House Passes Bill Rolling Back Wall Street Rules

The House voted (233-186) today for passage of the Financial CHOICE Act, an opening Republican bid to encourage economic growth by loosening regulation of the financial sector, the Wall Street Journal reported. The bill, authored by House Financial Services Committee Chair Jeb Hensarling (R-Texas), would unwind major parts of Dodd-Frank by relieving healthy banks of some regulatory requirements and forcing failing firms through bankruptcy rather than a liquidation process spearheaded by the regulators. It would subject new financial rules to cost-benefit analyses, boost penalties for financial wrongdoers, and repeal the Volcker rule restricting banks from speculative trading. Supporters of the plan say scrapping what they view as onerous regulatory requirements will ultimately help smaller businesses, allowing them to grow and create jobs. The bill is expected to face stiff resistance in the Senate, but aspects of the Financial CHOICE Act could be approved by Congress in smaller pieces or be implemented by the Trump administration.

Commentary: Why Regulators Are Needed to Handle Failed Banks

One of the major reforms to avoid the recurrence of the severity of the financial crisis was a set of mechanisms by which the regulators could wind down failed banks or restructure them if they were still viable. The House of Representatives is set to vote on repealing this measure and replacing it with a bankruptcy that only the bankers themselves could decide to enter, according to a commentary by Prof. Mark Roe in the New York Times yesterday. These are dangerous actions that can risk turning a tumultuous bank failure into a deep and full financial crisis, like that of the 2008-09 financial panic, according to Roe. Bankruptcy alone cannot handle a financial crisis emanating from collapsed banks.


In related news, Ben Bernanke has a plea for U.S. policymakers on behalf of his regulatory heirs: Keep big banks out of bankruptcy court in the event of a future Wall Street meltdown, Reuters reported yesterday. Bankruptcy court may be the wrong place for banks to meet their maker, the former Federal Reserve chairman said on Tuesday. A chaotic failure on Wall Street would be just too damaging, so regulators should have another option ready. "Under circumstances like we had in 2008, I really don't see (bankruptcy) as being realistic," said Bernanke, who ran the central bank during the 2008 meltdown and constructed emergency rescue plans for the financial system alongside Treasury Secretary Henry Paulson and then-New York Fed President Timothy Geithner. Financial reforms put in place since then have granted regulators so-called "Orderly Liquidation Authority" allowing them to seize a teetering bank and execute a living will put together by the bank. Big banks like JPMorgan Chase & Co. and Goldman Sachs Group Inc. have been submitting resolution plans for approval and incorporating feedback from regulators for years. House of Representatives Financial Services Committee Chairman Jeb Hensarling, who is leading the legislative effort to repeal OLA, has said that bankruptcy court is a better option because it eliminates the risk that taxpayers would have to bail out a failing institution.

Lenders Hit the Brakes on Subprime Auto Loans

Lenders and finance companies have dramatically pulled back the number of loans they issue to borrowers with the poorest credit records, CNBC.com reported. A new report by Experian shows the number of loans written in the first quarter for borrowers with subprime and deep subprime credit ratings fell to a 10-year low. Collectively, auto-loan originations in those two categories dropped 8.6 percent in the first quarter. The pullback in loans to those with credit scores under 600 echoes reports from auto dealers about lenders tightening credit standards. In its monthly dealer survey, UBS found almost a third of the dealers questioned reported tighter credit standards, the highest level measured in the survey since 2009.

 

Analysis: The Price of Not Completing College in Four Years

At four-year schools, only about 40 percent of full-time students graduate on time, according to the National Center for Education Statistics, part of the U.S. Department of Education, according to a Wall Street Journal analysis. An additional year of school in a public four-year college will cost $22,826, on average, according to the nonprofit Complete College America. Then there is lost income to consider. Students who stay in school an additional year miss out on about $45,327 in salary, on average. All told, Complete College America estimates that an extra year of college can cost as much as $68,153.

 

Ponzi Scheme Meets Ransomware for a Doubly Malicious Attack

Victims of a cybercrime last year had a choice: Pay the hackers a ransom of one bitcoin, a digital currency worth roughly $2,365, in exchange for regaining access to the computer, or try to infect two new people on behalf of the attackers, according to a New York Times report yesterday. If someone the victim knew fell for the bait and became infected, the attackers would consider the ransom paid and cede control of the infected computer. The attack late last year was, according to the cybersecurity researchers who discovered what they now call the Popcorn Time ransomware, the first Ponzi scheme for one of the internet’s oldest types of cyberattacks. Security companies estimate that criminals raked in roughly $1 billion from ransomware attacks in 2016. This year, the number is likely to be much higher, as ransomware schemes multiply.

 

Participate at Next Consumer Commission Meeting on July 15 at NACTT
The ABI Commission on Consumer Bankruptcy welcomes you to participate at its next open meeting on July 15 at the NACTT Annual Meeting in Seattle (Sheraton Seattle Hotel). The meeting will be held from 4:00 to 5:30 p.m. PT and is a field hearing for the Chapter 13 Committee. Major topics for consideration by the Committee include (a) chapter 13 eligibility, (b) homeowner issues, (c) chapter 13 plans, (d) credit reporting, (e) local legal culture and (f) after-acquired property. To request a time for a public statement or to submit a written statement, email the Commission at [email protected].

For more information on the Commission, including oral and written statements from the May 6 meeting, please click here.

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