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Financial CHOICE Act 2.0 draft presents Senate with regulatory reform challenge

After releasing highlights from its new version of the Financial CHOICE Act, the House Financial Services Committee kicked off the legislative process for reform by releasing a discussion draft of the Dodd-Frank relief package. Empowered by a Republican-controlled government, Chair Jeb Hensarling, R-Texas, is pitching a comprehensive financial reform package and pressuring the Senate to get moving on its own legislation.

"It kick-starts the discussion to get these things done; it puts things on the table to have a robust discussion," said Ed Groshans, managing director at financial services research firm Height Securities.

The discussion draft of the bill, which was introduced for the purposes of a committee hearing scheduled for April 26, includes the changes originally detailed in a summary released last week. Among the tweaks: the removal of a CAMELS rating requirement in an "off-ramp" from regulatory compliance, stripping the Consumer Financial Protection Bureau to an enforcement agency only, and adding administrative requirements to rulemaking with an economic impact of $100 million or more a year.

Isaac Boltansky of Compass Point Research and Trading wrote in a note that CHOICE 2.0 "largely conforms" with the original bill and keeps key proposals like repealing the Durbin Amendment and Volcker rule, changing fees calculations and safe harbor statutes on the qualified mortgage rule, and fixing "Madden" language that would clarify rules on online lending. While Boltansky said he thinks the House will likely pass the bill before the August recess, the real challenge will come in the other chamber.

"The Senate will ultimately determine the fate of legislative regulatory reform," Boltansky wrote.

Because the Republicans only control 52 seats in a Senate that needs at least 60 votes to defeat a filibuster, the GOP will have to work with Democrats to get some support for a shot at financial regulatory reform. But Groshans says there are portions of the CHOICE Act that would be an instant dealbreaker for any wholesale financial reform package.

"Hensarling hates the CFPB. He's completely attacking and defanging the agency, making it like the [Federal Trade Commission]. That's never getting through the Senate," Groshans said.

Boltansky said he sees the bill's provisions in three categories: "non-starters" that have no shot at passage, provisions that the Senate could entertain in another package and "messaging measures" aimed at encouraging regulators to make their own changes. He listed the Durbin Amendment in the first category, a fix to "Madden" language in the second and Volcker rule review in the third.

For the time being, the bill will have to pass through the House Financial Services Committee before being introduced and voted on in a full chamber session. When the CHOICE Act changes were unveiled April 12, Ranking Member Maxine Waters, D-Calif., called the bill the "Wrong Choice Act 2.0" and said it could not be allowed to become law.

"Republicans and Donald Trump have once again prioritized the needs of Wall Street over the needs of hard-working Americans, with a proposal that would take away much-needed protections and put our economic security at risk," Waters said.