Next to health care reform, no other recent legislation has caught as much heat as financial regulation. Born of the subprime housing mortgage scandal and financial meltdown three years ago, the Dodd-Frank legislation provokes either glowing praise from consumers and reformists or angry diatribes from industry officials and Republican lawmakers.
In the year since President Obama signed the financial regulatory overhaul into law, the debate has largely shifted from the halls of Congress to the offices of the regulators who are writing some 250 new rules and delivering reports and guidance ordered by the law.
But Republicans and their industry allies are still pressing for changes to dilute the impact of the legislation. Their opposition forced Obama over the weekend to abandon plans to nominate former Harvard professor Elizabeth Warren, a harsh critic of the financial industry and darling of liberal groups, to head a new Consumer Financial Protection Bureau, and instead choose former Ohio attorney general Richard Cordray.
As the new financial regulatory landscape begins to take shape, supporters of the legislation crafted by former Sen. Christopher Dodd, D-Conn, and Rep. Barney Frank D-Mass., say the government and industry are better positioned to withstand a new crisis. "The reforms put in place in Dodd-Frank will help to provide for a more resilient and strong financial system that can help to grow the economy and create jobs," said Michael S. Barr, law professor at the University of Michigan.
Detractors claim the measure actually hurts the already troubled economy and job growth, leaving the financial system less stable than it was in 2008. "While it may have increased transparency, it has increased the amount of uncertainty. We've created a new cost of capital, called regulatory risk," said Rep. Randy Neugebauer, R-Tex., chairman of the House Financial Services Subcommittee on Oversight and Investigations.
With Dodd-Frank's one-year anniversary this Thursday, The Fiscal Times assessed the best and worst effects of the landmark law, for consumers and business .
The 5 Best According to Consumer and Reform Advocates
1. Mortgage market reform
Among the worst culprits in the financial meltdown were abuses in the mortgage industry, both mortgage originators that sold inappropriate, expensive loans to people who couldn't afford them and the companies that repackaged mortgages into securities without investigating the likelihood the debt would be repaid. So it makes sense that curbing abuses in the home loan market is one of the legislation's triumphs.
From new oversight of payday lenders and other non-bank financial firms, to requiring mortgage originators to verify that the borrower can repay the loan, Dodd-Frank aims to prevent any repeat of the housing collapse. Frank, the former House Financial Services Committee chairman, said a requirement that lenders keep some exposure to the mortgages they make is "the single most important piece of the bill."
2. Consumer Financial Protection Bureau
If it survives assaults from legislative critics, the CFPB will offer average Americans unprecedented protection from what Elizabeth Warren terms the “trips and traps” of the financial industry.
The bureau was designed to make sure financial companies follow the law, collect and respond to consumer complaints, enact new protections to ensure consumers are treated fairly, and promote financial transparency. Consumer advocates hail the new agency, which will be responsible for overseeing consumer financial products -- the only regulator charged with tracking products, rather than institutions like banks and securities firms. "One way of taking note of the size of the victory is the size and volume of the attack on the bureau," said Lisa Donner, executive director of Americans for Financial Reform, a coalition of labor, civil rights, senior, community and small business organizations.