Regulatory bill
is bad news
for consumers
While most Americans were glued to former FBI Director James Comey’s testimony before Congress recently, financial regulatory legislation flew under the radar.
House lawmakers passed a bill that would gut the Dodd-Frank financial reform legislation of 2010. If passed in its current form, the Financial Choice Act would give the president the power to fire the heads of the Consumer Financial Protection Bureau and the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, at any time for any reason. It would also give Congress power over the CFPB’s budget, which means that lawmakers could defund the agency entirely.
That’s a shame, because in the six years since the CFPB was established, it has provided nearly $12 billion in relief for more than 29 million consumers. The CFPB was created out of Dodd-Frank in order to create a single point of accountability for enforcing federal consumer financial laws and protecting consumers in the financial marketplace. The agency’s main goals are to:
The CFPB has cracked down on the credit card industry, debt collectors, payday lenders, for-profit colleges, mortgage companies and banks. The potential defanging of the bureau would be a big loss for millions of Americans. Unfortunately, adding to consumer pain is Section 841 of the Choice Act, which would repeal the Department of Labor’s fiduciary rule, the first phase of which went into effect on June 9.
As a reminder, the Labor Department’s fiduciary rule stipulates that anyone who handles retirement assets and gives financial advice to retirement savers must work in their clients’ best interest and provide disclosure of conflicts, when they exist. The rule was set to be implemented on April 10, but the Trump administration put a 60-day hold on it to determine how the rule would affect the near $3 trillion dollar retirement savings industry.
Labor Secretary Alexander Acosta decided the rule would not be further delayed and so on June 9, Phase One of what I am calling “fiduciary-lite” went live. Why lite? Because the rule will not be enforced until the Labor Department determines whether the second part of the rule, which is where consumer legal protections would be enacted, is necessary.
Phase Two is supposed to be implemented on Jan. 1, 2018; until that time, the Labor Department will not enforce the rule.
Even in its original form, the fiduciary rule would only apply to retirement accounts; in non-retirement accounts, many professionals will still be held to a lesser standard, called “suitability,” which means what they sell you or advise you to do has to be appropriate, though not necessarily in your best interest.
While the rule remains in limbo, it’s important to know that there are about 80,000 financial professionals who already adhere to the higher fiduciary standard. Your best bet is to ask your adviser or broker if he or she is required to follow the fiduciary standard.
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