On August 16, a group of 32 members of Congress—27 Republicans and 5 Democrats—sent a seemingly innocuous request to Richard Cordray, the director of the Consumer Financial Protection Bureau, regarding a new rule on international money transfers. "We urge you to delay the effective date of these rules and to undertake a comprehensive study of their impact before moving forward to avoid irreparable harm to consumers," they wrote. The regulation, set to go into effect in January, will force companies to disclose the full extent of the fees they charge when people send money overseas. While the letter raised concerns about the rule, the members of Congress didn’t ask the CFPB to scrap it; instead, they entreated Cordray to hold off on the rule until January 2015.
Simple enough on the surface. But it is part of a broad, systematic effort by the banks and their allies to delay implementation of the Dodd–Frank Wall Street Reform and Consumer Protection Act, the law Democrats passed in 2010 to keep the banks in check following the crash of 2008. The banks have used seemingly earnest requests for further study to push any new regulation down the road. Many of the requests could be valid—the agency is regulating complex markets—but they hide a more nefarious purpose: buying time before the November election, after which a new Republican Senate majority could rewrite the rules or a Romney White House could stock the regulatory agencies with conservatives who are loath to put checks on their Wall Street friends. With federal agencies still fine-tuning most of the Dodd-Frank regulations, there’s every incentive for the banks to delay action until after the election.
"I think it's very clear that the industry wants to delay Dodd-Frank regulations for as long as they can, until they get a more favorable Congress," says Ed Mierzwinski of U.S. PIRG (Public Interest Research Group). "There's no question that that's always been their plan since 2010."
The tactic has worked. An analysis by the law firm Davis Polk on the law’s two-year anniversary in July found that just 30 percent of the nearly 400 regulations had been finalized. Thirty-five percent had not even reached the “proposed stage”—a point where the agency has published a draft, open to the public for comment.
Much like the Affordable Care Act, President Barack Obama's other signature achievement in domestic policy, the fate of Dodd-Frank largely hinges on Obama's re-election. Both pieces of legislation overhauled a major sector of the U.S. economy but didn't go into immediate effect all at once. In the case of Dodd-Frank, it was left to federal regulators scattered across several agencies to hash out the details. There was a logic to this: Regulators are the ones who have the intricate knowledge needed to tweak the complex financial system. Plus, explicit regulations written into the law could have bogged it down in the legislative muck. But leaving the details to the regulators carried risks. Rules would be made outside the public eye, favoring the interests of the banks' massive lobbying arms. And it would delay the start of enforcement.
Congress tasked the regulators with finalizing the bulk of Dodd-Frank's rules within one year of its passage in July 2010. Instead, more than a year past that deadline, a raft of delays has left great swaths of the law unenforced.
This summer, Public Citizen found that most regulatory agencies had not met the deadlines stipulated in the law. The consumer advocate organization found that the Commodities Futures Trading Commission (CFTC) missed more than 90 percent of its specified deadlines. The Securities and Exchange Commission (SEC) wasn't much better, missing 87 percent of its due dates. Overall, federal agencies hadn't met the mandated date for nearly 80 percent of the Dodd-Frank rules.
"We've been too slow," says Bart Chilton, one of five commissioners atop the CFTC. "It's not like there is one individual that's messed things up and not done their share of the work. I'm frustrated, disappointed, and think we should have done better."
In May, Chilton gave a speech before Americans for Financial Reform, an umbrella group for consumer-advocacy organizations, in which he detailed a four-step strategy that industries use to derail regulations. He called it "quadrakill.” The first two steps take place on Capitol Hill. Initially, the industries work their connections to block a bill from becoming law. If that fails, they turn to the appropriations process, attempting to starve regulators of the funds needed to enforce new rules. This tactic has been particularly harmful for Chilton's agency; Dodd-Frank envisioned a newly robust CFTC workforce, but Republicans in the House have choked off the funds needed to properly expand the bureau. If the first two methods don’t work for industries looking to blunt regulations, the third step is to intercede once a restriction is embedded in a law but not yet enforced—precisely what the Wall Street-friendly members of Congress were trying to accomplish in their letter to Cordray. They argue with the regulators, cajoling them to dilute the strength of the regulation and delay it ad infinitum. Then, if all else fails, they turn to the courts to tie everything up one last time with lawsuits.
Those last two steps have been the key to blocking the Dodd-Frank regulations from going into effect. "They move to delay or postpone hoping that things will change; maybe the commission will change, maybe the Congress will change, maybe the presidency will change," Chilton says. "Somehow if they buy time, sort of like a sporting event, if they run the clock out the last folks standing may win by default. By us not acting, if we just continue to delay, they win ultimately—that's another strategy."
While there are some instances in which slowing things down might be practical, requests to push back rules are typically a means for industry to obfuscate its true intentions. "Delay tactically advantages industry for a number of reasons," says Bartlett Naylor, a financial-policy advocate for Public Citizen. "One is that there's always a chance new lawmakers will come in and repeal the thing entirely. Two, ideally as we get more distance from the financial crash, people—lawmakers, regulators—will lose the memory. The amnesia will set in as to why that particular rule is meaningful. Just generally, it gives the ability of people who are harping to harp that much longer."
For the time being at least, the public remains on the side of the regulators. A poll conducted by Americans for Financial Reform earlier this summer found that Americans still support Dodd-Frank by a margin of 73 percent to 20 percent. But that number isn't representative of the law's place in the public consciousness. Though most Americans support efforts to rein in Wall Street excesses, Dodd-Frank hardly makes a blip in the national conversation. In his speech at the Democratic National Convention, President Obama made only one oblique reference to Mitt Romney "rolling back regulations on Wall Street," without extolling the virtues of his reforms.
While attempts to delay rules aren't a recent development, they've certainly taken on an added urgency this year. All eyes are trained on the looming election this fall, which could upend regulators' efforts. Should Republicans retake the Senate and maintain their majority in the House, they will attempt to strip regulators of their powers enabled in Dodd-Frank. If Romney is elected president, all the better: A whole host of political appointees will be kicked out of office, investing the final rulemaking decisions in officials who share the Republicans’ anti-regulatory zeal.
"There are legitimate reasons that people would want more time. But I think we are more suspect of those reasons at this point," Chilton says. "A lot of these requirements were supposed to be done within a year. We bought into this whole 'let's be thoughtful' approach and 'give us some time to explain our idiosyncratic circumstances,' but we've done it."
When we spoke, Chilton said he had just gotten off a phone call deflecting a request from a group of international banks, including HSBC, to postpone a rule. While the bankers claimed to have pure intentions with their calls for more time, Chilton is skeptical, and with the days ticking down until the presidential election, he doesn't see any more reason to satisfy requests for further delay. "I don't want to say with a broad brush that there aren't individual circumstances that still don't merit more consideration and more time," he says. "But clearly we've received requests to delay that are disingenuous, that are merely seeking to run out in the clock in their hope that circumstances could change and that they may get out of compliance one way or another."
Chilton may have noted the trend, but that doesn't mean his colleagues at the CFTC or other agencies have the same sensibility, especially when the ever-present threat of a lawsuit lingers behind the banks' request for extra time. In July 2011, the U.S. Court of Appeals in Washington, D.C., put a screeching halt to SEC actions when it overturned a Dodd-Frank rule that had been finalized, siding with the U.S. Chamber of Commerce and the Business Roundtable's argument that it needed further cost-benefit analysis before it went into effect. Since that ruling, the SEC has been at a practical standstill, overanalyzing and delaying its remaining Dodd-Frank obligations.
The problem hasn't gone unnoticed by the elected officials who ushered Dodd-Frank into existence. "Nearly two years since the passage of Dodd-Frank, we’re still waiting for many of these provisions to be finalized," Representative Maxine Waters wrote in an op-ed this past May. "Some have naturally taken a long time to complete, given their complexity and the desire to harmonize certain regulations with those of foreign governments. But on other issues, I fear that regulators are being pressured by the industry they’re meant to police."
Other members of Congress are aiding the banks' cause—and not just by sending letters to regulators. Republican Senators Rob Portman and Susan Collins joined Democrat Mark Warner to introduce a bill last month that could stymie regulatory reforms. The proposed law would subject new rules from the independent agencies to review by the White House's Office of Information and Regulatory Affairs. The compressed congressional calendar will likely prevent the bill from moving forward until after the election.
Unless regulators find a new resolve over the next two months, a majority of Dodd-Frank will not yet be enforced by November 6. And while a President Romney might waffle on his efforts to repeal health-care reform, he'll have no such problem dismantling Dodd-Frank by subtly stocking the agencies full of regulators who will let Wall Street run amok once more.