Glossary

Dodd-Frank Act

The Dodd-Frank Act is a piece of legislation signed into law in the United States in 2010. The federal government designed the Act to help prevent another financial crisis like the one in 2008. The Act created new regulations for banks and other financial institutions. It also established several new government agencies to enforce those regulations.

The History of the Dodd-Frank Act

When President Obama assumed office, his first big goal was pulling America out of the Great Recession. Several studies and news reports were already pointing to Wall Street as the source of the recession. Predatory lending practices and other unethical behavior fuelled the real estate bubble and other financial problems that finally came to a head in 2007 and 2008.

The Obama Administration created the Dodd-Frank Act to address these irregularities in the market and protect consumers. It represented the most comprehensive overhaul Wall Street had undergone in its history. The Act had far-reaching effects across several markets, such as mortgages, student loans, and credit cards.

The Main Components of the Dodd-Frank Act

The Act includes several components that work together to help it reach its goals. These components address financial stability, ethical behaviors, and consumer protection.

Financial Stability

The Act set up special rules to help the government identify and respond quickly to potential threats in the financial system. It also established regulations for how banks should handle their investments and debts and how they can use derivatives and other complex instruments. Dodd-Frank also created the Orderly Liquidation Authority and the Financial Stability Oversight Council to monitor financial firms.

Securities and Exchange Commission Office of Credit Ratings

The Act established the SEC Office of Credit Ratings to oversee credit rating agencies. The office ensures that ratings are accurate and unbiased, which helps investors make informed decisions in the markets. This provision addressed concerns that some credit agencies had provided favorable ratings that misled investors about the stability of the companies in question.

Consumer Financial Protection Bureau

The Act created the Consumer Financial Protection Bureau (CFPB) to protect consumers from predatory lending and other practices that could harm them financially. The CFPB has jurisdiction over banks, credit unions, lenders, and other financial services providers. It also disseminates information on potential scams or suspicious market activities.

Volcker Rule

The Volcker Rule, named after former Federal Reserve Chairman Paul Volcker, was created to limit the amount of speculative trading a bank can do with its own money. The primary purpose of this rule is to help ensure banks take fewer risks with their investments and use their funds more responsibly.

Whistleblower Program

The Act established a whistleblower program to encourage people to come forward with information about potential fraud or other market irregularities. It provides financial compensation and legal protection for whistleblowers if their information leads to successful enforcement actions.

Criticisms of the Dodd-Frank Act

The Dodd-Frank Act has been controversial since it was passed. Some argue that it goes too far in regulating banks and other financial institutions, while others say it doesn’t go far enough. A common concern is that the restrictions could make it difficult for U.S. firms to compete effectively with each other and overseas alternatives. Small financial institutions and community banks have also resented their inclusion in the restrictions despite not contributing to the economic collapse.

When President Trump assumed office, he made efforts to roll back some of the regulations put in place by the Dodd-Frank Act. He included these changes in The Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018. Here are some of the main provisions:

  • It addressed some of the concerns of small and regional banks by easing some restrictions previously applied to them.
  • All three major credit reporting agencies now had to allow consumers to freeze their credit files for free if they so chose.
  • The law set a new threshold for the Volcker Law, creating an exemption for lenders with less than $10 billion in assets.

Meanwhile, the Biden Administration has proposed additional regulations targeting shadow banking activities. It has also taken a keen interest in the lending practices associated with subprime auto loans and payday loans. Additionally, President Biden has taken steps to cancel billions in student loan debt.

How Capturing and Archiving Solutions Help Companies Comply With the Dodd-Frank Act

Americans believe the economy has approached another significant economic decline. Reports initially blamed the pandemic, but consumers have become increasingly concerned about record profits from organizations while U.S. wages have only marginally increased. Consequently, there is always a significant risk of companies facing investigations for their practices and how these actions collectively affect the economy.

Companies that capture and archive instant app communications are in a much better position to prove the integrity of their business operations or swiftly root out individual corruption. Book a LeapXpert demo to see how automated capturing and archiving work.