A Obama Birthday

Today marks exactly seven years since President Obama signed into law the costly and burdensome Dodd-Frank Wall Street Reform and Consumer Protection Act. While the goal of Dodd-Frank Act was to protect financial consumers and “reign in Wall Street” following the 2008 financial crisis, the last seven years have proven that goal has not come to fruition and instead financial consumers, small banks and credit unions have been crushed by this disastrous law.

For America’s financial consumers, the Dodd-Frank Act has failed on all accounts. Misguided provisions such as anti-free market price caps instituted under the Durbin Amendment have all but eviscerated free checking accounts, driven up average minimum deposits and increased monthly checking account maintenance fees.

For instance in 2009, 75 percent of banks offered free checking accounts. Following the passage of Dodd-Frank and the Durbin Amendment in 2010, that number dropped to 45 percent the following year, and has now fallen to under 40 percent today.

According to an April 2017 study by the International Center for Law and Economics, in 1999 the average minimum deposit required in order to avoid fees on non-interest-bearing accounts was $562.27. The minimum fell to $109.28 in 2008. Yet after the Durbin Amendment passed, the minimum skyrocketed to $732.02 in 2012 and stands at $670.74 as of 2016.

Reduced free checking and increased minimum deposits and fees resulting from Dodd-Frank’s Durbin Amendment have proven incredibly regressive for low-income financial consumers and have led to millions of Americans becoming “unbanked.” 

As more Americans are pushed further out the traditional banking system by Dodd-Frank provisions, they have turned to alternative financial products such as prepaid debit cards, which serve a similar function as traditional bank accounts but are seen as more affordable given increased costs on traditional checking accounts due to Dodd-Frank. 

Amounts placed on prepaid cards have grown from $1 billion in 2003 to a projected $112 billion by 2018. According to a 2014 report from The Pew Charitable Trusts, of the estimated 23 million consumers using prepaid cards a quarter were low-income, with a third having annual income below $15,000.  However the Consumer Financial Protection Bureau (CFPB), another creation of Dodd-Frank, is now ironically working to end prepaid debit cards through a rule set to go into effect in 2018. 

Thus not only has Dodd-Frank driven many consumers, especially low-income Americans, out of the traditional banking system, but has allowed the CFPB to outlaw one of the last remaining and affordable financial products they have left. As Representative Ted Budd (R-NC) has stated, “Dodd-Frank has sawed off the bottom rung of the ladder of economic mobility.”

While the detrimental impact Dodd-Frank has had on American financial consumers is atrocious, it is also the case that Dodd-Frank has drowned U.S. credit unions and community banks in a sea of regulatory costs and an ever-growing compliance burden. According to a 2016 study by the American Action Forum, Dodd-Frank has imposed more than $36 billion in final rule costs and 73 million hours of paperwork.

Unlike their larger competitors, small credit unions and community banks don’t have armies of compliance lawyers or funds available to afford the regulatory burden imposed by Dodd-Frank. It is now the case that one in every four credit union employees time is spent on regulatory compliance, adding up to an additional $6.1 billion in costs for credit unions in 2014 alone. As a result of Dodd-Frank, an average of one small financial institution shutters or is consolidated everyday. 

Thankfully this year House Financial Services Committee Chairman Jeb Hensarling (R-Texas) has been leading the effort to enact massive reforms to the Dodd-Frank Act in order to protect American financial consumers and small financial institutions. Chairman Hensarling’s Financial CHOICE Act (H.R. 10), which passed the House in June 233-186, targets many of the most onerous and costly provisions of Dodd-Frank for reform and repeal. While the CHOICE Act faces an uphill battle in the Senate, it highlights the need for lawmakers to remain focused on reigning in Dodd-Frank.

Thus as the Dodd-Frank Act turns seven years old today lawmakers in Congress should take time to reflect on the disaster Dodd-Frank has become for their constituents and the markets as a whole. 

Happy Birthday Dodd-Frank! Hope it’s your last!


Photo Credit: Steve Jurvetson