The dawn of Dodd-Frank. Are we heading to a new financial crisis?


We’ve been long criticizing the CFPB in what concerns TRID. The manner in which TRID has been implemented, the gaping holes in the rule, as well as the confusion related to calculating and disclosing expenses as well as the re-disclosure rules, are just a few of the things the CFPB failed on.

However, we’re now talking not just about throwing the CFPB out of the window and under a bus. We’re actually talking about taking down the Dodd-Frank act and replacing it with the Financial CHOICE Act.

If you don’t know what the latter is, here are the works of House Financial Services Chairman Jeb Hensarling’s (R-Texas) spokeswoman Sarah Rozier: “Our plan, which will be released in the next few weeks, is a bold and visionary plan that protects consumers by holding Wall Street and Washington accountable, ends bailouts, and unleashes America’s economic potential.”

President Trump is saying that the GOP is working on “a major elimination of the horrendous Dodd-Frank regulations, keeping some obviously, but getting rid of many.”

This sounds great, but let’s take a trip down memory lane.

The Dodd-Frank act was a result of the disastrous 2008 financial crisis and it was supposed to deal with Fannie and Freddie, as well as find a way to eliminate the threat of “too big to fail” financial institutions. Besides this, it was supposed to make sure that banks and financial institutions were to let go of unethical practices, be more transparent and protect the consumer. This included the Fed too.

Most of these issues have been addressed and stricter rules have been imposed on banks, and some of them have been heavily fined (see BoA Merrill Lynch being fined $20m in 2015). Annual stress tests and other regulatory actions drove banks to spend more than ever before on regulation.

But they don’t really like that, do they. Nobody likes regulation, but let’s face it… When you’re dealing with behemoths such as banks, you need some kind of oversight because power corrupts and absolute power corrupts … well … absolutely. 

So let’s actually take a look at how this new bill is keeping financial institutions in check and protecting consumers, shall we?

Stress tests… no more annual tests, one every two years is good enough. 

No more database of consumer complaints to be published by the CFPB. So long for transparency.

Mandatory Dodd-Frank advisory boards, gone.

CFPB loses the power to crack down on “unfair and deceptive acts or practices”. Perfect.

Although we’re still to read the actual plan, from what they’re saying, this looks like “more power to the banks”, less transparency, less regulation (but this was to be expected from the GOP).

Of course, you’ll see a “boom”, prompted by more accessible credit. But after that boom, just like 2008, you’ll see a bust. And it’s going to be “huuuuge”.

Regulation is never a bad thing, and we really believe that the government, for it to remain relevant, has to perform it’s regulatory duties. BUT it has to do it right, protecting the consumer, not the institutions that should be regulated. 

It’s going to be interesting …