Last week the American Action Forum (AAF) released a new study on the higher costs and uncertain benefits associated with the Dodd Frank Act. Passed six years ago and signed into law by President Obama, the Dodd-Frank Wall Street and Consumer Protection Act (Dodd-Frank Act) has reduced consumer choice, while driving consumer costs and the compliance burden higher.
The stated purpose of the Dodd-Frank Act was to promote the financial stability of the United States by improving accountability and transparency in the financial system, to end “too big to fail”, to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes. However, the Dodd-Frank Act has proven a failure on all accounts, as consumer choice, credit unions, and small banks are being phased out.
According to the AAF study, the Dodd-Frank Act has imposed more than $36 billion in final rule costs and 73 million hours of paperwork. AAF also found in recent research that the law had resulted in a 14.5 percent decline in revolving consumer credit. The law has added complexity and confusion for consumers and financial intuitions, which is detrimental to the housing market, work force, and free market in general.
Even more alarming is the fact that not all provisions of the Dodd-Frank Act have been enacted, and there are still at least 61 rulemakings remaining within the Dodd-Frank Act. These rules, still in proposed form, are slated to be finalized soon and only add to the already massive compliance costs and burden. Combined, the Dodd-Frank Act rulemakings still yet to be finalized would add another $3.3 billion in additional costs and almost one million more hours of paperwork.
Additionally, ending the “Too Big to Fail” (TBTF) was a main stay behind the Dodd-Frank Act. However, it seems that the Dodd-Frank Act has yet to resolve any TBTF issues. Within the AAF study, it is noted that the top five banks among the nation’s large commercial intuitions have accounted for a majority of the market in 13 of 23 quarters since Dodd-Frank has been law. Using the Herfindahl-Hirschman index (HHI), data reveals that in recent years Dodd-Frank has likely contributed to a more concentrated banking sector.
In response to these issues, House Financial Services Chairman Jeb Hensarling (R-Texas) recently introduced the Financial CHOICE Act (FCA), which looks to rein in a myriad of onerous and costly regulations enacted under the Dodd-Frank Act. In introducing the Act, Chairman Hensarling hopes to give Americans new ability to achieve financial independence and raise their standards of living, while also promoting economic growth for the economy as a whole.
With the sixth anniversary of Dodd-Frank approaching, more than $36 billion in costs and 73 million paperwork burden hours have been imposed. As agencies like CFPB and FHFA grow, it is clear that the regulatory burden will only continue harming consumer choice, and with over 61 regulations remaining, it is expected that costs will continue to rise.
Photo Credit: Antonio Campoy