What is the Dodd-Frank Wall Street Reform and Consumer Protection Act?
The Dodd-Frank Wall Street Reform and Consumer Protection Act was created in response to the 2008 financial crisis. Named after sponsors Senator Christopher J. Dodd (D-Conn.) And Barney Frank (D-Mass.). It contains a number of provisions spelled out over approximately 2,300 pages that were to be enforced over a period of several years.
- The Dodd Frankwall Street Reform and Consumer Protection Act targeted sectors of the financial system believed to have caused the 2008 financial crisis, including banks, mortgage lenders, and credit rating agencies.
- Law critics argue that the regulatory burden imposed by the law can make US companies less competitive than foreign companies.
- In 2018, Congress passed a new law revoking some of Dodd-Frank’s restrictions.
Understanding Dodd-Frank Wall Street Reform and Consumer Protection Act
The Dodd-Frank Wall Street Reform and Consumer Protection Act is a major financial reform bill passed under the Obama administration in 2010. The Dodd-Frank Wall Street Reform and Consumer Protection Act (usually shortened to the Dodd-Frank Act only) is a number of new government agencies tasked with overseeing different elements of the law and thus different aspects of the financial system. Was established.
The Dodd-Frank Wall Street Reform and Consumer Protection Act aimed to prevent another financial crisis like 2008.
A component of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
These are some of its key provisions and how they work.
- Financial Stability: Under the Dodd-Frank Act, the Financial Stability Oversight Commission and orderly clearing bodies are of major financial companies as the bankruptcy of a major financial company can have a serious negative impact on the U.S. economy. Monitoring financial stability (failed “). The law was also established to support the dismantling of financial companies that became trustees and prevent taxes from being used to support such companies. It regulates clearing or restructuring through an orderly clearing fund. The council has the authority to dissolve banks that are considered large enough to pose systemic risks. It also gives them their reserves. You can force more requirements. Similarly, the new federal insurance firm was tasked with identifying and monitoring insurers that were considered “too big to fail.”
- Consumer Financial Protection Bureau: The Consumer Financial Protection Bureau (CFPB), founded under Dodd-Frank, was given the task of preventing predatory mortgage lending (subprime mortgage market in 2008). Reflects the widespread sentiment that it is the root cause of the catastrophe). It’s easier to understand the terms of a mortgage before the consumer agrees. It discourages mortgage brokers from earning higher fees and / or higher fees for closing loans at higher interest rates and requires mortgage originators not to direct potential borrowers to loans. ..CFPB also manages other types of consumer finance, such as credit and debit cards, and handles consumer complaints. Lenders, excluding car lenders, need to disclose information in a form that is easy for consumers to read and understand. An example is the simplified terminology currently used in credit card applications.
- Volcker Rule: Another key element of Dodd-Frank, the Volcker Rule limits the ways banks can invest, limits speculative trading, and eliminates proprietary trading. Banks are not allowed to engage in hedge funds or private equity firms that are considered too risky. To minimize possible conflicts of interest, financial companies are not allowed to trade exclusively without sufficient “in-game skins”. The Volcker Rule was clearly a setback in the direction of the Glass-Steagall Act of 1933, first recognizing the inherent dangers of financial institutions expanding commercial and investment banking services at the same time.The law also includes provisions to regulate derivatives such as credit default swaps, which have been widely accused of contributing to the 2008 financial crisis. Dodd-Frank has established a centralized exchange for swap transactions to reduce the possibility of counterparty defaults and has also requested more disclosure of swap transaction information to increase the transparency of their markets. bottom. The Volcker Rule also regulates the use of derivatives by financial companies to prevent “too big to fail” financial institutions from taking significant risks that could hurt the wider economy.
- Securities and Exchange Commission (SEC) Credit Rating Agency: Dodd Frank establishes SEC Credit Rating Agency after credit rating agencies have been accused of contributing to the financial crisis by providing misleadingly favorable investment ratings. Did. The office is responsible for ensuring that it provides a meaningful and credible credit rating for companies, local governments, and other entities evaluated by government agencies.
- Whistleblower Program: Dodd-Frank has also strengthened and expanded the existing Whistleblower Program promulgated by the Survey Oxley Act (SOX). Specifically, we have established a compulsory incentive program that allows whistleblowers to receive 10% to 30% of the litigation settlement, and include employees of the company’s subsidiaries and affiliates to cover the scope of eligible employees. Expanded and expanded the statute of limitations. Whistleblowers may file a claim against their employer 90 to 180 days after the breach is discovered.
Economic growth, deregulation, and consumer protection legislation
When Donald Trump was elected president in 2016, he promised to abolish Dodd Frank, and in May 2018, the Trump administration signed a new law rolling back that important part. On the side of critics, the US Parliament has passed economic growth, deregulation, and consumer protection legislation that rolls back a significant portion of the Dodd-Frank Act. It was signed by President Trump on May 24, 2018. These are some of the provisions of the new law and some of the areas where the standards have been relaxed.
- The new law eases Dodd Frank’s regulation of small and local banks by raising asset thresholds for applying soundness standards, stress testing requirements, and mandatory risk committees.
- For institutions that manage their clients’ assets but are not functioning as lenders or traditional bankers, the new law provides for lower capital requirements and leverage ratios.
- The new law exempts escrow requirements for mortgages held by depository institutions or credit unions under certain conditions. It also directs the Federal Home Finance Bureau to set criteria for Freddie Mac and Fannie Mae to consider alternative credit scoring methods.
- The law exempts lenders with assets less than $ 10 billion from the requirements of the Volcker Rule and imposes less stringent reporting and capital standards on smaller lenders.
- The law requires three major credit reporting agencies to allow consumers to “freeze” their credit files for free as a way to stop fraud.
Dodd-Frank Wall Street Reform and Consumer Protection Act Criticism
Proponents of Dodd Frank believed that the law would prevent the economy from experiencing a crisis like 2008 and protect consumers from the many abuses that caused the crisis. However, critics argue that the law could undermine the competitiveness of US companies with foreign companies. In particular, they claim that their regulatory compliance requirements are overburdening community banks and small financial institutions …