The Dodd-Frank Act – Background, Highlights and Impact

• By: Staff Editor
• Date: July 08, 2009

Background

The Dodd Frank Wall Street Reform and Consumer Protection Act was enacted as a response to the recession in the late 2000s. It was initially proposed on December 2, 2009 in the House of Representatives by Barney Frank and in the Senate Banking Committee by Chairman Chris Dodd. The aim of the Dodd Frank Act was to “create a sound economic foundation to grow jobs, protect consumers, rein in Wall Street and big bonuses, end bailouts and Too Big to Fail, and prevent another financial crisis.”

The Act is divided into the following sixteen titles:

Title I – Financial Stability
Title II – Order Liquidation Authority
Title III - Transfer of Powers to the Comptroller, the FDIC, and the Fed
Title IV - Regulation of Advisers to Hedge Funds and Others
Title V – Insurance
Title VI – Improvements to Regulation
Title VII - Wall Street Transparency and Accountability
Title VIII – Payment, Clearing and Settlement Supervision
Title IX - Investor Protections and Improvements to the Regulation of Securities
Title X - Bureau of Consumer Financial Protection
Title XI – Federal Reserve System Provisions
Title XII - Improving Access to Mainstream Financial Institutions
Title XIII - Pay It Back Act
Title XIV - Mortgage Reform and Anti-Predatory Lending Act
Title XV - Miscellaneous Provisions
Title XVI - Section 1256 Contracts

Highlights and Impact of the Dodd Frank Act

The Dodd Frank Act strengthens the following key areas:

Increases Consumer Protection: The Act creates a new independent consumer protection watchdog, the Bureau of Consumer. Financial Protection housed within the Federal Reserve. The Bureau has the authority to ensure that American consumers get clear, accurate information when choosing mortgages, credit cards and other financial products. The Bureau will implement rules that protect consumers from hidden fees, abusive terms and deceptive practices.

Ends Too Big to Fail Bailouts: The Dodd Frank Act includes regulatory reform that ends the possibility of taxpayers having to bail out financial firms that threaten the stability of the economy. Financial firms will have to ensure they comply with new capital and leverage requirements that prevent them from growing too big in size.

Identifies and Addresses Systemic Risks: The Act created the Financial Stability Oversight Council that will identify and address systemic risks posed by large, complex companies, products, and activities before they threaten the stability of the economy.

Increases Transparency and Accountability for Exotic Instruments: The Dodd Frank Act eliminates loopholes that allow risky and abusive practices to go on unnoticed and unregulated. This includes loopholes for over-the-counter derivatives, asset-backed securities, hedge funds, mortgage brokers and payday lenders.

Increases Shareholder Role in Corporate Affairs: The Act provides shareholders with an important role in deciding executive pay and golden parachutes.

Protects Investors: The Act provides tough new rules for transparency and accountability for credit rating agencies to protect investors and businesses.

Enforces Regulations on the Books: The Act strengthens oversight and empowers regulators to aggressively pursue financial fraud, conflicts of interest and manipulation of the system that benefits special interests at the expense of American families and businesses.

Impact of the Act
The Dodd-Frank Act effects a profound increase in regulation of the financial services industry. The Act gives U.S. governmental authorities more funding, more information and more power. In broad and sig-nificant areas, the Act endows regulators with wholly discretionary authority to write and interpret new rules.
 

Additional Resources:

Read the full text of the Dodd Frank Act here

Need to get a full understanding of complying with the Dodd Frank Act? Then attend the following ComplianceOnline webinars:

The SEC’s New Whistleblower Rules: Implications for your Company’s Compliance and Fraud Program

Converging Ethics, Governance and Culture