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In 2008 the worst recession the United States had seen since the Great Depression swept the nation. In the years leading up to this, deregulation in the financial world gave lenders freedom to make bigger and riskier investments. This culminated in the “Housing bubble bursting” leaving millions of people underwater in their investments and scrambling. 

In response to this, in 2010 the Obama administration passed the Dodd-Frank Wall Street Reform and Consumer Protection Act, commonly referred to as simply “The Dodd-Frank Act.” It aimed to end the era of “too big to fail” financial institutions and protect consumers from the risky behaviors that led to the recession. 

What the Dodd-Frank Act Covers

With the Dodd-Frank Act came a collection of new rules, like increased protection for whistleblowers, and agencies designed to enforce those rules.

The Volcker Rule

One of the most sweeping aspects of the legislation was the implementation of the Volcker Rule. It prohibited banks across the board from engaging in high-risk investments. It includes things like hedge funds, private equity funds, and derivatives. They were still allowed to make these investments on behalf of their clients, but not for themselves. It was widely criticized for hurting the smaller institutions and damaging the economy as a result. Recently, the rule has been rolled back in the Economic Growth, Regulatory Relief and Consumer Protection Act and now allows smaller institutions to make the higher-risk investments again, and allows for more banks to qualify as small. 

Oversight Agencies 

As well as creating the Volcker Rule, The Dodd-Frank Act created several other agencies to monitor financial institutions and enforce the new rules. 

Consumer Financial Protection Bureau (CFPB)

The CFPB is responsible under the Dodd-Frank Act to act in the best interest of consumers in the financial industry. They provide consumers with educational materials to help them make the smartest choice for themselves. They are also charged with investigating complaints, fining bad actors, and proactively creating rules to prevent abuse.

The Financial Stability Oversight Council (FSOC)

The FSOC is responsible for overseeing the big picture of the stability of the economy. They have the ability to overturn rules put in place by the CFPB if they suspect it will damage the stability of the economy. A variety of smaller agencies and offices answer to them as well, such as the Federal Insurance Office, which specializes in looking for gaps and loopholes in the insurance sector. 

The Office of Credit Rating

The Frank-Dodd Act mandated the creation of the Office of Credit Rating within the Security and Exchange Commission to monitor nationally recognized statistical rating organizations (NRSROs) and ensure accuracy in consumer credit reports. They promote accuracy to consumers and investors, as well as protect against conflict of interests unduly affecting the reports themselves. 

In the years since the Dodd-Frank act was signed into law it has gone through several changes that have also impacted the economy in a variety of ways. The impact Covid19 has had on the economy could have been so much worse without these rules and agencies in place. Critics of the Dodd-Frank Act say it does too much and stifles the economy on one hand, and on the other some claim its not doing enough to protect the economy. As time passes we should be seeing more adjustments, additions and revisions, in how the new offices are managed and hopefully continue to see an improving economy. 

Did we answer your Questions?

As you prepare to close on your house remember we are experts in the field of Georgia Real Estate Law. If you have any questions or concerns don’t hesitate and give us a call! At Frank B. Pallotta Law we are licensed Real Estate Lawyers with 20 years of experience helping our clients in Georgia navigate the closing process. Reach out to us with your questions. We’re here to help.