11.15.2016 Trump Appears Poised to Dismantle Dodd-Frank

With the election of Donald J. Trump to the Presidency, there are sure to be lots of changes coming to Washington, D.C., in the months ahead. One of these changes could be the dismantling of Dodd-Frank.

As we noted in a recent article, critics of the Dodd-Frank Wall Street Reform and Consumer Protection Act started trying to repeal it almost as soon as the ink was dry on the legislation. Of course, there was zero chance of this happening as long as a Democrat was in the White House. But Trump’s election changes everything.

Reading the Tea Leaves

The first sign that repeal or a significant revamping of Dodd-Frank might be coming sooner rather than later came a few days after the election when a note appeared on the President-elect’s transition website (www.greatagain.gov) addressing financial regulatory reform. The note stated that the administration intends to follow through on Trump’s campaign promise to replace Dodd-Frank “with new policies to encourage economic growth and job creation.”

The transition website calls Dodd-Frank “a sprawling and complex piece of legislation that has unleashed hundreds of new rules and several new bureaucratic agencies.”

A Revamping Blueprint

A bill passed a couple of months ago by the House Financial Services Committee could serve as a blueprint for revamping Dodd-Frank. The Financial CHOICE Act — which was sponsored by Republican Jeb Hensarling, one of the most prominent critics of Dodd-Frank — would repeal the Volker Rule and remove the Durbin Amendment, among other actions.

The Volker Rule prevents banks from conducting certain investment activities with their own accounts and limits banks’ ownership of covered funds (i.e., hedge funds and private equity funds). The Durbin Amendment sets a limit on certain fees that banks are allowed to charge retailers for debit card transactions.

The Financial CHOICE would also undo the Dodd-Frank provision that requires banks to meet higher capital requirements by raising billions of additional dollars. Instead, banks could use a process referred to as capital election that would give them a choice as to whether or not to hold additional capital to meet the higher requirements. Doing so would give banks regulatory relief, but they wouldn’t be required to raise additional capital.

Not too surprisingly, Trump’s election sparked a rally in bank stocks in the immediate aftermath of the election. Most financial institutions would be thrilled to see such legislative provisions as substantial reform of the Consumer Financial Protection Bureau (CFPB) and elimination of the Financial Stability Oversight Council’s authority to designate non-banks as “systemically important.”

Dismantle or Ease?

It’s still uncertain to what degree Dodd-Frank will be changed in a President Trump administration. On the campaign trail, Trump vowed to “dismantle” Dodd-Frank because he said it severely restricts bank lending, which in turn inhibits economic growth. A Trump campaign advisor was quoted in a recent article as saying that “the worst anti-business parts of it will be gutted.”

The same article noted, however, that some bank industry sources are saying behind the scenes that they would prefer an “easing” of some Dodd-Frank rules. “I don’t think that you’re going to see major efforts to throw out Dodd Frank wholesale,” a Trump campaign advisor was quoted as saying in a recent article in The Wall Street Journal.

This article points out that banks do have some skin invested in Dodd-Frank. For example, the CEO of Goldman Sachs is quoted as saying it could be appropriate to look at repealing some parts of the law but he wouldn’t “want to repeal it in toto.”

A New Day Dawns

Despite all the uncertainty, one thing seems clear: A new day is dawning when it comes to financial regulatory reform. We’ll continue to keep you abreast of changes in this area in the months to come.

We’re interested in hearing from you. What do you think about dismantling or repealing Dodd-Frank? Send me an email at steven@lendtrade.com.

11.15.2016 LendingClub Corp. Enters the Auto Loan Refinancing Market

Since it was founded a decade ago, LendingClub.com has become a popular choice for consumers looking to borrow money online. The peer-to-peer lender matches investors with borrowers looking to refinance credit card debt or finance large purchases with unsecured installment loans, typically with three- to five-year maturities.

Last month, LendingClub Corp. announced that it is entering a new market: auto loan refinancing. The company says it can save borrowers an average of $1,350 in interest over the term of the loan by helping them refinance their car loans at lower rates (1 percent to 3 percent lower) with no hidden fees.

Not Top of Mind

Unlike mortgage refinancing, vehicle refinancing isn’t top of mind for most people. Out of the more than $1 trillion in outstanding auto loan debt in the U.S., only about $40 billion is refinanced each year.

“People think a lot about refinancing their mortgage, but they don’t think much about refinancing their vehicle,” said LendingClub CEO Scott Sanborn in a recently published article on DetroitNews.com. According to this article, the company plans to position its auto loan refinancing offering as follows: We know you’ve got a loan, and it’s not a very good loan. Let us show you what we can save you.

LendingClub believes that it can leverage its online lending model to enable consumers to refinance high-interest auto loans. Its timing could prove challenging, though: Due to increased competition, some auto lenders are lowering interest rates and loosening their underwriting standards. This could limit the number of auto loan borrowers who want to refinance their loans.

According to Sanborn, tens of millions of Americans borrow more than $500 billion annually to finance an automobile purchases. But he believes the current process suffers from limited options and poor transparency.

“This has created a gap between the rates consumers pay and the rates they might otherwise qualify for, unnecessarily driving up debt burdens,” Sanborn said in an article recently published on Crowdfundinsider.com. “We are excited to leverage our technology and core capabilities to put thousands of dollars back in consumers’ pockets.”

Starting In California

LendingClub will first introduce its auto loan refi program in California to borrowers with FICO scores higher than 640 before rolling it out nationwide to a wider spectrum of borrowers next year. To qualify for a loan of between $5,000 and $50,000, borrowers will need to own a vehicle that is less than seven years old and has fewer than 80,000 miles on it, as well as have made at least three on-time loan payments.

Eventually, LendingClub will utilize the peer-to-peer marketplace lending model it currently uses for installment loans for auto loan refis. During the early stages of the rollout, though, it will buy loans for its balance sheet, with banks eventually buying prime auto loans.

We’re interested in hearing from you. What do you think about LendingClub entering the auto loan refinancing business? Send me an email at steven@lendtrade.com.