The summer of 2010 was a big one for the Obama presidency. He signed into law one of the most confusing and controversial financial laws that the country has seen. On July 21, 2010, President Obama, with one signature, made the Dodd-Frank Wall Street Reform and Consumer Protection Act a new standard and also signed off on creating the Bureau of Consumer Financial Protection, or the CFPB. Immediately after the ink was put to paper, the laws kicked in that gave CFPB authority to regulate the “offering and provision of consumer financial products and services” under Federal consumer financial law.
Confusing Dodd Frank
Before long, there was much confusion, frustration and efforts to change or eliminate Dodd Frank. Indeed, many – to this day, as a matter of fact – do not understand Dodd Frank. Despite efforts from CFPB in recent years, there are still entirely too many unanswered questions. Still, there are those who say CFPB is probably going to go down in history as President Obama’s crowning achievement. The bureau has put into place laws that go further to protect American consumers than any other consumer financial law in history.
Simply put, there’s a whole lot to know about Dodd-Frank. In fact, there are thousands of pages of legislation, filings from SEC, public official statements, opinions, rules and even lawsuits. There have been at least 12 states that have filed to have it overturned.
It has wide implications and is often described as “high impact legislation”. It’s important, though, to understand those implications. There are those who believe this law is the best thing since peanut butter and others who insist is the first step in the final collapse of the American financial sector. Neither are true, of course, but like most political animals, there are advantages and disadvantages.
No Repeat Performance
This all came about in 2008, when President Obama, looking for way to ensure the economic crisis never happened again, pledged to hold banks and financial institutions accountable. He wanted to expose government agencies that regulate them, as he said, “to ensure transparency”; however, there was a panel that was formed that many insisted were being shrouded in secrecy. The Financial Stability Oversight Council (FSOC) is “tasked with identifying threats to U.S. markets and imposing market discipline” and was established under the Treasury secretary. It includes different leaders in various areas of the American financial regulatory agencies. The goal was simple: to determine whether regulations were needed in specific areas. Unfortunately, there was nothing transparent about those efforts; in fact, it was all conducted behind closed doors.
Of course, politics play a role. Republicans want Dodd Frank eliminated in its entirety but a re-election of President Obama means it won’t happen at least for four years. You can be sure, though, that banks, credit card companies and others will be counting down the days as they too want to be out of the line of fire.
Meanwhile, the Government Accountability Office issued a report this past September and in it, it lays blame on the panel for “lacking accountability, transparency and collaboration with key financial regulators”. It also said FSCO has dropped the ball in sharing important risk indicators with other sectors and has all but ignored its task of communicating with the public and setting specific goals. The GAO also says there’s a problem with the website. In fact, it was very definitive in its disdain, even as consumer watchdog groups and financial analysts insist it’s even worse than what the GAO found.
The FSOC’s proceedings make the Politburo look open by comparison,
said Dennis Kelleher, president of Better Markets, a nonprofit that lobbies for stricter banking laws.
No one in America even knows who they are. At the few open meetings they have, they snap their fingers and it’s over, and they are all scripted. They treat their information as if it were state secrets.
Another FSOC decision was being made in mid-January regarding money market funds. It was a closed door meeting and no one has any idea, really, what was determined. It was decided, however, that an extension would be extended on new rules for those market funds. Interestingly enough, a letter from 12 regional Federal Reserve banks was revealed that they feel money market funds are particularly risky to global financial interests.
Closed Process, No Transparency
And it gets worse for consumers. The co-director of the American Enterprise Institute, Peter J. Wallison, shares those sentiments. He authored a new book, “Bad History, Worse Policy: How a False Narrative about the Financial Crisis Led to the Dodd-Frank Act” and said,
After a meeting, in many cases, a decision has popped out, and no one has any idea of who participated in the discussion, who took what position – it is a very closed process,
he said. And then there’s the problem that Congress introduced. It created this regulatory oversight panel that put a political appointee of the president in charge. He is adamant in his stance that it’s a huge mistake, citing his own time spent at the White House and the Treasury. He said they were “unable and absolutely forbidden to talk to the regulators”. They were, as he said, designed to be independent and free from any political motives.
As a result of this and other concerns, the CFPB has announced four new rules designed to ensure Dodd Frank isn’t politically corrupted on any level and to open up the transparency efforts to ensure an ethical approach is taken.
In its announcement, the CFPB said it had completed its efforts of establishing procedures for the public to obtain information from the CFBP under the Freedom of Information Act,
…this final rule also establishes the CFPB’s rule regarding the confidential treatment of information obtained from persons in connection with the exercise of its authorities under Federal consumer financial law.
So is it enough? We’ll see – it’s expected this week will tell the tale. Looks like CFPB is less interested in the political repercussions and more interested in protecting the American consumer. Imagine that from a government agency.
Let us know what you think – this is sure to be big for the American consumer in the coming months and new financial hurdles are barreling toward the country.