With the announcement that Representative Barney Frank of Massachusetts will not run for re-election, reporters and commentators have begun reflecting on his decades of service in the House of Representatives. One of his most important pieces of legislation passed through Congress was the Wall Street Reform and Consumer Protection Act, signed into law in July of 2011.
The Wall Street Reform and Consumer Protection Act, often referred to as the Dodd-Frank bill, was designed to prevent risky and irresponsible behavior by Wall Street that could threaten the U.S. economy. It strengthens government oversight over large banks and financial firms and imposes new regulation of credit rating agencies and riskier hedge funds, derivatives, and other complex financial deals.
The Dodd-Frank bill also established the Consumer Financial Protection Bureau (CFPB), an independent agency, charged with carrying out and enforcing federal consumer financial laws.
In the years leading up to the financial crisis of 2008, America’s financial regulatory regime took on an excessive build-up of risk, both inside and outside the traditional banking system. Wall Street firms were free to take huge risks with borrowed funds and little of their own capital at stake. These firms funded long-term, illiquid assets with cheap, short-term debt. With inadequate means to preserve stability, over time, this risky behavior migrated from the regulated and partially regulated parts of our financial system to the almost entirely unregulated parts, making it difficult for the government to control or even gauge the risk it entailed.
The Dodd-Frank bill seeks to ensure this type of reckless financial behavior never again threatens to devastate the finances of millions of American families. Dodd-Frank has taken action to install common sense regulation and transparency of complex financial processes that have never before seen the light of day.
In July of this year, the Consumer Financial Protection Bureau (CFPB) officially opened. While still awaiting Senate approval for a Director, the CFPB has been active in its role as consumer financial watchdog, most recently:
• Launching the “Know Before You Owe” campaign, an effort to combine two federally required mortgage disclosures into a single, simpler form that makes the costs and risks of the loan clear and allows consumers to comparison shop.
• Working with small, independent bankers from all 50 states to write rules that impact small banks.
• Releasing a report and holding a public forum on the impact of the CARD Act of 2009, legislation to prohibit unfair practices by credit card companies.
While the CFPB gets up and running and some reforms have been put into place, the agency faces strong opposition from the financial industry and Republicans in Congress as it implements necessary regulations. The success of the CFPB is critical to preventing another financial crisis in the future. By instituting reforms that prioritize consistency and accountability, close gaps, eliminate loopholes, empower regulators and hold them accountable, raise standards, and give the government the tools it needs to manage crises, we can ensure that consumers are not financially devastated by irresponsible actions on Wall Street.
Rep. James Moran (D) is Virginia’s 8th Congressional District Representative in the U.S. House of Representatives.