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Memo from a key congressman outlines plan to gut Dodd-Frank bank rules

House Financial Services Chairman Jeb Hensarling is strengthening his attack on the Consumer Financial Protection Bureau and scaling back regulations on bank living wills and stress tests in new legislation expected to be introduced soon, according to a memo obtained by CNBC.

The bill is more aggressive than the version of the Financial Choice Act passed by the committee last fall, with some of the biggest changes directed at the CFPB. The bill would turn the head of the consumer watchdog agency into a political appointee who can be dismissed at will rather than the director of an independent agency, the memo states. The previous bill called for a five-member commission to lead the CFPB.

According to the memo, the bill would strip the agency of its authority to bring cases against financial institutions under a provision known as unfair, deceptive and abusive practices, and eliminate databases of consumer complaints.

Rep. Jeb Hensarling
Tom Williams | CQ Roll Call
Rep. Jeb Hensarling

The bill also would remove the Federal Deposit Insurance Corp. from handling "living wills," which outline the steps banks must take if they collapse. Currently, the FDIC and the Federal Reserve manage the process. Annual bank "stress tests" would move to a two-year cycle, and some capital requirements would be relaxed.

However, the memo does not specify any changes to the original bill's reforms of the Fed. That required the Fed to adopt rules for changing monetary policy and provide an explanation when it deviates from that strategy. The original bill gives the Government Accountability Office more power to audit the independent institution and mandates that the Fed conduct cost-benefit analysis when crafting new rules.

The memo outlining the updates to the Texas Republican's bill was dated Feb. 6 and addressed to the committee's leadership team. A spokesman from Hensarling's office said he could not confirm its accuracy.

Democratic Rep. Maxine Waters, the committee's ranking member, called the proposed changes to the bill a "disastrous blueprint."

"This new version of the chairman's Wrong Choice Act is even worse than the original," Waters said in a statement. "This bill makes it crystal clear that Republicans mean to disarm our consumer protections, expose the American public to financial predators, and ultimately steer us in the direction of another Great Depression."

The changes to the CFPB could also meet opposition from some industry groups. The Consumer Bankers Association, the Credit Union National Association, the Independent Community Bankers Association and the National Association of Federal Credit Unions had supported Hensarling's previous effort to establish a bipartisan commission to run the agency.

"The current single director structure leads to regulatory uncertainty for consumers, industry, and the economy," the groups wrote in a joint letter to Senate leaders in December.