The Great Recession of 2007-08 was the worst economic crisis the U.S. had seen since the Great Depression. In response, the Democratic Congress hastily and absent-mindedly passed a financial regulatory behemoth known as the Dodd-Frank Wall Street Reform and Consumer Protection Act, and on July 21, 2010 former President Obama signed it into law.

While the Dodd-Frank Act was supposed to target “Wall Street” the law instead has imposed burdensome regulations and costs on small financial institutions, consumers, and taxpayers. Here are a few ways Dodd-Frank slowed down economic recovery, increased government intervention into the market, and pushed the financial sector nearer to stagnation:

  1.  Enshrining “Too Big to Fail”. In the Dodd-Frank Act, a new agency was created called the Financial Stability Oversight Council (FSOC), which was made in order to determine when financial institutions become Significantly Important Financial Institutions (SIFI). By allowing the government to designate banks as “significantly important”, Dodd-Frank permits the use of bank bailouts with taxpayer money and ironically enshrines “Too big to fail.”
  2. The Consumer Financial Protection Bureau. The Dodd-Frank Act also created this independent and unaccountable agency. Since it is independent, it does not have any Congressional oversight and its executive is a political appointee, therefore he cannot be fired except by the President and only upon a showing of cause. It also has the power to ban bank products that it arbitrarily deems as “abusive”, which gives the government the ability to control what products banks may provide to their customers.
  3. The Crushing Dodd-Frank Compliance Burden and Costs. In total, the Dodd-Frank law has cost imposed over $36 billion in costs along with 73 million hours of paperwork. According to the American Action Forum (AAF), these costs amount to approximately $112 per American taxpayer and over $300 per household. AAF also found that according to agency calculations, it would take 36,950 employees working full time (2,000 hours annually) to complete a single years worth of Dodd-Frank Act paperwork.

Dodd-Frank has created a new era of government regulations meant to stymie the growth of the American economy. This law has not only imposed harm on small banks and credits unions on Main Street, but also consumers and American competitiveness as whole.

Thankfully there is legislation in the U.S. House sponsored by House Financial Services Committee Chairman Jeb Hensarling (R-Texas) called the Financial CHOICE Act, which repeals many of the harmful regulations proffered by the legislative disaster that is Dodd-Frank, while also providing relief to small financial institutions that are the country’s engine of economic growth.

The Financial CHOICE Act enables more competition and consumer protection within the financial services industry and will increase growth in a responsible manner. As the full House this week is set to vote on the Financial CHOICE Act, lawmakers should offer support for what will be one of the biggest steps forward in reigning in the regulatory regime that resulted from the Dodd-Frank Act. 


Photo Credit: John Williams