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In the wake of the financial crisis, the Obama administration spent eight years fighting for new rules that would protect consumers and their money from a repeat disaster. But under President-elect Trump, these safeguards may soon be a thing of the past.
Trump has repeatedly said if elected, he would roll back financial regulations and issue a temporary halt on new rules. The specifics have been hard to pin down — and many consumer advocates say it will be tough to repeal many of the existing rules in one fell swoop. Yet with Republicans controlling the White House, the House of Representatives, and the Senate, consumer advocates fret that nothing is out of the question.
“The biggest financial firms on Wall Street have got many powerful allies in the Republican Congress,” warns Dennis Kelleher, CEO of Better Markets, a D.C.-based financial consumer advocacy group.
Here are three scenarios — all on GOP wish lists — which, if pushed forward under Trump, could put your financial life at risk.
Wall Street Reforms Get Repealed
During the campaign, Trump repeatedly said he wanted to roll back Dodd-Frank, the sweeping financial reform legislation that was enacted following the Great Recession. “I think absolutely, Dodd-Frank has to be either eliminated or changed greatly,” Trump said in a May CNBC interview.
And it seems he’s intent on keeping that promise. A section of Trump’s new website dedicated to the transition process outlines his intention to set up a “Financial Services Policy Implementation team.” The group will be working to “dismantle Dodd-Frank and replace it with new policies to encourage economic growth and job creation.”
While most of Dodd-Frank has little direct impact on consumers, the law did make big changes to the mortgage market — forcing both banks and borrowers to verify the ability to repay loans through more rigorous documentation, for instance.
Those safeguards have cost the financial industry millions. But if they’re removed, consumer advocates worry that the U.S. could face another mortgage crisis — which could ultimately hurt both U.S. homeowners and investors.
A Consumer Watchdog Gets Defanged
While Trump himself has remained silent on the Consumer Financial Protection Bureau, the Republican Party’s platform called for abolishing the agency — and both Wall Street and Republican lawmakers have opposed the CFPB’s structure and unprecedented power since its inception five years ago.
In addition to removing a line of defense for consumers, the GOP takeover bodes ill for many of the rules the agency has rolled out recently to rein in nasty financial abusers. Among them:
- A proposed rule that would keep banks, credit card companies, and other financial firms from using contractual fine print to keep you from filing class action lawsuits over the institutions’ bad behavior.
- A proposed bar on practices by manipulative payday lenders that make it harder for their customers to pay back high-priced loans.
- A proposed rule to force debt collectors to limit harassment of borrowers.
- A finalized rule that requires all prepaid cards and peer-to-peer payment apps (like Venmo, for instance) to give you the same protections — if an account is hacked or card is stolen, for instance — that credit cards already offer.
Trump campaigned on improving the lives of middle-class Americans, so it’s unlikely he would completely dismantle the organization,” Kelleher says. More likely, the GOP would turn the CFPB into an agency similar to the SEC, with a five-member commission and a budget subject to congressional appropriations. “I think it will roll back its independence and it will significantly inhibit its ability to protect American consumers,” Kelleher says.
Financial Advisors May Duck Strict New Rule
After a multi-year effort, the Department of Labor wrapped up a rule this spring to force financial advisors to put their clients’ best interests first when managing retirement assets — in other words, to act as “fiduciaries.”
Now it looks like that rule could be at risk. One of Trump’s advisors has said the fiduciary rule should be overturned, and congressional Republicans have already tried to restrict Labor’s ability to implement the rule.
Don’t assume the new rule is completely dead, says Duane Thompson, senior policy analyst at fiduciary consulting firm fi360. “It would be extremely difficult to roll back the rule in its entirety,” he says. Rather, he says, a Trump administration might try to carve out new loopholes through which advisors could avoid having to abide by the rule’s provisions.
Consumers may take comfort on one front: Trump’s instinct so far has been more to challenge the Republican party than to go along with it, points out Knut Rostad, founder of the Institute for the Fiduciary Standard. “Why it should be assumed that Trump will sign off on any or all GOP measures to remove financial regulations?” he asks. “Where, exactly, the DOL rule fits in the Trump vision is just not clear as of now.”