The Dodd-Frank Act of 2010: What You Need to Know

The Dodd-Frank Act of 2010 is a federal statute in the United States that was signed in to law on July 21, 2010. It is largely the product of the downturn in the United States and world economies related to financial regulatory reform by the 111th United States Congress.

The Dodd-Frank Act is the most sweeping piece of financial regulatory legislation since the Great Depression, and impacts nearly every aspect of the United States ' financial services industry.

This Act is one of the many pieces of legislation that was written, proposed and signed in to law as a result of the financial collapse of 2007 in to 2011. In June 2009, President Obama proposed that the United States regulatory system be completely overhauled. This bill contained a good portion of all of the regulatory reform that the President was seeking.

The Act is comprised of sixteen titles, which aim to: "promote the financial stability of the United States by improving accountability and transparency in the financial system, to end "too big to fail", to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes".

Though it is a lengthy piece of legislation with many points, the highlights are as follows (but are, by no means, complete):

-- The Consumer Financial Protection Bureau (CFPB) is an independent federal entity that is housed within the Federal Reserve. It's mission is to protect consumers from unfair, deceptive and illegal practices in the lending market. States also have authority to "dig deeper" and prevent local and state problems from spiraling in to national disasters. One thing to be aware of is that the CFPB has little oversight for auto dealers who participate in loaning to customers.

-- Wall Street Ratings Agencies were, arguably, largely one of the causes of the massive economic meltdown of 2007. The final version of the Dodd-Frank Act allows the SEC to create an Office of Credit Ratings which will write rules and levy fines, as well as apply ratings to corporate bonds, municipal bonds, and structured finance products and instruments. The hope is that there will be no more conflict of interest.

-- Limits on risks taken by Wall Street were also largely to blame for the 2007 recession. Because the United States ' financial industry has become more interconnected, it has also become, by extension, less regulated. The Dodd-Frank Act has a provision for a council of regulators to monitor systematic risk, and the council is allowed to break up banks that may pose a threat to the economy.

Though the Dodd-Frank Act was a major piece of legislation, it is likely that over the next several years, more bills will be written and work their way through Congress to the President's desk (and perhaps, in to law).

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Resources:
http://ourfinancialsecurity.org/2010/09/demos-highlights-of-the-dodd-frank-reform-act/
http://en.wikipedia.org/wiki/Dodd%E2%80%93Frank_Wall_Street_Reform_and_Consumer_Protection_Act
http://in.reuters.com/article/2010/11/08/financial-regulation-sifma-doddfrank-idINN0821604420101108