The House Financial Services Committee is considering legislation that aims to eliminate language in the Dodd-Frank Act allowing for loans to failing financial institutions. The bill would also change the way the Consumer Financial Protection Bureau is funded by subjecting its funding to the appropriations process.
The moves are part of the House's overall plan to cut deficit spending. As part of a budget resolution adopted by the House in March, the Financial Services Committee and five other House committees were instructed to approve measures that reduce the deficit in order to prevent automatic cuts to defense and other discretionary programs. The House instructed the Financial Services Committee to pass legislation that cuts the deficit by $29.8 billion over the next 10 years in programs and agencies under its jurisdiction.
To achieve this deficit cut, the Committee's $35 billion deficit reduction package consists of four proposals, including one controversial measure that would make the CFPB subject to the appropriations process.
The CFPB receives its funding directly from the Federal Reserve, with CFPB's director having sole authority on how its money is spent, with no oversight from Congress, the Obama Administration, or the Federal Reserve. “In order to bring accountability and oversight to the Bureau's spending, the Committee proposal will subject the CFPB to the appropriations process,” according to the House Financial Services Committee.
Under the Dodd-Frank Act, the Federal Reserve must transfer to the CFPB whatever funds its director requests, up to the following fixed percentages of the Federal Reserve's operating expenses:
- 11 percent in fiscal year 2012, or $547.8 million;
- 12 percent in fiscal year 2013, or $597.6 million; and
- 12 percent each fiscal year thereafter, subject to annual adjustments for inflation.
“These funds—diverted from the Federal Reserve to the CFPB—would otherwise have been forwarded to the Treasury where they could be used to reduce the national debt,” according to the House Financial Services Committee.
Committee Republicans claim that striking this language in the Dodd-Frank Act will save $5.4 billion over 10 years.
Another controversial proposal would eliminate the authority created by the Dodd-Frank Act to lend funds to failing financial firms and to purchase assets.
Dodd-Frank gave the FDIC authority to borrow up to 10 percent of the book value of the failed firm's total consolidated assets in the 30 days immediately following its appointment as receiver. After 30 days, the FDIC may borrow up to 90 percent of the fair value of the failed firm's total consolidated assets.
Committee Republicans claim that striking this language in the Dodd-Frank Act will save $22 billion over a 10-year time period.