The Dodd Frank Wall Street Reform and Co
The Dodd-Frank Wall Street Reform and Consumer Protection Act
The Dodd-Frank Wall Street Reform and Consumer Protection Act
MBE 501: Regulations and Regulator
Dr. Gerardin
Kimberly Stringer
The Dodd-Frank Wall Street Reform and Consumer Protection Act
The Dodd-Frank Wall Street Reform and Consumer Protection Act
The Dodd-Frank Wall Street Reform and Consumer Protection Act is a reform to prevent
the excessive risk-taking that led to the financial crisis. The law is used to provide protections
for American families, creating new consumer surveillance to prevent mortgage companies and
pay day lenders from exploiting consumers. The reform included a number of provisions that
lower risk taking and holding Wall Street accountable which include (Wall Street Reform, (n.d.):
Taxpayers will not have the cost of Wall Street’s irresponsibility
Separate “proprietary trading” from business of banking
End of bailouts
The reform created an independent agency to set and enforce rules for the financial
institutions and make sure they are held at high standards. The agency is known as the
Consumer Financial Protection Bureau (CFPB) (Wall Street Reform, n.d.). The CFPB had
released new rules that protect consumers, however, some will result in higher costs for the
consumer that it protects. The following six rules will increase consumer cost: Mortgage
Market’s QM/Ability to Pay Rule, Auto Lending Crackdown, Toughened Mortgage Servicing
Rules, Money Transfer Fees, Mortgage Disclosures and Jumbo and Interest-Only Mortgages
(American Banker, n.d.).
Under the Qualified Mortgage rule, lenders will look at the consumer’s ability to pay
back the loan. It must not burden a borrower’s debt-to-income ratio in excess of 43%. The costs
of originating a loan that does not meet the qualification will rise dramatically. This will
possibly take the form of higher interest rates and fees charged by lenders to make up for the
additional legal liabilities of the non-QM mortgages. This rules also creates a new quality
control requirement that will add to the lender’s costs and cause penalties if they do not comply.
The CFPB cracked down on the auto lending because it found disparities in interest rate markups
The Dodd-Frank Wall Street Reform and Consumer Protection Act
for minorities. Mortgages servicers have to comply with more than a dozen rules that will
increase cost of servicing defaulted loans. The CFPB rule for transferring money result in higher
fees for workers sending money abroad. Lenders increase fees to ensure that compliance and
related costs are covered. With Jumbo and Interest-Only loans buyers of high-priced homes will
face higher lender costs or have to post larger down payments. Low-balance loans can also be
affected (American Banker, n.d.).
The Dodd-Frank Act has added $21.8 Billion in costs with its 398 new regulations and it
has used 60.7 million paperwork burden hours. This has changed the financial industry,
overhauled mortgage lending, and directly affected the availability of credit. Many of the
regulations have had adverse effects, burdensome costs and consequences on small businesses
and consumers. Banks have reported increased costs to comply with the Dodd-Frank Act, likely
to increase cost of banking and lending for the consumers (Winkler, Gitis, et al, 2014).
Although many believe that the crisis is behind us, the consequences are not yet fully
known. It is very important to know why the crisis occurred because new regulations will fail if
the cause is not fully understood (Nichols, Hendrickson & Griffith, (2011). There are no
guarantees that there will not be another financial crisis. However, there are different traits that
will determine when a financial crisis can occur. The following are some observations when
determining the next financial crisis from previous crises (McMillan, 2016):
80% of the crisis happened during a recession
Forty Percent of past bear markets came during times of rapid rising of commodity prices
The Federal Reserve raised interest rates aggressively during 40 percent of the past bear
Markets
Half of the bear markets were developed when market values were extreme
The Dodd-Frank Wall Street Reform and Consumer Protection Act
REFERENCES
Wall Street Reform: The Dodd-Frank Act. Retrieved February 28, 2016 from
https://www.whitehouse.gov/economy/middle-class/dodd-frank-wall-street-reform
Winkler, A., Gitis, B. & Batkins, S. (2014, July 15). Dodd-Frank at 4: More Regulation,
More Regulators, and a Sluggish Housing Market.
6 CFPB Rules That Will Increase Consumer Costs. American Banker. Retrieved February
28, 2016 from http://www.americanbanker.com/gallery/six-cfpb-rules-that-will-increaseconsumer-costs-1058633-1.html
McMillan, B. (2016, January 12). Are We Headed For Another Financial Crisis Like
2008? Forbes. Retrieved February 28, 2016 from
http://www.forbes.com/sites/bradmcmillan/2016/01/12/are-we-headed-for-another-financialcrisis-like-2008/#5649bdf853af
Nichols, M., Hendrickson, J.M, & Griffith, K. (2011) Was the Financial crisis the result
of ineffective policy and too much regulation? An empirical investigation. Journal of Banking
Regulation. Retrieved February 28, 2016 from http://www.palgravejournals.com/jbr/journal/v12/n3/full/jbr20113a.html
The Dodd-Frank Wall Street Reform and Consumer Protection Act
MBE 501: Regulations and Regulator
Dr. Gerardin
Kimberly Stringer
The Dodd-Frank Wall Street Reform and Consumer Protection Act
The Dodd-Frank Wall Street Reform and Consumer Protection Act
The Dodd-Frank Wall Street Reform and Consumer Protection Act is a reform to prevent
the excessive risk-taking that led to the financial crisis. The law is used to provide protections
for American families, creating new consumer surveillance to prevent mortgage companies and
pay day lenders from exploiting consumers. The reform included a number of provisions that
lower risk taking and holding Wall Street accountable which include (Wall Street Reform, (n.d.):
Taxpayers will not have the cost of Wall Street’s irresponsibility
Separate “proprietary trading” from business of banking
End of bailouts
The reform created an independent agency to set and enforce rules for the financial
institutions and make sure they are held at high standards. The agency is known as the
Consumer Financial Protection Bureau (CFPB) (Wall Street Reform, n.d.). The CFPB had
released new rules that protect consumers, however, some will result in higher costs for the
consumer that it protects. The following six rules will increase consumer cost: Mortgage
Market’s QM/Ability to Pay Rule, Auto Lending Crackdown, Toughened Mortgage Servicing
Rules, Money Transfer Fees, Mortgage Disclosures and Jumbo and Interest-Only Mortgages
(American Banker, n.d.).
Under the Qualified Mortgage rule, lenders will look at the consumer’s ability to pay
back the loan. It must not burden a borrower’s debt-to-income ratio in excess of 43%. The costs
of originating a loan that does not meet the qualification will rise dramatically. This will
possibly take the form of higher interest rates and fees charged by lenders to make up for the
additional legal liabilities of the non-QM mortgages. This rules also creates a new quality
control requirement that will add to the lender’s costs and cause penalties if they do not comply.
The CFPB cracked down on the auto lending because it found disparities in interest rate markups
The Dodd-Frank Wall Street Reform and Consumer Protection Act
for minorities. Mortgages servicers have to comply with more than a dozen rules that will
increase cost of servicing defaulted loans. The CFPB rule for transferring money result in higher
fees for workers sending money abroad. Lenders increase fees to ensure that compliance and
related costs are covered. With Jumbo and Interest-Only loans buyers of high-priced homes will
face higher lender costs or have to post larger down payments. Low-balance loans can also be
affected (American Banker, n.d.).
The Dodd-Frank Act has added $21.8 Billion in costs with its 398 new regulations and it
has used 60.7 million paperwork burden hours. This has changed the financial industry,
overhauled mortgage lending, and directly affected the availability of credit. Many of the
regulations have had adverse effects, burdensome costs and consequences on small businesses
and consumers. Banks have reported increased costs to comply with the Dodd-Frank Act, likely
to increase cost of banking and lending for the consumers (Winkler, Gitis, et al, 2014).
Although many believe that the crisis is behind us, the consequences are not yet fully
known. It is very important to know why the crisis occurred because new regulations will fail if
the cause is not fully understood (Nichols, Hendrickson & Griffith, (2011). There are no
guarantees that there will not be another financial crisis. However, there are different traits that
will determine when a financial crisis can occur. The following are some observations when
determining the next financial crisis from previous crises (McMillan, 2016):
80% of the crisis happened during a recession
Forty Percent of past bear markets came during times of rapid rising of commodity prices
The Federal Reserve raised interest rates aggressively during 40 percent of the past bear
Markets
Half of the bear markets were developed when market values were extreme
The Dodd-Frank Wall Street Reform and Consumer Protection Act
REFERENCES
Wall Street Reform: The Dodd-Frank Act. Retrieved February 28, 2016 from
https://www.whitehouse.gov/economy/middle-class/dodd-frank-wall-street-reform
Winkler, A., Gitis, B. & Batkins, S. (2014, July 15). Dodd-Frank at 4: More Regulation,
More Regulators, and a Sluggish Housing Market.
6 CFPB Rules That Will Increase Consumer Costs. American Banker. Retrieved February
28, 2016 from http://www.americanbanker.com/gallery/six-cfpb-rules-that-will-increaseconsumer-costs-1058633-1.html
McMillan, B. (2016, January 12). Are We Headed For Another Financial Crisis Like
2008? Forbes. Retrieved February 28, 2016 from
http://www.forbes.com/sites/bradmcmillan/2016/01/12/are-we-headed-for-another-financialcrisis-like-2008/#5649bdf853af
Nichols, M., Hendrickson, J.M, & Griffith, K. (2011) Was the Financial crisis the result
of ineffective policy and too much regulation? An empirical investigation. Journal of Banking
Regulation. Retrieved February 28, 2016 from http://www.palgravejournals.com/jbr/journal/v12/n3/full/jbr20113a.html