Wharton’s Peter Conti-Brown discusses the future of financial regulation.

The Affordable Care Act arguably is not President Barack Obama’s only signature legislation. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 — a comprehensive package of financial reform laws that was borne out of the Great Recession — also was signed into federal law during his time in office. Republicans have been trying to undo the act for years. But now that the GOP is in charge of Congress and the White House, the future of financial regulation is less clear. Peter Conti-Brown, Wharton professor of legal studies and business ethics, recently published a Penn Wharton Public Policy Initiative brief on this subject titled, “The Presidency, Congressional Republicans, and the Future of Financial Reform.” He spoke about where financial reform is heading under the Trump administration on the [email protected] show on Wharton Business Radio on SiriusXM channel 111. (Listen to the podcast at the top of this page.)

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[email protected]: What do you think is going to happen with Dodd-Frank?

Peter Conti-Brown: Donald Trump and many other Republican candidates for president campaigned on the idea that the twin legislative evils of the Obama administration were the Affordable Care Act and Dodd-Frank, so the rhetoric around the campaign was to repeal them. In one of the presidential debates in 2012, Mitt Romney said the same thing, that Dodd-Frank was the biggest, wettest kiss to Wall Street he’d ever seen.

The enthusiasm, at least among the Republican base, would be behind repeal. Not so fast, I’d say. The piece that I published with Wharton’s Public Policy Initiative is to say that the politics around financial reform are complicated along two dimensions. Dimension No. 1 is around ideas. There are members of the Republican coalition for whom Dodd-Frank represents a kind of intellectual problem in the sense that they don’t like the idea of the bureaucracies that Dodd-Frank created. They don’t like the idea of regulators being in charge of dissolving the very large banks in case of distress. And they don’t like the idea of the Consumer Financial Protection Bureau.

For a lot of other Republicans, they just didn’t like the idea of being out of power. This isn’t a partisan jab at the Republicans; this is true of any political coalition. You have what we might call true believers and strategists. The true believers have identified one issue — be it abortion, financial reform, whatever — and said, “This is the way we want to change it.” The strategists say, “We don’t have an opinion about this particular policy issue. We just want to do what’s going to be politically most advantageous. We want to recapture power.”

I think it’s a little simpler in health care reform, but a very similar dynamic. You’ve got people who really hate Obamacare, but you’ve got Republicans in the House and Senate who are suddenly thinking, “Wait a second. Not so sure about this.” So, the path for passage of this Republican alternative to Obamacare is far from certain.

It’s more complicated in the financial reform area because the Trump coalition around financial reform is more diverse and includes voices that are incompatible with one another. The biggest challenge for the Republicans now is going to be looking anew at executive power, which they resisted during the Obama years. Now their guy is the one in office, so how is that going to change?

[email protected]: The Republicans crafted the Financial CHOICE Act in response to Dodd-Frank, and it was ready to go assuming Hillary Clinton was going to win the presidency. That wasn’t the case.

Conti-Brown: Exactly. We’re told there is going to be a new version of the CHOICE act that reflects the reality of the Trump administration. But in September 2016, when the act was proposed, Republicans thought Hillary Clinton was going to win the election. This is the time when Paul Ryan was saying, “I’m not going to defend Donald Trump. I’m not going to campaign for him anymore. I’m just going to be about maintaining the House majority.” That was a world away from where we are now, and it’s a world away for financial reform. Now the challenge is going to be which of the critiques that the Republicans were making during the Obama administration were about ideas and which were about strategy? I really want to emphasize that this is not a question of Republican hypocrisy. It’s not a question of partisan nonsense. It’s a question of partisan politics. We’re already seeing some slippage along these lines.

“The biggest challenge for the Republicans now is going to be looking anew at executive power, which they resisted during the Obama years. Now their guy is the one in office, so how is that going to change?”

For example, the Republicans have hated the Consumer Financial Protection Bureau as long as there’s been a Consumer Financial Protection Bureau. They don’t like what it does, but they also don’t like how it’s structured. It’s a single director, as opposed to a bipartisan commission with three members from the president’s party and two from the minority party. The CHOICE Act seeks that change. They’ve already walked that back. They’ve already said, “You know what? We’re comfortable with the single director model.” What changed? Well, now their guy gets to choose who the single director is. A bipartisan commission panel makes the commission more accountable not to the political process, but to the parties themselves. That’s something that, when you’re in a minority party, you like. You like having an official voice in policy making. A Republican Party in the minority wanted it. The Republican Party, now in the majority [with] the president in the White House, is no longer interested. That’s the kind of dynamic I’m talking about.

[email protected]: What is the future that you see for the CFPB?

Conti-Brown: I think it’s more certain than it seemed in the fall. The original CHOICE Act, the one that’s still pending that will be changed, basically abolishes the CFPB. It replaces it with what’s called a Consumer Financial Opportunity Commission. It’s got a dual mandate to protect consumers but also to ensure financial opportunity by keeping in mind the safety and soundness of banks, making sure all the regulations it passes are cost-beneficial to banks and consumers alike. It takes away a lot of the subpoena power. It makes it so that payday lenders are no longer going to be regulated in the same way. It changes everything about the CFPB. It would create a massive political football with no real orientation.

I think that a lot of those changes are still going to be a part of the new legislative proposal, but fewer. Part of this is the politics around consumer financial protection are not as easy as the politics around health care. If you have health care already and Obamacare changed it and you didn’t like the change, then you’re a constituency for its evolution. If you are someone who is ripped off by banks, you are not a constituency to see the agency in charge of policing bad bank activity changed. If you’re someone

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