3 Things You Need to Know About the CHOICE Act


While the American public (and the rest of the world) watched James Comey make the highest-viewed testimony in congressional hearing history, the Republican-majority House of Representatives passed the Financial Choice Act, a bill designed to repeal and replace much of the Dodd-Frank Act of 2008.

At first glance, most of the key principles sound pretty great – allegedly supporting equal opportunity, consumer protection, accountability for both the private and public sector, and economic growth.

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Source: Financial Services Committee

However, reading into just the executive summary (see above) we realize that many of the broad principles are oversimplifications of deregulation initiatives, such as general removals of oversight in risk management within the financial sector. In fact, that’s a pretty good summary of what the Act does: hacking financial regulation by removing powers and funding for many of the regulatory bodies that were formed by the Dodd-Frank Act. I wouldn’t suggest reading the original document of the CHOICE Act, as it looks like this:

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Source: Congress.gov

In other words, the Republicans took the Dodd-Frank Act (Titles II in their – wait for it – Subtitle II) and removed much of the responsibility enforced upon corporations simply by striking out mentions of ‘corporations’ in the Act.

So, here are three things you need to know about the CHOICE Act.

1. Repeals Dodd-Frank Titles II and VIII

Dodd-Frank Title II gave the Federal Deposit Insurance Corporation the right to find ways to liquidate large corporations close to failing, which enforces shareholders and creditors to assume all losses. [1] Dodd-Frank Title VIII allowed the Financial Stability Oversight Council to designate FMUs (financial market utilities), systems that provide infrastructure for financial transactions, with additional rights in oversight. [2] Its replacement, the Bankruptcy Code, is the Dodd-Frank Title II, with the phrase “and corporations” taken out of the majority of the clauses, and the ability for corporations to transfer estates to “bridge companies,” the corporate version of a loan shark company.

2. “Exempt[s] banking organizations that have made a qualifying capital election from any. . . federal law, rule, or regulation that. . . provide limitations on mergers, consolidations, or acquisitions of assets or control . . . [that] relate to capital or liquidity standards or concentrations of deposits or assets.”

What this effectively means is that after a bank has a certain amount of money ($50,000,000,000), [3] they are exempt from federal limitations that relate to capital or liquidity standards – so larger banks that are usually kept away from each other to maintain a more competitive market will be free to merge and acquire one another and other, smaller, competing banks. In the long run, this could mean that we could see an effective Franken-Bank monopoly of sorts. (If you think you’re being robbed by your bank now, wait till it has no competitors…)

3. “Exempt[s] banking organizations that have made a qualifying capital election from any federal law, rule, or regulation that permits a banking agency to consider risk “to the stability of the United States banking or financial system”

Systemic risk was probably the cornerstone topic of the 2008 financial crisis – at that point, the government realized that banking had become more than a private, for-profit industry, but rather, an integral public good that served as the financial infrastructure of the modern-day economy that sought to manage and re-delegate uncertainty of risk. While I’d argue that a regulation that permits a banking agency to consider risk “to the stability of the United States banking or financial system” (as corporations are bound by law to otherwise solely serve the interests of the shareholder to maximize profits) is largely a symbolic gesture because it doesn’t really enforce the consideration, it does close potential legal precedent for decision-making executives to consider policies that, while not maximizing profits, would be beneficial in managing systemic risk.

But the key thing that I have noticed as I wander through this labyrinth of an Act is that it grossly deregulates the financial markets to even pre-Obama era standards. Where banks can find loopholes to bypass M&A regulations; where financial regulatory bodies that have been around for around 80 years find sources of revenue (such as fines) redirected to serve the Treasury’s deficit; where, while the punishments for financial crimes have increased in severity, the bodies that enforce the laws are abolished or replaced by opaque extensions of the executive branch; and where, in a rather strange political contradiction, the Speaker of the House is given a “pocket veto” on executive orders regarding new financial regulations. Based on historical events following the continual deregulation era within the financial industry in the Nixon and Clinton eras, there is clear precedent to understand that, as it stands, financial deregulation, especially in the way it has been done in this bill, is the American highway to the next economic meltdown. I mean, there is a reason why this bill was picked to be voted on during the Comey hearing.


[1] https://www.law.cornell.edu/wex/dodd-frank_title_II

[2] https://www.federalreserve.gov/paymentsystems/title-viii-dfa.htm

[3] The Choice Act, Subtitle B Section 121a (B)