Rep. Maxine Waters, D-Calif., said a financial reform bill offered by House Financial Services Committee Chairman Jeb Hensarling "simply cannot be fixed."
Rep. Maxine Waters, D-Calif., said a financial reform bill offered by House Financial Services Committee Chairman Jeb Hensarling "simply cannot be fixed." Bloomberg News

WASHINGTON — When the House Financial Services Committee scheduled a vote this week for a 500-page financial reform bill that touched on a host of critical issues to the banking industry, it was supposed to last at least two days.

Instead, it lasted less than two hours.

That's because rather than offer amendments and foster debate on topics like a cap on debit interchange fees or the structure of the consumer protection regulator, Democrats opted to essentially sit on their hands.

Though Chairman Jeb Hensarling accused Democrats of rolling over on the bill, analysts said it was a shrewd political move. It essentially made an anticlimactic finish to a bill that had been touted by Hensarling since the beginning of the summer.

"I'm not surprised that the Democrats sat it out," said Ian Katz, a policy analyst at Capital Alpha Partners. "If you disagree with pretty much everything in a bill, it seems illogical to offer specific changes."

Yet it was an unusual decision. Although Democrats often disagree with bills put forward by Hensarling, there is usually at least some effort to force a discussion on certain topics. Instead, Rep. Maxine Waters, the top Democrat on the committee, said the bill "simply cannot be fixed."

By not offering amendments, Democrats were able to spare members some tough votes on specific issues and not tip their hand on potential compromises further down the road.

"A cop-out, but perhaps a smart one given the position they are in" said Mark Calabria, director of financial regulation studies at the Cato Institute, and a former top aide to the Senate Banking Committee.

Katz said the move allowed Democrats to appear "to be taking a principled stand without much downside risk."

One provision, for example, would have scrapped the so-called Durbin Amendment, a cap on debit interchange fees that was part of the Dodd-Frank Act of 2010. But lawmakers on both sides of the aisle were uncomfortable taking a vote on that measure, as it pits them between two deep-pocketed constituencies: retailers and banks. Most were happy to avoid bringing up the issue.

"There is nothing to be gained by voting on controversial measures on legislation that is not going to pass," said Brian Gardner, an analyst at Keefe, Bruyette & Woods of the amendment that puts two powerful industries at odds.

The Democrats were also emboldened by a recent enforcement action levied against Wells Fargo by the Consumer Financial Protection Bureau, the Los Angeles City Attorney and the Office of the Comptroller of the Currency.

The $190 million in fines and restitution against the bank exposed misconduct that included employees creating unwanted bank and credit card accounts for customers to meet sales incentives. Though Hensarling's bill would have increased financial penalties for firms caught in wrongdoing, it also would have made structural changes to the CFPB. Democrats saw those provisions as a way to gut the young agency.

"If there was an internal debate before the markup" of whether to offer amendments and debate the bill, "I think Wells' solidified their position" to not to engage, said Oliver Ireland, a partner at Morrison and Foerster.

The bill, which was titled the Financial Choice Act included language that would have replaced the CFPB's single director with a five-member commission and subjected it to the Congressional appropriations process, which progressive Democrats staunchly oppose. The Wells enforcement action gave the bureau more political capital at exactly the right time. It also is likely to impact the debate next year, when the Choice Act is likely to resurface in some form.

"It was an uphill to path to make any changes to Dodd-Frank and among those, changes to the CFPB were the least likely to pass," said Gardner. "If a bill were to move in 2017, prospects that it would include any kind of changes [to the CFPB] have been greatly diminished."

However, Congress is still in the process of debating how to fund the government past September and leaders have indicated that they would like to vote on a stopgap measure soon so members can get back to their districts ahead of the November elections.

A shorter-term budget band aid would present an opportunity for another debate before the next Congress and administration take office.

"Maybe there is a small item that could get stuffed into an appropriations bill," said Gardner. "It is possible, but I think that would be a one-off and would be a very targeted piece of legislation."

An example could be legislation that would grant "qualified mortgage" status to mortgages held on balance sheet, thus providing more protection for institutions from potential lawsuits.

The House has already passed a bill that would do so, while Democratic presidential nominee Hillary Clinton has endorsed a similar measure for financial institutions with less than $10 billion in assets.

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