked have increased," he said. "For many creditworthy borrowers, they are paying $500 more for an auto loan. Have you tried getting a mortgage recently? They're harder to come by and they cost hundreds of dollars more to close."
Trump started his attack on Dodd-Frank soon after taking office, ordering a Treasury Department review of the complex rules that have put the legislation into practice.
One part of that review is expected to be released soon. It could provide a blueprint for regulators to rewrite the rules. But it would take legislation to revamp the law — and that's far from a certain prospect.
The Federal Reserve has described the U.S. banking system as much more robust and resilient than it was before the financial crisis. Stronger capital requirements have improved banks' capacity to absorb economic shocks. But in the push to overhaul Dodd-Frank, Republicans contend the biggest banks have only gotten bigger while local banks and credit unions are dwindling.
The Fed counted 5,031 commercial banks as of May 1. That's down from 6,750 in the third quarter of 2010, shortly after the financial overhaul. The consolidation trend, however, far preceded that law. In the first quarter of 1984, there were 14,400 commercial banks in the U.S.