In 2010, the Dodd–Frank Wall Street Reform and Consumer Protection Act established the Consumer Financial Protection Bureau which claims to “help consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives.” In reality, Dodd-Frank and the resulting government interference have done more harm than good for American consumers by crippling small businesses and stunting job growth.
Five years later, small businesses are struggling to comply with this complex legislation. According to the Wall Street Journal, the United States is losing on average one community bank or credit union a day because of Dodd-Frank. American Action Forum released a study analyzing the overwhelming costs of the legislation; $24 billion in final rule costs and 61 million paperwork burden hours.
American consumers are seeing the consequences of these burdensome regulations. For example, before Dodd Frank, 75% of banks offered free checking and in 2012, only 39% of banks continued to do so. Similarly, the minimum average balance necessary to qualify for free checking has doubled over the same time period. Many attribute this to the bill’s Durbin Amendment, which imposed price controls on the interchange fee (paid between banks for the acceptance of card based transactions) charged for debit cards.
Additionally, a study by the International Center for Law and Economics found low income families are being hit the hardest. The center estimates that from 2014-2017, $1 billion to $3 billion annually will be transferred from low-income households to large retailers and their shareholders as a result of the Durbin Amendment.
Small business institutions, and the jobs that go along with them, have also been shrinking in the era of Dodd-Frank. Congressman Jeb Hensarling (R-Texas) compared Dodd-Frank to “Obamacare for our economy.” Hensarling reasons, “Dodd-Frank has left us with fewer choices, higher costs and less freedom.” Small business institutions simply cannot afford to comply with these rules. Community banks and credit unions are increasingly forced to close as a result of ever worsening regulations and compliance costs.
In a recent study, the Harvard Kennedy School of Government suggests lawmakers work to identify, “what regulatory conflicts are unnecessarily harming community banks, to ensure better coordination and to reduce unintended consequences stemming from conflicting regulatory objectives.” The same study concluded that Dodd-Frank accelerated the decline of America’s community banks.
In 2010, as an alternative to Dodd-Frank, House Republicans introduced the Consumer Protection and Regulatory Enhancement Act. Rather than sweeping government overhaul, this legislation sought to reform the financial regulatory system through market-based solutions and without taxpayer funded bailouts. After enduring five years of oppressive Dodd-Frank policies, the time has come to revisit these proposed alternatives.