President Donald Trump’s executive order demanding an official review of the Dodd-Frank Wall Street Reform and Consumer Protection Act is his first real step toward fulfilling a promise he made in his campaign to overhaul the banking rule. The executive order, which President Trump signed Friday, will direct the Treasury secretary to consult members of different regulatory agencies and the Financial Stability Oversight Council, and report back on potential changes.
Former House Representative Barney Frank (D-Massachusetts) spoke to DS News on Friday, saying Trump's latest executive order confirms his suspicions that Trump has no intention of maintaining strong regulatory controls over the financial industry.
"He's not worried about a repeat of 2008," Frank said. "I think this is just confirmation that he believes we shouldn't regulate the financial industry. Instead, he's going to make people in business very happy."
Frank first introduced the Act into the House of Representatives in 2009, which passed in the Senate with the help of co-author Sen. Chris Dodd (D-Connecticut). It was signed into law by President Barack Obama on July 21, 2010.
Frank said the executive order itself is no real threat to Dodd-Frank itself, as it only orders the Secretary of the Treasury to prepare a report.
"The executive order doesn't do anything. Literally it doesn't do anything," he said. "The reason is, he can't change the provisions of the law by executive order. These are specific statutes, I think we were very careful about adopting them. He would like to get Congress substantively to weaken the bill legislatively."
Frank expressed his skepticism that repeal of financial reform will succeed in Congress.
"Financial reform is very popular," Frank said. "When the Republicans were in power under President Obama, they kept voting to repeal the healthcare bill entirely but they never put the vote to the floor to repeal financial reform because the public supports financial form.
"He's not going to get this through the Congress, I believe," Frank said.
Several members of the industry voiced their approval for the president’s order, while others expressed concern and called for caution.
“It’s promising that President Trump is taking a proactive stance on re-examining regulations,” said Ed Delgado, President and CEO of the Five Star Institute and former Wells Fargo and Freddie Mac executive. "Dodd-Frank as it stands was well intended, but is complex and overbearing upon implementation and execution.”
Trump also signed a presidential memorandum instructing the Labor Department to delay an Obama-era rule requiring financial professionals to put their clients' interests first when giving advice on retirement investments.
Brian Montgomery, former FHA Commissioner and Vice Chairman of the Washington D.C.-based think tank The Collingwood Group, echoed Delgado’s sentiment on potential changes to Dodd-Frank.
“During the campaign, I am fairly certain candidate Trump didn’t say he supported fewer consumer protections, however he did make clear that changes were needed to Dodd-Frank and his recent comments signal that it's time for a common-sense approach to regulation,” Montgomery said. “For one, the barrage of rules targeted at mortgage bankers has required them to spend hundreds of millions in technology upgrades most of which have nothing to do with improving the actual customer experience.”
Montgomery said one independent banker told him he spends 75 percent of his IT budget on Dodd-Frank mandated changes alone.
“The new regulatory regime has also driven up the cost to originate a mortgage loan to $7,046 in 2015 up from $4,500 in 2008,” he said. “This creates two major problems—lenders remain fearful of loan defaults and the heavy-handed government intrusion that follows and will only lend to borrowers with pristine credit, and it's now uneconomical for them to originate smaller balance mortgages.”
However, not all responses to a possible regulatory reduction were positive.
Wade Henderson, president and CEO of The Leadership Conference on Civil and Human Rights, took an opposing stance on the president’s order.
“Making the financial system more fair and transparent is essential to providing low-income and minority communities with more economic stability,” Henderson said. “Over the past decade, our country has learned hard lessons about what happens when the game is rigged and regulators turn their backs to reckless subprime mortgages, payday loan debt traps, and shady bank account fees. President Trump seems bent on forgetting those lessons and on betraying the people he professed to represent when he talked about a ‘rigged’ system.”
Many of the Act’s supporters point to the billions of dollars returned to U.S. consumers through regulatory actions mounted by the Consumer Finance Protection Bureau, an agency created by the Act whose future is currently in doubt.
Lisa Donner, executive director of Americans for Financial Reform, agreed with Henderson, calling the order a “betrayal” of Trump’s campaign promises to keep Wall Street in check.
“Wall Street titan Goldman Sachs seems to be taking over financial regulation in the United States, trying to make it easier for them and other big banks like Wells Fargo to steal from their customers and destabilize the economy,” Donner said. “If they succeed it will have painful consequences.”
Dan Berger, President and CEO of the National Association of Federally-Insured Credit Unions (NAFCU) said they welcome regulators reviewing Dodd-Frank but also that they would continue to support and press the CFPB to use its authority to exempt credit unions from the regulations created to address abuses in which they did not engage.
“Ultimately, we look forward to the administration, Congress and the regulators working together to reduce regulatory burden,” Berger said. “We will continue to advocate for credit unions’ best interests as this review moves forward.”