What Is the Dodd-Frank Act?

The Dodd-Frank Act, named after its co-sponsors, Sen. Chris Dodd and Rep. Barney Frank, is a comprehensive financial reform law passed by Congress in response to the 2007-2008 financial crisis. The act aims to regulate the financial industry and protect consumers from the ramifications of such crises.

What Does the Dodd-Frank Act Do?

The Dodd-Frank Act includes several key provisions designed to increase supervision of the financial industry, identify potential risks, and protect consumers. Here are some of the main objectives it accomplishes:

• Created the Consumer Financial Protection Bureau (CFPB): The CFPB consolidates multiple federal consumer watchdog agencies and oversees credit reporting agencies, consumer and payday loans, banking fees, credit and debit cards, and more.
• Established other federal agencies and councils: The act also created the Financial Stability Oversight Council, the Federal Insurance Office, and the Office of Financial Research to monitor and manage financial risks.
• Increased credit rating oversight: The Office of Credit Ratings, under the supervision of the Securities and Exchange Commission, regulates credit rating agencies to ensure accurate methodology.
• Developed the Volcker Rule: This rule prohibits banks from engaging in proprietary trading or investing in hedge funds or private equity funds.
• Regulates risky trades: High-risk derivatives now have tighter regulations, and the SEC and CFTC are tasked with identifying excessive risk in the derivative market.
• Provides protections for whistleblowers: Insiders reporting wrongdoing by financial institutions are protected against retaliation and may receive financial compensation.

Is the Dodd-Frank Act Still in Effect?

While most of the Dodd-Frank Act remains in effect, some provisions were rolled back in 2018 due to lobbying from the financial industry. The Economic Growth, Regulatory Relief, and Consumer Protection Act made several changes, including:

• Increased the asset threshold for banks required to conduct stress tests and maintain risk committees, easing regulations on smaller banks.
• Exempted lenders with assets of less than $10 billion from the Volcker Rule.
• Lowered capital requirements and leverage ratios for financial institutions that act as custodians for clients’ assets.
• Loosened reporting and capital norm requirements for small lenders.

How the Dodd-Frank Act Helps Consumers

The primary goal of the Dodd-Frank Act is to maintain economic stability, which benefits consumers by preventing risky investments from causing another financial crisis. Additionally, the CFPB provides important financial education and resources, and takes legal action against companies that behave improperly or illegally to the detriment of their customers.

The CFPB maintains a civil penalty fund worth nearly $1.5 billion, designed to provide compensation for consumers harmed by financial institutions.

Contact O1ne Mortgage for Your Mortgage Service Needs

At O1ne Mortgage, we understand the complexities of the financial industry and are here to help you navigate your mortgage needs. Whether you’re a first-time homebuyer or looking to refinance, our team of experts is ready to assist you. Call us today at 213-732-3074 for personalized mortgage services that you can trust.