The Dodd-Frank Act turned 5 years old last month, and lawmakers, pundits and others are weighing in on the law’s pros and cons. So how are North Carolina consumer advocates greeting the anniversary?
With a mix of gratitude and wariness.
Advocates are thankful for changes the 2010 law made to better safeguard borrowers from abusive lending practices, such as the creation of the Consumer Financial Protection Bureau. The regulator’s job includes enforcing consumer financial-protection laws, and it has already reached multimillion-dollar settlements with Bank of America, Wells Fargo and other lenders.
But advocates are also leery, arguing that Dodd-Frank has not ended the problem of too-big-to-fail banks. That term describes a lender that is so large and important to the economy, the government would be compelled to come to its rescue if it began to falter.
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Advocates are also concerned as the banking industry continues pushing to weaken Dodd-Frank regulations and influence rules that regulators are writing. For example, the Consumer Financial Protection Bureau is crafting rules that will affect payday lending, which is illegal in North Carolina.
Advocates see such efforts as a potential threat to consumer safeguards already in place in this state.
“We don’t want the CFPB establishing a floor of protections that is so low it undermines the protections we have at the state level,” said Al Ripley, director of consumer and housing affairs for the North Carolina Justice Center.
The center is among organizations in states where payday lending is illegal that have signed a letter urging the bureau not to issue weak payday lending rules. Weak rules “would likely usher in a new wave of predatory lending” throughout the U.S., including in states where it is banned, the letter says.
Banks, for their part, say conforming to Dodd-Frank is forcing them to spend millions on hiring compliance staff instead of people who can help boost their revenue at a time when low interest rates are constraining their profitability.
Edmund Mierzwinski, consumer program director for the N.C. Public Interest Research Group, a consumer-advocacy organization, describes Dodd-Frank as “working and working well” but says more must to be done to make the financial system more sound.
Mierzwinski is among supporters of legislation to separate traditional banks and their government-insured deposits from activities that some perceive as riskier, such as investment banking. The wall between those activities was torn down with the 1999 repeal of the Glass-Steagall Act.
The wall would be re-erected under a bill re-introduced last month by four senators, including Massachusetts Democrat Elizabeth Warren and Arizona Republican John McCain. It was first introduced in 2013.
The true impact of Dodd-Frank can’t be measured yet, as many rules required by the act remain unwritten. New York law firm Davis Polk & Wardwell, which issues widely cited reports on Dodd-Frank’s implementation, says about two-thirds of the act’s rules have been finalized.
For Charlotte and its large banking industry, Dodd-Frank will, at best, have an “indifferent” impact, predicts Hugh McColl Jr., former chairman and CEO of Bank of America.
“It can’t be good,” he said. “Although, to be completely candid, Bank of America made $5 billion this last quarter.
“… Despite Dodd-Frank, they’re making a lot of money. They would make a lot more if it wasn’t for the regulations.”