Moderate Democrats join with GOP in attempt to ease bank regulations

Maureen Groppe | USA TODAY

Show Caption Hide Caption A look at U.S. Sen. Joe Donnelly's political career Joe Donnelly, a Democratic U.S. senator representing Indiana, got his start in politics in the late 1980s. (August 2017)

WASHINGTON — With critical help from moderate Democrats like Indiana’s Sen. Joe Donnelly, Congress is moving to ease some of the banking regulations imposed after the 2008 financial crisis.

The Senate is expected to begin debate Tuesday on a bill that the trade publication American Banker has called the industry’s best chance at rolling back financial regulations since the Dodd-Frank financial reform law was passed in 2010.

Donnelly is one of four Democrats on the Senate banking committee who worked with Republicans on the legislation that doesn’t go as far as a House-passed bill, but also doesn’t include consumer protections sought by other Democrats. It does include a provision Donnelly authored to help the manufactured housing industry, which has a large presence in Indiana.

Donnelly, one of the most vulnerable Democrats facing re-election this year, has been applauded for his efforts by bankers.

“Indiana’s own Sen. Joe Donnelly recently helped craft a bill that would provide significant regulatory relief for local credit unions and banks,” Kevin Ryan, president and CEO of Financial Center First Credit Union in Indianapolis, wrote in a recent opinion piece praising the legislation.

Radio ads paid for by the Credit Union National Association urged listeners last fall to "Tell Joe Donnelly you’re grateful for his leadership on common sense financial reform."

In addition to the public testimonials, Donnelly also received the second largest amount of campaign contributions from commercial banks to senators so far this election cycle, according to the nonpartisan Center for Responsive Politics.

But the legislation is opposed by consumer advocates like Indianapolis resident Carli Stevenson who says there’s no “groundswell of support among Hoosier voters for deregulating an industry that caused so much hardship in our state and caused so many foreclosures.”

“This is the kind of thing that sounds like a good idea, sounds like something (Donnelly) can use to show that he is a reasonable, bipartisan guy,” said Stevenson, a campaigner for Demand Progress. “But it’s something that is not popular with anybody.”

The bill’s biggest change to the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act would remove all but the largest banks from the act’s toughest restrictions. Supporters say too many institutions that weren't part of the problem got caught up in the rules.

Donnelly argues the changes will make it easier for families to get mortgages and for businesses to access capital. He has also touted a provision requiring credit report firms to give consumers unlimited, free credit freezes to prevent identity thieves from opening accounts in someone else's name. (That provision is a response to a massive data breach at Equifax, one of those firms.)

“This legislative package demonstrates that this committee, and the Senate as a whole, has within itself the ability to break through gridlock and solve difficult issues if we work together in good faith,” Donnelly said during the banking committee’s consideration in December.

During that markup, Donnelly was one of four Democrats who banded together with the panel’s Republicans to block changes sought by other Democrats. The bill’s supporters worried adopting the amendments — many of them consumer protections — would cause the underlying bipartisan agreement to break apart.

The banking committee’s top Democrat, Ohio Sen. Sherrod Brown — who had earlier pulled out of the bipartisan negotiations over the bill — said the final version “does nearly nothing for consumers, while putting taxpayers at risk of another bank bailout and scaling back protections for homeowners.”

The heads of local banks have complimented Donnelly, and argued that loosening the regulations will better help them serve customers.

George W. Ferriell, president and CEO of a small agricultural community bank in Bath, said his staff has been spending more time in the office, reviewing regulations, than out in the field with customers.

And First Savings Bank of Clarksville has had to reject a mortgage loan it would have previously been able to approve, because the current rules wouldn’t let the bank take into account income the client had received from a business sold on contract.

“At this point, we make too many business decisions based on regulations versus serving the client,” bank president Larry W. Myers said in a statement.

The legislation appears to have enough support from Democrats to avoid a filibuster when the Senate votes Tuesday to call the bill up for debate. No House Democrat supported the version that passed the House last year, which would repeal large swaths of Dodd-Frank. So House Republicans will be under pressure to acquiesce to a bill that can get through the Senate.