Happy Birthday Dodd-Frank!
Can you sense the sarcasm?
We all remember the 2008 financial crisis, and the resulting legislation that was passed two years later to address the supposed “problem,” commonly referred to as Dodd-Frank. Unfortunately for the American people, this massive, 2,300-page boondoggle caused more problems than it was even intended to solve, and became a gateway for federal bureaucrats and politicians in power to snake their way into the financial sector as an even greater stakeholder.
Aside from forcing banks to charge businesses less for customer purchases with credit or debit (thereby ensuring they would make up the revenue in other ways, say by charging for what was once free checking), there were a host of terrible policies that were enacted that had nothing to do with the crisis, according to Heritage:
- “Unchecked authority of the Consumer Financial Protection Bureau (CFPB). Unparalleled powers were granted to the CFPB, including consolidated and expanded regulatory authority over credit and debit cards, mortgages, student loans, savings and checking accounts, and most every other consumer financial product and service. Because the statute sets bureau funding as a fixed proportion of the Federal Reserve’s budget, it is not subject to congressional control. Moreover, its status within the Fed effectively precludes presidential oversight.
- “Orderly Liquidation Authority. Dodd–Frank expands government authority to seize control of firms that regulators designate as failing. Unlike bankruptcy, the process is not directly supervised by a court, and it allows only very limited judicial review, thereby inviting abuse and possibly violating constitutional protections against the taking of private property.
- “The Volcker Rule. As proposed, this rule would effectively bar banks from investing their own funds, in most cases. Lower earnings will undoubtedly increase service fees paid by consumers. The regulation remains in flux—exacerbating the regulatory uncertainty—in large part because Congress was so vague on the particulars and regulators are unfamiliar with the complex derivatives market.
- “The Durbin Amendment. Dodd–Frank empowered the Federal Reserve to regulate the fees that financial institutions may charge retailers for processing debit card purchases. The statute calls for such “interchange” fees to be “reasonable” and “proportional” to the cost of processing debit card transactions—both rather arbitrary measures. The loss of revenue from price controls on debit-card processing is prompting financial institutions to hike fees on a variety of other credit instruments. Consumers are also likely to face higher interest rates and reduced credit options.
- “Qualified mortgage rules. Under Dodd–Frank, the portion of a mortgage loan that a lender can securitize is limited unless the mortgage is “qualified,” i.e., deemed to be low risk. In setting this standard, regulators have severely limited the mortgages that would meet the criteria for “qualified.” The result: Home loans will be costlier and harder to obtain, particularly for moderate-income borrowers.”
Not even all of the rules and regulations included in the bill have gone into effect yet. Some 63 percent of implementation deadlines have been missed, creating so much uncertainty that it’s causing our economy to hold back. If the banks don’t know what penalties will be imposed on them for any number of random, unknown things, how can they effectively operate?
It’s been two years since this harmful legislation was passed, and our economy is no better and no safer for it. Repealing this absurd regulatory regime – and starting over – is the only way to return certainty to our markets and allow our economy to grow again.