Who is Dodd-Frank & Why is He Important to Me?

First of all, “Dodd-Frank” isn’t one person… it is 2 guys! Named after its Democratic sponsors in Congress, Senator Chris Dodd and Representative Barney Frank, the law aimed at preventing a repeat of the 2008 financial crisis.

In short, by definition:

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.

 Because the “Great Recession” of the late 2000’s was due in part to low regulation and high reliance on large banks, one of the main goals of the Dodd-Frank act is to reduce federal dependence on the banks by subjecting them to a myriad of regulations and breaking up any companies that are “too big to fail.” The act created the Financial Stability Oversight Council (FSOC) to address persistent issues affecting the financial industry and prevent another recession.  Banks are required to have “funeral plans” for a swift and orderly shutdown in the event that the company goes under. By keeping the banking system under a closer watch, the act seeks to eliminate the need for future taxpayer-funded bailouts.

The act also created the Consumer Financial Protection Bureau (CFPB), to protect consumers from large, unregulated banks. The CFPB consolidated the consumer protection responsibilities of a number of existing bureaus, including the Department of Housing and Urban Development, the National Credit Union Administration and the Federal Trade Commission. The CFPB works with regulators in large banks to stop business practices that hurt consumers, such as risky lending. In addition to regulatory control, the CFPB provides consumers with access to truthful information about mortgages and credit scores along with a twenty-four hour toll-free consumer hotline to report issues with financial services.

To both ensure cooperation by financial insiders and fight corruption in the financial industry, the Dodd-Frank Act contains a whistle blowing provision, wherein persons with original information about security violations can report said information to the government for a financial reward.

US regulators are now in the process of churning out hundreds of new rules that cover everything from limiting proprietary trading (taking bets with a bank’s own money rather than for clients) to regulating swaps dealers.

US president Barack Obama, who signed the act into law, said: “The American people will never again be asked to foot the bill for Wall Street’s mistakes,” but many in the financial services sector say the law and accompanying regulations are confusing, expensive and in some cases unworkable.