The Dodd–Frank Wall Street Reform and Consumer Protection Act, commonly referred to as the Dodd–Frank Act, is a United States federal law enacted on July 21, 2010, as the primary legislative response to the 2007–2008 financial crisis—the worst financial crisis since the Great Depression. Named for its sponsors, Senator Chris Dodd and Representative Barney Frank, the law was signed by President Barack Obama on July 21, 2010. Its stated purposes are to promote financial stability, end "too big to fail," prevent taxpayer-funded bailouts, and protect consumers from abusive financial practices.
The act reorganized financial regulation through three major reforms: it created the Consumer Financial Protection Bureau (CFPB) to protect consumers against predatory lending and unfair financial practices; it established the Financial Stability Oversight Council (FSOC) to monitor systemic risks and designate firms as "systemically important"; and it created the Orderly Liquidation Authority to wind down large failing financial institutions without taxpayer bailouts.
Key regulatory changes include the Volcker Rule, which restricts banks from making speculative investments with depositor funds; requirements for derivatives to be traded through regulated clearinghouses; enhanced Federal Reserve oversight of large financial institutions; and new standards for mortgage lending and credit rating agencies. The law also strengthened whistleblower protections and established data collection requirements for small business lending.
Dodd–Frank is considered one of the most significant financial laws since the New Deal. The CFPB has returned over $21 billion to consumers harmed by illegal practices. Critics argued the law imposed excessive compliance costs on smaller financial institutions, and in 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act rolled back certain requirements, particularly for banks with assets below $250 billion.
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".Sources: Initial speech: Obama B. (June 17, 2009). Remarks by the President on 21st Century Financial Regulatory Reform . White House. Original 89-page proposal document at GPO: A New Foundation : rebuilding financial supervision and regulation . Obama's Financial Reform Plan: The Condensed Version . Wall Street Journal.
As the finalized bill emerged from the conference, President Obama said that it included 90 percent of the reforms he had proposed.Obama B. (June 25, 2010). Remarks by the President on Wall Street Reform . White House. Major components of Obama's original proposal, listed by the order in which they appear in the "A New Foundation" outline, include: The consolidation of regulatory agencies, elimination of the national thrift charter, and new oversight council to evaluate systemic risk; Comprehensive regulation of financial markets, including increased transparency of derivatives (bringing them onto exchanges); Consumer protection reforms including a new consumer protection agency and uniform standards for "plain vanilla" products as well as strengthened investor protection; 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 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 ruleObama on the Volcker 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.Proxy access rule:
The "Durbin amendment"Durbin Amendment to S. 3217 , the Senate version. The amendment passed 64–33 . 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.Durbin Amendment opposition:
The New York Times published a comparison of the two bills prior to their reconciliation.Major Parts of the Financial Regulation Overhaul . New York Times. On June 25, 2010, conferees finished reconciling the House and Senate versions of the bills and four days later filed a conference report.Conference report via House Financial Services Committee 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.Davis Polk. (July 9, 2010). Summary of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Passed by the House of Representatives on June 30, 2010.
The stated aim of the legislation is:
The Act changes the existing regulatory structure, by creating a number of new agencies (while merging and removing others) in an effort to streamline the regulatory process, increasing oversight of specific institutions regarded as a systemic risk, amending the Federal Reserve Act, promoting transparency, and additional changes. The Act's intentions are to provide rigorous standards and supervision to protect the economy and American consumers, investors and businesses; end taxpayer-funded bailouts of financial institutions; provide for an advanced warning system on the stability of the economy; create new rules on executive compensation and corporate governance; and eliminate certain loopholes that led to the 2008 economic recession. The new agencies are either granted explicit power over a particular aspect of financial regulation, or that power is transferred from an existing agency. All of the new agencies, and some existing ones that are not currently required to do so, are also compelled to report to Congress on an annual (or biannual) basis, to present the results of current plans and explain future goals. Important new agencies created include the Financial Stability Oversight Council, the Office of Financial Research, and the Consumer Financial Protection Bureau.
Of the existing agencies, changes are proposed, ranging from new powers to the transfer of powers in an effort to enhance the regulatory system. The institutions affected by these changes include most of the regulatory agencies currently involved in monitoring the financial system (Federal Deposit Insurance Corporation [FDIC], U.S. Securities and Exchange Commission [SEC], Office of the Comptroller of the Currency [OCC], Federal Reserve [the "Fed"], the Securities Investor Protection Corporation [SIPC], etc.), and the final elimination of the Office of Thrift Supervision (further described in Title III—Transfer of Powers to the Comptroller, the FDIC, and the FED).
As a practical matter, prior to the passage of Dodd-Frank, investment advisers were not required to register with the SEC if the investment adviser had fewer than 15 clients during the previous 12 months and did not hold himself out generally to the public as an investment adviser. The act eliminates that exemption, rendering numerous additional investment advisers, hedge funds, and private equity firms subject to new registration requirements. However, the Act also shifted oversight of non-exempt investment advisers with less than $100 million in assets under management and not registered in more than 15 states to state regulators. A 2019 study found that this switch in enforcement to state regulators increased misconduct among investment advisers by thirty to forty percent, with a bigger increase in areas with less sophisticated clients, less competition, and among advisers with more conflicts of interest, most likely because on average state regulators have less resources and enforcement capacity compared to the SEC.
Certain non-bank financial institutions and their subsidiaries will be supervised by the Fed § 161 in the same manner and to the same extent as if they were a bank holding company. §§ 162(a),163