Trump’s Treasury puts consumer watchdog in crosshairs

President Donald Trump’s Treasury Department called for broad changes in the way the government oversees the nation’s banks, including a plan to rein in the Democrats’ crown jewel of regulation: the Consumer Financial Protection Bureau.

In its first substantive move into the financial regulatory debate, the Treasury Department issued a report Monday calling for the popular watchdog agency to be stripped of much of what it termed its "unchecked regulatory power."

Republicans have been fighting the agency since the passage of the 2010 Dodd-Frank Act, the landmark law passed after the financial crisis that imposed new rules across the finance industry.

The report recommended curbing the consumer agency’s jurisdiction, including its supervisory authority. It also suggested a legal change allowing the president to fire the bureau’s sole director, or said the agency could be restructured into a multiperson commission.

“The CFPB’s combination of an unaccountable structure and broad, unchecked regulatory power is unprecedented,” the report said. Its sweeping authority has "led to regulatory abuses and excesses,” it charged.

The bureau was established by Sen. Elizabeth Warren (D-Mass.), who blasted the report.

"This report calls for radical changes that would make it easier for big banks to cheat their customers and spark another financial meltdown." Warren said in a statement. She said the administration wants to "gut the agency that’s held cheaters accountable and returned more than $12 billion to consumers."

Treasury’s long-awaited report is one of a series that the department is drafting in response to a February executive order by Trump for a comprehensive review of financial regulations, which he says are hindering U.S. economic growth. Along with a bill that House Republicans passed last week — which did not win a single Democratic vote — the report will frame the debate for the Senate as it takes up the issue.

The report recommends fundamental changes in the way regulators supervise banks. Most of its proposals will be welcomed by banks, which have spent billions of dollars to comply with the law and aren’t lobbying for Dodd-Frank’s repeal. Instead, they’ve pressed for the types of targeted changes that Treasury has recommended.

“This was a very common-sensical approach,” Consumer Bankers Association President and CEO Richard Hunt said. “If you’re a moderate Democrat, there are a lot of good things in here.”

Rob Nichols, president and CEO of the American Bankers Association, called the report "an important step to refine financial regulations to ensure that they are supporting — not inhibiting — economic expansion.”

While the bill stops well short of the Dodd-Frank overhaul that House Republicans just approved, there’s an explicit nod to the idea at the heart of the GOP legislation: Treasury agreed that a bank should be allowed to opt out of several regulations in exchange for meeting stricter capital requirements.

But the department also called for increasing power of another institution that has annoyed Republicans since Dodd-Frank’s enactment: the Financial Stability Oversight Council, a panel made up of financial regulatory heads and chaired by the Treasury secretary.

Treasury recommended that the council have the ability to appoint a lead regulator for an issue in which agencies have overlapping jurisdiction.

“FSOC should not be a replacement for the regulators,” Treasury Secretary Steven Mnuchin said in a House subcommittee hearing Monday. “Cybersecurity is one [area] which it’s perfectly clear to me … one agency should be named as the lead agency and coordinate amongst all the rest of them.”

The report also targets one of the most controversial parts of Dodd-Frank: the so-called Volcker rule, which restricts banks’ ability to conduct risky trades with depositors’ money. The regulation, named for former Federal Reserve Chairman Paul Volcker, was implemented jointly by five regulators.

“The regulators’ existing approach to coordination has not worked and, as a result, banks have had difficulty obtaining clear, consistent guidance,” the report said.

The report recommended that banks with fewer than $10 billion in assets be exempt from the Volcker rule, along with larger banks that either have a smaller trading portfolio or a higher capital level.

It also found that the cost for financial firms to comply with the Dodd-Frank law are so steep that it is difficult for many Americans to get home loans.

The report suggested an update to the Community Reinvestment Act, which encourages banks to serve the credit needs of the local community, to account for the internet, which has changed the scope and reach of services that banks offer.

Treasury will issue three other reports in connection with the February executive order. They will cover capital markets; asset management and insurance industries; and non-bank financial institutions, including financial technology companies.

Lorraine Woellert and Colin Wilhelm contributed to this report.

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