Dodd-Frank Act

The Dodd-Frank Act, officially the Dodd-Frank Wall Street Reform and Consumer Protection Act (Public Law 111-203), is the federal law enacted on July 21, 2010 in response to the 2007-2009 financial crisis. Its sixteen titles created new agencies, including the Consumer Financial Protection Bureau and the Financial Stability Oversight Council, set new standards for mortgage lending, and changed how banks, securities firms, derivatives markets and investment advisers are regulated. Several titles carry short titles of their own, so the consumer-protection title is also cited as the Consumer Financial Protection Act of 2010 and the mortgage title as the Mortgage Reform and Anti-Predatory Lending Act.

The parts a household meets. Title X established the Bureau of Consumer Financial Protection, known as the CFPB, as "an independent bureau" in the Federal Reserve System to regulate consumer financial products under the federal consumer financial laws (section 1011). Title XIV added the ability-to-repay requirement for residential mortgages (section 1411), the rule behind the qualified mortgage, and section 1414 barred any residential mortgage loan, and any line of credit secured by the borrower's principal dwelling, from including terms that "require arbitration or any other nonjudicial procedure" to settle disputes (15 U.S.C. 1639c(e)). Section 1100F required a lender that takes adverse action based on a credit report to disclose the credit score it used.

Deposits, brokerage accounts and advisers. Section 335 made the $250,000 standard maximum deposit insurance amount permanent. Section 929H raised SIPC's protection for cash held at a failed brokerage firm from $100,000 to $250,000. Section 410 moved mid-sized investment advisers, those with assets under management between the small-adviser threshold of $25 million and $100 million, from SEC registration to state registration, with exceptions such as advisers to registered funds, which is why an advisory firm's size decides where it registers. Section 913 required an SEC study of the duties of brokers and investment advisers, which SEC staff delivered in January 2011. Section 989J directed the SEC to treat certain fixed indexed annuities as exempt securities.

Arbitration, twice. Sections 921 and 1028 gave the SEC and the CFPB authority to restrict mandatory pre-dispute arbitration. The CFPB used its authority in a 2017 rule that would have barred covered providers from using arbitration clauses to block class actions; Congress disapproved that rule the same year (Pub. L. 115-74), so it has no force or effect.

The parts aimed at the financial system. Title I created the Financial Stability Oversight Council to identify risks to the system as a whole, title II created an orderly liquidation process for failing financial companies, section 619 added the Volcker rule on proprietary trading by banking companies, and title VII brought swaps under regulation. In 2018 the Economic Growth, Regulatory Relief, and Consumer Protection Act (Pub. L. 115-174) amended parts of the framework, among other things raising from $50 billion to $250 billion the size at which the Federal Reserve must apply its enhanced prudential standards to a bank holding company.

Dodd-Frank works mostly through the agencies and rules it created or rewrote. Its consumer titles amended existing statutes, such as the Truth in Lending Act and the Fair Credit Reporting Act, and gave the CFPB authority to write and enforce the regulations under them. Its market titles directed the banking agencies, the SEC and the CFTC to write rules, which took years to finalize and have been amended since.

Consider an example of the deposit-insurance change. Carmen keeps $240,000 in a savings account in her own name at one insured bank. Before October 2008 the standard insurance amount for that account was $100,000, so $140,000 of that balance would have been above the limit. Dodd-Frank made the $250,000 amount permanent, so her entire $240,000 is within it today, with $250,000 − $240,000 = $10,000 of room before another deposit in the same ownership category at the same bank would be uninsured. The SIPC change works the same way for cash held at a brokerage firm that fails, up to the same $250,000 figure.

Pros

• It gave consumer financial protection a single federal agency rather than leaving it spread across bank regulators.
• Its mortgage provisions require lenders to verify a borrower's ability to repay and keep home-loan disputes out of mandatory arbitration.
• It made the $250,000 deposit insurance amount permanent and raised SIPC's cash protection to match.

Cons

• Much of it depends on agency rulemaking, so what it means in practice has changed with rules, court decisions and later amendments.
• Congress amended parts of it in 2018, so a description of the Act written before then can be out of date.
• The CFPB's arbitration rule under the Act was disapproved, so consumer financial contracts other than mortgages can still require arbitration unless another law bars it.