Dodd-Frank

Overview:

The Dodd-Frank Act (fully known as the Dodd-Frank Wall Street Reform and Consumer Protection Act) is a United States federal law that places regulation of the financial industry in the hands of the government. The legislation, enacted in July 2010, aims to prevent another significant financial crisis by creating new financial regulatory processes that enforce transparency and accountability while implementing rules for consumer protection.

Years without accountability for Wall Street and big banks brought us the worst financial crisis since the Great Depression, the loss of 8 million jobs, failed businesses, a drop in housing prices, and wiped out personal savings.

The failures that led to this crisis require bold action.  We must restore  responsibility and accountability in our financial system to give Americans confidence that there is a system in place that works for and protects them.  We must create a sound foundation to grow the economy and create jobs.

Highlights of the Legislation:

Consumer Protections with Authority and Independence: Creates a new independent watchdog, housed at the Federal Reserve, with the authority to ensure American consumers get the clear, accurate information they need to shop for mortgages, credit cards, and other financial products, and protect them from hidden fees, abusive terms, and deceptive practices. 

Ends of Too Big to Fail Bailouts: 

Ends the possibility that taxpayers will be asked to write a check to bail out financial firms that threaten the economy  by: creating a safe way to liquidate failed financial firms; imposing tough new capital and leverage requirements that make it undesirable to get too big; updating the Fed’s authority to allow system-wide support but no longer prop up individual firms; and establishing rigorous standards and supervision to protect the economy and American consumers, investors and businesses.

 Advance Warning System:

Creates a council to identify and address systemic  risks posed by large, complex companies, products, and activities before they threaten the stability of the economy.  

Transparency & Accountability for Exotic Instruments:

Eliminates loopholes that allow risky and abusive practices to go on unnoticed and unregulated — including loopholes for over-the-counter derivatives, asset-backed securities, hedge funds, mortgage brokers and payday lenders.

Executive Compensation and Corporate Governance:

Provides shareholders with a say on pay and corporate affairs with a non-binding vote on executive compensation and golden parachutes. Protects Investors: Provides tough new rules for transparency and accountability for credit rating agencies to protect investors and businesses.

Enforces Regulations on the Books:

Strengthens oversight and empowers regulators to aggressively pursue financial fraud, conflicts of interest and manipulation of the system that benefits special interests at the expense of American families and businesses.

Highlights of the Legislation 

The Consumer Financial Protection Bureau

Independent Head: Led by an independent director appointed by the President and confirmed by the Senate. 

Independent Budget: Dedicated budget paid by the Federal Reserve 

Independent Rule Writing:

Able to autonomously write rules for consumer protections governing all financial institutions – banks and non-banks offering consumer financial services or products.

Examination and Enforcement:

Authority to examine and enforce regulations for banks and credit unions with assets of over $10 billion and all mortgage-related businesses (lenders, servicers, mortgage brokers, and foreclosure scam operators), payday lenders, and student lenders as well as other non-bank financial companies that are large, such as debt collectors and consumer reporting agencies.  Banks and Credit Unions with assets of $10 billion or less will be examined for consumer complaints  by the appropriate regulator.

Consumer Protections:

Consolidates and strengthens consumer protection responsibilities currently handled by the Office of the Comptroller of the Currency, Office of Thrift Supervision, Federal Deposit Insurance Corporation, Federal Reserve, National Credit Union Administration, the Department of Housing and Urban Development, and Federal Trade Commission. Will also oversee the enforcement of federal laws intended to ensure the fair, equitable and nondiscriminatory access to credit for individuals and communities.

Able to Act Fast: 

With this Bureau on the lookout for bad deals and schemes, consumers won’t have to wait for Congress to pass a law to be protected from bad business practices. 

Educates: Creates a new Office of Financial Literacy.

Consumer Hotline:

Creates a national consumer complaint hotline so  consumers will have, for the first time, a single toll-free number to report problems with financial products and services.

Accountability:

Makes one office accountable for consumer protections.  With many agencies sharing responsibility, it’s hard to know who is responsible for what, and easy for emerging problems that haven’t historically fallen under anyone’s purview, to fall through the cracks. 

Working with Bank Regulators:

Coordinates with other regulators when examining banks to prevent undue regulatory burden.  Consults with regulators before a proposal is issued and regulators could appeal regulations they believe would put the safety and soundness of the banking system or the stability of the financial system at risk. 

Clearly Defined Oversight: 

Protects small business from unintentionally being regulated by the CFPB, excluding businesses that meet certain standards.