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Top 7 Reasons Dodd-Frank Is Working: Treasury

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A Treasury Department under secretary laid out on Thursday the reasons why the Obama administration believes the two-year-old Dodd-Frank Wall Street Reform and Consumer Protection Act is indeed working.

Mary Miller, under secretary of domestic finance, said that implementation of Dodd-Frank is “well under way,” with “critical elements” of Wall Street reform set to be in place by year-end.

As Dodd-Frank reaches its two-year anniversary on Saturday, Miller said on a conference call with reporters that “the worst thing that can happen is for people to forget what the economic crisis created for our economy.” The financial crisis of 2008, she said, is the reason why the nation’s economic recovery “has taken so long.”

The cost of inadequate oversight of Wall Street, Miller said, is what led to the financial crisis—$19 trillion lost in household wealth from second quarter 2007 to first quarter 2009; 8.7 million jobs lost between December 2007 and February 2010; and 6.3 million more Americans thrown into poverty between 2007 and 2009.

But Dodd-Frank, Miller argued, is providing a “sound foundation” to get the nation’s economy back on track. Since the passage of Dodd-Frank in 2010, Miller said that our financial system is now safer and stronger; consumers are more empowered and protected; financial markets are more transparent; regulators have new tools to monitor and mitigate threats to the financial system; and implementation steadily continues despite attempts by opponents to roll back, delay and defund reforms.

Since the passage of Dodd-Frank, Miller said, opponents of the law have proposed more than 50 bills and “countless amendments to gut or slowdown Wall Street Reform—including full repeal. Opponents, she continued, have also mounted legal challenges that have “blocked investor protections, would prevent derivatives rules from taking effect, and would dismantle the Consumer Financial Protection Bureau (CFPB) and undermine the Financial Stability Oversight Council (FSOC) as well as other important aspects of the legislation.”

The CFPB, created under Dodd-Frank, issued its first enforcement action on Thursday when it ordered Capital One Bank to refund approximately $140 million to 2 million customers and pay an additional $25 million penalty. The CFPB said it had identified deceptive marketing tactics used by Capital One’s vendors to pressure or mislead consumers into paying for “add-on products” such as payment protection and credit monitoring when they activated their credit cards.

The Office of the Comptroller of the Currency (OCC) separately ordered Capital One to pay restitution of approximately $150 million, including the CFPB-ordered customer refunds.

Miller said budget cuts to Wall Street’s biggest regulators, the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), continue to undermine Dodd-Frank’s progress. For instance, she noted that the House has proposed to cut $195 million from President Obama’s budget allotted to the SEC for fiscal 2013. Here are Miller’s top seven reasons why Dodd-Frank is working:

  • The nation’s financial system is stronger because banks have added more than $420 billion of additional capital over the last three years.
  • Business lending has increased by 15% since July 2010, and businesses have added jobs every month since Wall Street Reform passed, for a total of 3.8 million jobs.
  • Federal deposit insurance now protects 55% of consumer and business deposits, up from 52% in early 2008. Plus, after the 2008 crisis, the FDIC boosted its deposit insurance coverage from $100,000 to $250,000.
  • The Volcker Rule, which Miller said she hopes passes by year-end, would prohibit banks from making speculative, proprietary bets that would put deposits at risk.
  • The CFPB helps make consumer financial products clearer and more understandable. The CFPB is currently testing a prototype simplified credit card contract with Pentagon Federal Credit Union that highlights rates and eliminates “legalese.” Besides simplifying mortgage loan documents, the CFPB is bolstering oversight and has more than 230 examiners stationed in four regional offices that are reviewing the operations of some nonbank financial companies.
  • Wall Street Reform puts large financial firms that once operated outside of federal oversight under greater scrutiny, like derivatives and hedge funds.
  • Dodd-Frank established new ways to identify potential threats to the financial system through the Financial Stability Oversight Council and the Office of Financial Research.