This morning the House of Representatives passed
H.R. 650, ostensibly a bill to preserve access to affordable manufactured housing. In truth what it does is exempt some lenders from the Dodd Frank Wall Street Reform and Consumer Protection Act, more commonly known as Dodd-Frank, by allowing them to issue predatory loans without regard to the borrower’s ability to repay it. Sound familiar? Rest assured, President Obama has
threatened to veto the bill, but it shows the lengths to which the Republicans are willing to go to gut Dodd-Frank, just as it is beginning to show signs of
accomplishing its goals.
Just last week, General Electric announced it will sell off much of its banking operations to avoid complying with the regulatory standards required of such large banking institution. The 2010 law imposed tougher standards on the largest financial companies in the nation—the ones once deemed too big to fail. G.E. will retain its financing operations related to health care, aircraft and energy, but the overall value of its banking business will shrink to $90 billion down from $538 billion in 2008.
Dodd-Frank is a massively complex machine built with many moving parts. The part that got G.E.’s attention is the portion that assigned to the Financial Stability and Oversight Council (FSOC) the responsibility for identifying those financial institutions that are “too big to fail,” meaning that they are so interconnected that their collapse would have a domino effect throughout the financial sector. In Dodd-Frank terms, a business so designated is called a “systematically important financial institution” (SIFI). Designation by FSCO as a SIFI subjects the company to heightened scrutiny and much tougher regulatory standards. Earlier this year, insurance giant MetLife sued the Treasury regulators to challenge its designation as a SIFI.
The bill passed by Republicans today is aimed at weakening Title XIV, which currently bars the kind of predatory lending that caused the financial crisis of 2008. Under Dodd-Frank, lenders must make a determination that the borrower can repay the loan based on their financial and credit situation, and violation of this provision creates a defense for the borrower in case of default.
Some have argued that Dodd-Frank is not tough enough, but no thinking person would argue it should be weakened.