The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, or, the Dodd-Frank Act, is a set of laws passed to ensure financial stability after the Great Recession of 2008. The Act protects taxpayers from the burden of another bank bailout, as well as unfair treatment by financial organizations, such as money lenders, debt collectors, and credit reporting agencies.
The economic ramifications of the 2008 recession were widespread—small banks closed, large banks required government bailouts, and consumers suffered unimaginable financial setbacks. Recognizing the need to prevent another such catastrophe, Congress set out to identify and address the problem’s cause.
The primary problem, it seemed, was a lack of a central agency overseeing all financial institutions. This absence of uniform oversight left holes in the regulatory system that allowed questionable lending practices to flourish.
The high foreclosure rate that followed ultimately led to a government bailout of the banking sector. Taxpayers—many of whom had already suffered significant financial hits—were left to foot the bill.
(You can review the legislative history of the Act on the website of the Law Librarians’ Society of Washington, DC.)
The Dodd-Frank Act came into being as a way to protect the public from another banking collapse and to provide practical help to individual consumers victimized by unscrupulous actors in the financial industry. The Act solves these problems in two ways:
Regulations safeguarding against toxic lending practices and bank failure.
(You can learn about additional aspects of the Dodd-Frank Act on the website of the U.S. Commodity Futures Trading Commission.)
Meaningful protection and assistance to consumers.
This list represents a few of the protections afforded by the CFPB. If you’d like to learn more, read What Is the Consumer Financial Protection Bureau?
On February 3, 2017, the Trump administration issued the Presidential Executive Order on Core Principles for Regulating the United States Financial System. It directs the FSOC to evaluate existing laws and to determine whether they support the stated goals of the order. Those goals include:
While the executive order itself does not (and cannot) undo the Dodd-Frank Act, it is assumed that President Trump is signaling Congress that he would like it to implement his campaign promise of dismantling the Act. The actual intent isn’t clear, however, given that the stated goals of the executive order mirror the goals (and practical effect) of the Dodd-Frank Act.
As of this writing (February 10, 2017), the Dodd-Frank Act continues to protect consumers.
(For more information, see Trump Administration Executive Order Targets the Dodd-Frank Act.)