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What Do the Midterms Mean for Financial Services?

Now that the Democrats have taken the House, things are going to change for the House Financial Services Committee. To start with, Jeb Hensarling, the Republican chairman of the committee for the past six years, has retired. Hensarling was perhaps the most committed free-market and limited government voice on the committee, working to rein in the enormous government footprint in the housing market, bring accountability to the Bureau of Consumer Financial Protection, privatize government flood insurance, and drastically reform the structure of the banking system. While it is certain that no Democrats will support that agenda, it is also less than clear how many Republicans on the committee are committed to taking up those tough legislative fights.

For now, the chairmanship of the House Financial Services Committee falls to Rep. Maxine Waters (D-CA), one of President Trump’s most vocal opponents. Rep. Waters is sure to stymie any significant pieces of free-market legislation, such as those included in Hensarling’s Financial CHOICE Act, which passed the House this past session. She is also likely to advance legislation and investigations aimed at undoing some important financial reforms. For example, Rep. Waters introduced the so-called “Consumers First Act,” which would reassert Democrats’ control over the Republican-led Bureau of Consumer Financial Protection.

The current acting director of the Bureau, Mick Mulvaney, has launched a tremendous transformation at the agency. He has thrown out dubious enforcement actions and sought to rewrite disastrous new regulations. He has abolished duplicative departments within the Bureau, added additional ones to improve its rulemaking process, abolished the ideologically slanted Consumer Advisory Board, and sought to rethink the entire Bureau’s internal operations by seeking public comment. While mere Democratic control of the House will not change any of those things, Rep. Waters can slow down this progress through investigations and subpoenas, especially since the Bureau has set out for itself an expansive deregulatory agenda. Considering Mulvaney is also the head of one of the most consequential government agencies, the Office of Management and Budget, which has overseen President Trump’s deregulatory agenda, it may be a hindrance to weigh him down with hearings, investigations, and subpoenas as the head of two critical agencies.

In order to continue on reforming the Bureau’s internal operations, the Senate must confirm a permanent director. Kathy Kraninger, whose nomination hearing was this past July, is awaiting confirmation in the Senate. While Mulvaney has done a fantastic job overseeing the Bureau’s transition, it is time to appoint a permanent director who can follow through with the expansive internal reforms.

One area that should see some bipartisan support in the House is capital markets reform. A package of 21 bills, which has been labeled the “JOBS Act 3.0,” passed the House by an overwhelming bipartisan margin of 406-4. The Senate should look to pass this package during the lame duck session, but if not, it would be a welcome bipartisan moment for Rep. Waters to reintroduce and champion these common-sense reforms in the new Congress.

So while there is some hope for limited bipartisan financial services reform, once again, the real action will be at the agency level. In particular, the Bureau of Consumer Financial Protection is going through a major transition, right-sizing its regulatory mission in order to promote innovation and access to credit for consumers. The Office of the Comptroller of the Currency is also embarking on a mission to embrace financial innovation with its “fintech charter.” These efforts will be at the core of the Republican financial services agenda—and the extent of their success may hinge on the oversight role of the House Financial Services Committee’s Democrats.