What Is the Dodd-Frank Wall Street Reform an🌠d Consumer Pro♔tection Act?

The Dodd-Frank Wall Street Reform and Consumer Protection Act, commonly known as the Dodd-Frank Act or Dodd-Frank, is legislation that was passed by the U.S. Congress in response to financial industry behavior that led to the financial crisis of 2007–2008. It sought to make the꧃ U.S. financ𝕴ial system safer for consumers and taxpayers.

Named for sponsors Sen. Christopher J. Dodd (D-Conn.) and Rep. Barney Frank (D-Mass.), the act contains numerous provisions, spelled out over 848 pages, that were to be implemented over a period of several years.

Understanding the Dodd-Frank Act

The Dodd-Frank Act is a massive piece of 澳洲幸运5官方开奖结果体彩网:financial reform legislation that was passed in 2010, during the Barack Obama presidential administration.

It established a number of new government agencies tasked with overseeing the various components of the law and, by extension, various aspects of the 澳洲幸运5官方开奖结果体彩网:financial system.

The 2007–2008 financial crisis is perhaps the worst economic catastrophe to be꧙fall the country (and the world) since the Wall S💜treet crash in 1929. Broadly speaking, it was caused by greed-driven behavior and lax oversight of financial institutions.

The loosening of financial industry regulations in the decades 🌱leading up to 200♕7 allowed various types of institutions in the U.S. financial services industry to lend money in ways that were riskier than ever before. The housing sector in particular experienced massive growth that couldn’t be supported.

The bubble burst, sending the banking industry and global stock markets into a downfall. It created the worst global 澳洲幸运5官方开奖结果体彩网:recession in generations.

Dodd-Frank wa𓆏s created to keep anything simil🌊ar from ever happening again.

Components of the Dodd-Frank Act

Here are some of the law’s key prov🎶isions and how they wor🦂k:

• Financial Stability: Under the Dodd-Frank Act, the Financial Stability Oversight Council and the Orderly Liquidation Authority monitor the financial stability of major financial firms. The failure of these companies (deemed 澳洲幸运5官方开奖结果体彩网:too big to fail) could have a serious negative impact on the U.S. economy. The law also provides for liquidations or restructurings via the Orderly Liquidation Fund. This fund was established to assist with the dismantling of financial companies that have been placed in receivership to prevent tax dollars from being used to prop up such firms. The council has the authority to break up banks that are considered so large as to pose 澳洲幸运5官方开奖结果体彩网:systemic risk. It can also force banks to increase their reserve requirements. Similarly, the new 澳洲幸运5官方开奖结果体彩网:Federal Insurance Office was tasked with identifying and monitoring insurance companies that were also considered too big to fail.
• Consumer Financial Protection Bureau: The 澳洲幸运5官方开奖结果体彩网:Consumer Financial Protection Bureaဣu (CFPB), established under Dodd-Frank, was given the job of preventing predatory mortgage lending and helping consumers to understand the terms of a mortgage before agreeing to it. This reflected the widespread sentiment that the 澳洲幸运5官方开奖结果体彩网:subprime mortgage market was the underlying cause of the 2007–2008 catastrophe. The CFPB deters mortgage brokers from earning higher commissions for closing loans with higher fees and/or higher interest rates. It requires that 澳洲幸运5官方开奖结果体彩网:mortgage originators not steer potential borrowers to the loan that will result in the highest payment for the originator. The CFPB also governs other types of consumer lending, including credit and debit cards, and addresses consumer complaints. It requires lenders, excluding those making automobile loans, to disclose information in a form that is easy for consumers to read and understand. Such an example is the simplified terms now on credit card applications.
• Volcker Rule: The 澳洲幸运5官方开奖结果体彩网:Volcker Rule restricts how banks can invest, limits speculative trading, and eliminates 澳洲幸运5官方开奖结果体彩网:proprietary trading. Banks are not allowed to be involved with hedge funds or private equity firms, which are considered too risky. To minimize possible conflicts of interest, financial firms are not allowed to trade proprietarily without sufficient “skin in the game.” The Volcker Rule is clearly a pushback in the direction of the 澳洲幸运5官方开奖结果体彩网:Glass-Steagall Act of 1933, which first recognized the inherent dangers of financial entities extending commercial and investment banking services at the same time. The act also contains a provision for regulating 澳洲幸运5官方开奖结果体彩网:derivatives, such as the 澳洲幸运5官方开奖结果体彩网:credit default swaps that were widely blamed for contributing to the 2007–2008 financial crisis. Dodd-Frank set up centralized exchanges for swaps trading to reduce the possibility of counterparty default. It required greater disclosure of swaps trading information to increase transparency in those markets. The Volcker Rule also regulates financial firms’ use of derivatives in an attempt to prevent “too big to fail” institutions from taking large risks that might wreak havoc on the broader economy.
• Securities and Exchange Commission (SEC) Office of Credit Ratings: Dodd-Frank established the SEC Office of Credit Ratings because 澳洲幸运5官方开奖结果体彩网:credit rating agencies had been accused of giving out misleading favorable investment ratings in the lead-up to the financial crisis. The office is charged with ensuring that agencies provide meaningful and reliable credit ratings of the businesses, municipalities, and other entities that they evaluate.
• Whistleblower Program: Dodd-Frank also strengthened and expanded the existing whistleblower program promulgated by the 澳洲幸运5官方开奖结果体彩网:Sarbanes-Oxley Act (SOX) of 2002. Specifically, it established a mandatory bounty program under which 澳洲幸运5官方开奖结果体彩网:whistleblowers can receive from 10% to 30% of the proceeds from a litigation settlement, broadened the scope of a covered employee by including employees of a company’s subsidiaries and affiliates, and extended the statute of limitations under which whistleblowers can bring forward a claim against their employer from 90 to 180 days after a violation is discovered.
  

Effort to Roll Back the Dodd-Frank Act

When Donald Trump was elected president in 2016, he pledged to repeal Dodd-Frank. Siding with critics, the U.S. Congress passed the Economic Growth, Regulatory Relief, and Consumer Prot🌠ection Act, which rolled back s🔯ignificant portions of the Dodd-Frank Act.

It was signed into law by then-President Trump on May 24, 2018.

These are some of the provisions of that l♎aw, and some of the ar🅷eas in which previous standards were loosened:

• The new law eased the Dodd-Frank regulations for small and regional banks by increasing the asset threshold for the application of prudential standards, 澳洲幸运5官方开奖结果体彩网:stress test requirements, and mandatory risk committees.
• For institutions that have custody of clients’ assets but do not function as lenders or traditional bankers, the law provided for lower 澳洲幸运5官方开奖结果体彩网:capital requirements and leverage ratios.
• It exempted escrow requirements for residential mortgage loans held by a depository institution or credit union under certain conditions. It also directed the 澳洲幸运5官方🍰开奖结果体彩网:Federal Housing Finance Agen൲cy (FHFA) to set up standards for 澳洲幸运5官方开奖结果体彩网:Freddie Mac and 澳洲幸运5官方开奖结果体彩网:Fannie Mae to consider alternative credit scoring methods.
• The law exempted lenders with assets of less than $10 billion from requirements of the Volcker Rule and imposed less stringent reporting and capital norms on small lenders.
• It required that the three major credit reporting agencies allow consumers to freeze their credit files free of charge as a way of deterring fraud.

After Joe Biden was elected presiden꧙t in 🅘2020, the CFPB focused on rescinding rules from the Trump era that were in direct conflict with the charter of the CFPB.

The Biden administration also announced its intent to reestablish rules against other forms of predatory lending, such as 澳洲幸运5官方开奖结果体彩网:payday loans. On June 30, 2023, Biden signed a law to overturn the payday lending regulations of the Office of the Comptroller of the Currency (OCC). Additionally, 澳洲幸运5官方开奖结果体彩网:subprime auto loan practices are being addressed by the CFPB.

Trump returned to office in January 2025 and promised financial deregulation. On Feb. 1, 2025, he fired CFPB Director 澳洲幸运5官方开奖结果体彩网:Rohit Chopra.

Criticism of the Dodd-Frank Act

Proponents of Dodd-Frank 🎐believed that the law would prevent the economy from experiencing a crisis like that of 2007–2008 and protect consumers from many of the abuses that ꧅contributed to the crisis.

Detractors, however, have argued that the law could harm the competitiveness of U.S. firms relative to their foreign counterparts. In particular, they contend that its regulatory compliance requirements unduly burden community banks and smaller financial institutions, despite the fact that they played no role in causing the financial crisis.

Such financial world notables as former Treasury Secretary Larry Summers, Blackstone Group L.P. (BX) CEO Stephen Schwarzman, activist Carl Icahn, and JPMorgan Chase & Co. (JPM) CEO Jamie Dimon also argued that, while each institution is undoubtedly safer due to the capital constraints imposed by Dodd-Frank, the constraints make for a more illiquid market overall.

The lack of liquidity can be especially detrimental in the bond market, where all securities are not 澳洲幸运5官方开奖结果体彩网:marked to market and many bonds lack a constant supply of buyers and sellers. The higher reserve requirements under Dodd-Frank mean that banks must keep a higher percentage of their assets in cash. This decreases the amount that they are able to hold in marketable securities.

In effect, this limits the bond market-making role that banks have traditionally undertaken. With banks unable to play the part of a 澳洲幸运5官方开奖结果体彩网:market maker, prospective buyers are likely to have a harder time finding counteracting sellers. More⛎ importantly, prospective sellers may find it more difficult to find count🐎eracting buyers.

The Bottom Line

The Dodd-Frank Act, enacted in 2010, was a direct response to the financial crisis of 2007–2008 and the ensuing government bailouts under the 澳洲幸运5官方开奖结果体彩网:Troubled Asset Relief Program (TA𒀰💯RP).

This law established a wide range of reform♍s throughout the entire financial system, with the purpose of preventing a repeat of the 2007–2008 crisis and to prevent further government bailouts. The Dodd-Frank Act also included additional protections for consumers.

Although the first Trump administration reversed and weakened several aspects of the Dodd-Frank Act, particularly those affecting consumers, t🐬he Biden administration sought to reestablish and strengthen the prܫevious reversals to protect individuals who may be subject to predatory lending practices in industries such as for-profit education and automobiles. The second Trump administration may roll back the Biden administration’s efforts.