The Dodd-Frank Wall Street Reform and Consumer Protection Act counts two years this week since it was signed into law by President Obama on July 21, 2010.
While there are still hundreds of rulemakings on its agenda, the law has effectively brought many new rules and restrictions as well as the creation of a Consumer Financial Protection Bureau that is just beginning to show its authority through enforcement actions.
The question of how Dodd-Frank has impacted businesses and consumers was a point of discussion among several congressional hearings this week, with plenty of input from business people and advocates who say the law is too tough, comes with too much red tape, and is only making it harder to stimulate the economy and create new jobs.
“Supporters of Dodd-Frank touted it as ‘tough Wall Street reform’, but its red tape reaches deep into the wallets and pocketbooks of millions of Americans and small businesses that had nothing to do with the financial crisis,” said Financial Services Committee Chairman Spencer Bachus before a subcommittee hearing on Thursday to examine how the consequences of the law are being felt by families, communities and small businesses.
Business owners, too, reported the adverse impact the law has had.
“Our bank—like hundreds of other federal- and state-chartered banks in Texas—did not originate toxic mortgages, we did not securitize those mortgages, and we did not engage in the sale of derivatives like credit default swaps,” said Jim Purcell, CEP of State National Bank. “Nevertheless, Dodd-Frank imposes heavy burdens on our bank and on the communities that it serves.”
Speaking in support of the reform, CFPB Deputy Director Raj Date reported on the progress of the agency, including its work toward market transparency and mortgage lending.
“The mortgage market should be driven by financial incentives that make sense – those that reward hard work and smart risk-taking,” Date said. “Let me be clear: There is nothing inherently wrong with risk. Indeed, financial markets are supposed to absorb and price certain kinds of risk. But people shouldn’t get paid for taking risk that they can’t understand, they can’t rank, they can’t quantify, or they can’t price.”
Date also pointed to the agency’s work on its ability-to-repay rule, expected no later than January 2013.
“We are considering a wide range of issues,” he said. “First and foremost, we want to ensure that consumers are not sold mortgages they can’t afford. We want to minimize compliance burden to the extent possible, in part through the careful definition of those lower-risk “qualified mortgages.” We want to encourage a competitive market that does what markets are supposed to do – calibrate risk and price.
But too much intervention is slowing business down, said American Bankers Association member Jim Hamby during one of the hearings.
“The calculus is fairly simple; more regulation means more resources devoted to regulatory compliance, and the more resources we devote to regulatory compliance, the fewer resources we can dedicate to doing what banks do best – meeting the credit needs of our local communities.”
Written by Elizabeth Ecker