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January 27, 2021

Positive Steps at the Treasury Department, SEC, CFPB and Other Agencies

In less than two weeks, the Biden administration has taken steps that have the potential to do more for Main Street Americans than the former administration did in four years.
 
Naming Janet Yellen as Treasury Secretary and Gary Gensler and Rohit Chopra to head the SEC and CFPB, respectively, will have a significant and positive impact on the financial regulatory agencies, and ultimately, the wallets of many Americans.
 
While the Treasury Department isn’t often thought of as a financial regulatory agency, it should be. Among other things, the Treasury Secretary is the head of the very powerful Financial Stability Oversight Council (FSOC) which is supported by the equally powerful Office of Financial Research (OFR).
 
Unfortunately, the FSOC and OFR were not used to their potential in the Obama administration and the Trump administration de facto killed both of both of them. However, Secretary Yellen was a leading member of FSOC when she led the Federal Reserve and fully understands its power and key role in identifying emerging financial risks as well as ensuring effective regulation by the other regulators. We’re confident that she is going to revitalize FSOC and OFR and put them in the lead in fighting for financial stability as well as in the climate crisis and racial injustice fights.
 
Both Gensler and Chopra are each well-equipped to reverse the de-regulatory approach that dominated the SEC and the CFPB under the Trump administration. For the last four years, both agencies have betrayed their core mission of protecting investors and consumers in the financial markets. They catered to industry, gutted strong rules, wrote weak rules, and stopped meaningful enforcement. That’s going to change with Gensler and Chopra. They each have the experience, toughness and core belief in the value of regulation that it will take to restore their agencies as guardians of the public interest. They’ll both have a full plate.
 
At the SEC, Gensler will have to repair the damage done in a number of areas, including the SEC’s weak “best interest” rule governing financial advisers, rules that limit the ability of shareholders to participate in the governance of the companies they own, and rules that expand the private capital markets at the expense of the public markets. And long overdue are strong new disclosure requirements for public companies to help address climate change and racial injustice, executive compensation “claw back” rules, reforms to fully stabilize money market funds, and rules to control the conflicts of interest among the credit rating agencies.
 
When it comes to enforcement, we expect the SEC to pursue a more aggressive and broad-based approach, focusing not just on the ever-present scam artists and predators, but also on top financial institutions in the country, including Wall Street’s biggest banks, PE firms, hedge funds and others. Importantly, we expect that the SEC will not just go after the firms for big fines, but also go after their executives who violate the law and must be personally meaningfully punished if the lawbreaking in finance is ever to decrease.  Importantly, none of these reforms threaten the economic recovery. In fact, setting up stronger guard rails and increasing accountability in financial markets will only increase participation and consumer confidence.
 
Bottomline: “Gary will actually look out for Mr. and Mrs. 401k and Main Street investors,” as Dennis said when his nomination was announced. Read the full press release.
 
Priorities facing Chopra at the CFPB include reversing the latest payday lending rule that nullified important consumer protection underwriting requirements, reining in debt collectors, addressing abuses in the student loan arena, and refocusing on many fair lending challenges. We expect that Chopra will also dramatically increase enforcement and restore the CFPB’s former reputation as a true champion of consumers, not a “predator protector” as we’ve seen for the last four years.
 
Bottomline: “Chopra will ensure that Trump’s predator protection bureau will once again become a consumer protection bureau as it was intended to be,” says Dennis Kelleher. Read more in our press release.
 
Make no mistake about it:  the financial industry will continue its constant fight at the Treasury, SEC, CFPB and elsewhere to prevent, limit, or rollback regulations that limit their risk taking and other lucrative, but dangerous and anti-social activities. And, inevitably they will file lawsuits and seek to have court take their side, but, as in the past, Better Markets will be there opposing them with substance and expertise, giving Biden’s regulators the support they need to be successful.
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