Dodd–Frank Wall Street Reform and Consumer Protection Act

The Dodd–Frank Wall Street Reform and Consumer Protection Act, commonly referred to as Dodd–Frank, is a United States federal law that was enacted on July 21, 2010. The law overhauled financial regulation in the aftermath of the Great Recession, and it made changes affecting all federal financial regulatory agencies and almost every part of the nation's financial services industry.

Responding to widespread calls for changes to the financial regulatory system, in June 2009, President Barack Obama introduced a proposal for a "sweeping overhaul of the United States financial regulatory system, a transformation on a scale not seen since the reforms that followed the Great Depression." Legislation based on his proposal was introduced in the United States House of Representatives by Congressman Barney Frank (D-MA) and in the United States Senate by Senator Chris Dodd (D-CT). Most congressional support for Dodd–Frank came from members of the Democratic Party; three Senate Republicans voted for the bill, allowing it to overcome the Senate filibuster.

Dodd–Frank reorganized the financial regulatory system, eliminating the Office of Thrift Supervision, assigning new jobs to existing agencies similar to the Federal Deposit Insurance Corporation, and creating new agencies like the Consumer Financial Protection Bureau (CFPB). The CFPB was charged with protecting consumers against abuses related to credit cards, mortgages, and other financial products. The act also created the Financial Stability Oversight Council and the Office of Financial Research to identify threats to the financial stability of the United States of America, and gave the Federal Reserve new powers to regulate systemically important institutions. To handle the liquidation of large companies, the act created the Orderly Liquidation Authority. One provision, the Volcker Rule, restricts banks from making certain kinds of speculative investments. The act also repealed the exemption from regulation for security-based swaps, requiring credit-default swaps and other transactions to be cleared through either exchanges or clearinghouses. Other provisions affect issues such as corporate governance, 1256 Contracts, and credit rating agencies.

Dodd–Frank is generally regarded as one of the most significant laws enacted during the presidency of Barack Obama. Studies have found the Dodd–Frank Act has improved financial stability and consumer protection, although there has been debate regarding its economic effects. In 2017, Federal Reserve Chairwoman Janet Yellen stated that "the balance of research suggests that the core reforms we have put in place have substantially boosted resilience without unduly limiting credit availability or economic growth." Some critics argue that it failed to provide adequate regulation to the financial industry; others, such as the American Action Forum and RealClearPolicy, argued that the law had a negative impact on economic growth and small banks. In 2018, parts of the law were repealed and rolled back by the Economic Growth, Regulatory Relief, and Consumer Protection Act.

Origins and proposal

The 2008 financial crisis led to widespread calls for changes in the regulatory system. In June 2009, President Obama introduced a proposal for a "sweeping overhaul of the United States financial regulatory system, a transformation on a scale not seen since the reforms that followed the Great Depression".

As the finalized bill emerged from the conference, President Obama said that it included 90 percent of the reforms he had proposed. Major components of Obama's original proposal, listed by the order in which they appear in the "A New Foundation" outline, include:

1. The consolidation of regulatory agencies, elimination of the national thrift charter, and new oversight council to evaluate systemic risk;
2. Comprehensive regulation of financial markets, including increased transparency of derivatives (bringing them onto exchanges);
3. Consumer protection reforms including a new consumer protection agency and uniform standards for "plain vanilla" products as well as strengthened investor protection;
4. Tools for financial crisis, including a "resolution regime" complementing the existing Federal Deposit Insurance Corporation (FDIC) authority to allow for orderly winding down of bankrupt firms, and including a proposal that the Federal Reserve (the "Fed") receive authorization from the Treasury for extensions of credit in "unusual or exigent circumstances"; and
5. Various measures aimed at increasing international standards and cooperation including proposals related to improved accounting and tightened regulation of credit rating agencies.

At President Obama's request, Congress later added the Volcker Rule to this proposal in January 2010.

Legislative response and passage

The bills that came after Obama's proposal were largely consistent with the proposal, but contained some additional provisions and differences in implementation.

The Volcker Rule was not included in Obama's initial June 2009 proposal, but Obama proposed the rule later in January 2010, after the House bill had passed. The rule, which prohibits depository banks from proprietary trading (similar to the prohibition of combined investment and commercial banking in the Glass–Steagall Act), was passed only in the Senate bill, and the conference committee enacted the rule in a weakened form, Section 619 of the bill, that allowed banks to invest up to 3 percent of their tier 1 capital in private equity and hedge funds as well as trade for hedging purposes.

On December 2, 2009, revised versions of the bill were introduced in the House of Representatives by then–financial services committee chairman Barney Frank, and in the Senate Banking Committee by former chairman Chris Dodd. The initial version of the bill passed the House largely along party lines in December by a vote of 223 to 202, and passed the Senate with amendments in May 2010 with a vote of 59 to 39 again largely along party lines.

The bill then moved to conference committee, where the Senate bill was used as the base text although a few House provisions were included in the bill's base text. The final bill passed the Senate in a vote of 60-to-39, the minimum margin necessary to defeat a filibuster. Olympia Snowe, Susan Collins, and Scott Brown were the only Republican senators who voted for the bill, while Russ Feingold was the lone Senate Democrat to vote against the bill.

One provision on which the White House did not take a position and remained in the final bill allows the SEC to rule on "proxy access"—meaning that qualifying shareholders, including groups, can modify the corporate proxy statement sent to shareholders to include their own director nominees, with the rules set by the SEC. This rule was unsuccessfully challenged in conference committee by Chris Dodd, who—under pressure from the White House—submitted an amendment limiting that access and ability to nominate directors only to single shareholders who have over 5 percent of the company and have held the stock for at least two years.

The "Durbin amendment" is a provision in the final bill aimed at reducing debit card interchange fees for merchants and increasing competition in payment processing. The provision was not in the House bill; it began as an amendment to the Senate bill from Dick Durbin and led to lobbying against it.

The New York Times published a comparison of the two bills prior to their reconciliation. On June 25, 2010, conferees finished reconciling the House and Senate versions of the bills and four days later filed a conference report. The conference committee changed the name of the Act from the "Restoring American Financial Stability Act of 2010". The House passed the conference report, 237–192 on June 30, 2010. On July 15, the Senate passed the Act, 60–39. President Obama signed the bill into law on July 21, 2010.

Repeal efforts

Since the passage of Dodd–Frank, many Republicans have called for a partial or total repeal of Dodd–Frank. On June 9, 2017, The Financial Choice Act, legislation that would "undo significant parts" of Dodd–Frank, passed the House 233–186.

Barney Frank said parts of the act were a mistake and supported the Economic Growth, Regulatory Relief and Consumer Protection Act. On March 14, 2018, the Senate passed the Economic Growth, Regulatory Relief and Consumer Protection Act exempting dozens of U.S. banks under a $250 billion asset threshold from the Dodd–Frank Act's banking regulations. On May 22, 2018, the law passed in the House of Representatives. On May 24, 2018, President Trump signed the partial repeal into law.

Overview

The Dodd–Frank Wall Street Reform and Consumer Protection Act is categorized into 16 titles and, by one law firm's count, it requires that regulators create 243 rules, conduct 67 studies, and issue 22 periodic reports.

The stated aim of the legislation is

To promote the financial stability of the United States by improving accountability and transparency in the financial system, to end "too big to fail," to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes.