Sen. Cotton: Trump regulators will ease Dodd-Frank pressure if courts don’t

U.S. Sen. Tom Cotton, R-Ark., says he thinks the Trump administration will install more business-friendly regulators into the nation’s banking oversight system – an allowance that the controversial Dodd-Frank law provides.

In an exclusive interview with Talk Business & Politics, Cotton, who sits on the powerful Senate Banking Committee, said given time, Arkansas banks should feel relief.

“Much of Dodd-Frank simply delegated authority to administration officials and banking regulators. And as President Trump and Secretary of Treasury Steve Mnuchin fill out the administration, I think we can expect those regulators to take a much more sensible approach to our financial system to distinguish between the small hometown banks we have here in Arkansas and the Wall Street giants and adopt a smart system of regulation that’s appropriate for them all,” he said.

Arkansas banks have experienced several years of overall growth in profits despite complaints about Dodd-Frank, the federal law passed in the aftermath of the international financial crisis of 2009.

Despite that, bankers will point to specific limitations and requirements mandated by Dodd-Frank that offer little flexibility to make exceptions. For instance, scores for allowing mortgages must meet strict guidelines, and local bankers in rural parts of the state say they can’t make exceptions for neighbors who may have credit problems in their history. Other banks have complained that compliance issues have forced them to beef up staffs in this area rather than apply their human capital to customer service, additional financial products, or branch expansions.

“Some banks have had to close branches in rural areas, some banks in rural areas don’t even offer the most basic services that Arkansans need like home mortgage financing,” Cotton said. However, an all-out repeal of the law is unlikely.

“Despite all the harm that Dodd-Frank has caused, I don’t see a path forward to repeal it in form because the Democrats in the Senate are fully committed to Dodd-Frank,” he said, noting firebrand supporters of the law such as Sens. Elizabeth Warren, D-Mass., and Bernie Sanders, I-Vt.

One of Dodd-Frank’s greatest achievements, according to supporters, and worst components, according to detractors, is the Consumer Financial Protection Bureau (CFPB). The highly independent regulatory agency is tasked with protecting consumers on a number of fronts and is the target of many bank leaders’ criticism.

Cotton said a lawsuit challenging the CFPB’s constitutionality is moving through the courts. While he agrees that the agency is unconstitutional, he sees potential for relief in the Trump administration.

“The director can only be removed by the President for cause. Congress doesn’t oversee their budget – in fact, they draw their budget from the Federal Reserve. That’s not the way our founding fathers intended their government to work,” he said. “In a system of checks and balances, we can’t have a single person who can’t be removed from office dictating his own budget and taking as much money as he wants with a roving mandate to go out into the economy and regulate whatever he sees fit. I think once we have a new CFPB director, you’ll see substantial changes.”

If the lawsuit doesn’t kill the CFPB, Cotton believes Republicans and Democrats will be forced to make some changes to the law. With the GOP in control of both chambers, the chances of some reform is at least on the table.

Another contentious point for bankers centers on the Durbin amendment, named for Democratic Illinois Sen. Dick Durbin. In short, the amendment to Dodd-Frank caps fees that debit card companies can charge to retailers. It limits potential bank income and doesn’t allow much flexibility for increases if they become warranted. Cotton said he expects this provision to be another battle line in the sand between Democrats like Warren and Sanders, who view the legislation as protective for consumers and small businesses.

“In general, Republicans don’t like price caps – which that was – but as part of Dodd-Frank, I think we’ll face the same kind of political challenge and resistance led by Sens. Elizabeth Warren and Bernie Sanders in terms of outright repeal. Hopefully though, even if we don’t have outright repeal of the Dodd-Frank law, we can address some of the more problematic parts of it and the way the Durbin amendment has been applied would be one of them,” he said.