For millions of consumers in the early part of the 2000s, the Dodd-Frank Act of 2010 came too late.
The massive legislation, passed in the aftermath of the Great Recession, was intended to better regulate financial institutions and safeguard their customers against risky loans and abusive practices.
Yet by the end of 2009, roughly 7.1 million homeowners already had lost their homes to foreclosures since 2006, due largely to taking on risky, unsustainable mortgages.
Some lenders allowed borrowers to take on more than the home's value or did not confirm a borrower's income. Other types of loans became unaffordable as interest rates rose and home values plummeted.
Unemployment stood at 9.9 percent heading into 2010 after layoffs rose and hiring ground to a halt. Delinquencies on credit cards also peaked in 2009, as many consumers struggled to stay afloat.
In the eyes of critics, U.S. households were left holding the bag in the wake of the financial crisis due to what they viewed as greedy practices by banks. And by the time Dodd-Frank was signed into law in July 2010 by then-President Barack Obama, consumers figured prominently in its passage.
The measure partly was intended to prevent another potential Wall Street meltdown, which came to a head after the September 2008 collapse of Lehman Brothers — a decade ago this week — revealed the breadth and depth of the subprime mortgage disaster.
The other goal of Dodd-Frank was to protect consumers.
Some of that was done through much stricter banking provisions, including imposing tighter lending requirements. Most notably, though, the legislation created the Consumer Financial Protection Bureau.
"Congress decided that [existing federal regulators] weren't doing an effective job and claimed that if they had been more proactive there wouldn't have been a need for the CFPB," said Alan Kaplinsky, a partner at national law firm Ballard Spahr and an expert on the bureau.
Now, both prongs of Dodd-Frank have become less pointed. That is, some regulatory provisions of the law have been rolled back, and changes at the CFPB have caused consumer advocates to cry foul. Yet at the same time, other consumer protections have been improved.
What's changed in the law
In May, Trump signed S. 2155, which rolled back some Dodd-Frank provisions.
Among the major parts rolled back is one that raises the threshold for when a bank is considered "systemically important" — and therefore subject to stricter regulations — to $250 billion in assets from $50 billion. Also, it exempted smaller banks (under $10 billion in assets) from complying with the so-called Volcker rule, which bans financial institutions from making risky investments with their assets.
It also eased rules for home loans made by small banks.
Dodd-Frank had created a so-called qualified mortgage. Basically, this means that if lenders meet a variety of strict guidelines — such as ensuring a borrower's loan payment is no more than 43 percent of their income — they get legal protection if a consumer later makes a claim that they were sold an inappropriate mortgage.
The bill lets smaller banks and credit unions still qualify for the legal protections without meeting all of the requirements that typically go with underwriting qualified mortgages.
However, they still will be required to assess the borrower's financial resources and debt as part of the underwriting process. The loan also cannot be interest-only or one whose balance could grow over time (so-called negative amortization). Those types of loans proliferated leading up to the mortgage crisis and contributed to homeowners' inability to keep up with their payments.
The lender also would be required to keep the mortgage in its own portfolio instead of selling it to investors. That would mean the risk remains with the bank.
It was troubling to see a rollback of Dodd-Frank this year.Mike Littconsumer campaigns director for U.S. PIRG
While the industry has said the changes will make mortgages easier to get from community banks and credit unions — especially in rural areas where banking options are more limited — consumer advocates worry about a return to risky and unfair banking practices.
"It was troubling to see a rollback of Dodd-Frank this year," said Mike Litt, consumer campaigns director at advocacy group U.S. PIRG.
At the same time, however, the new legislation implemented other consumer-friendly rules, including one requiring credit reporting firms like Equifax — which revealed its massive data breach about a year ago — to let people freeze their credit report without paying a fee.
It also included two provisions related to student loans. The first prohibits lenders from declaring default or accelerating repayment terms when the co-signor declares bankruptcy or dies, and if the student borrower dies, the co-signor must be released from any remaining balance. The other provision makes it easier for a borrower to remove a private student loan default from their credit report.
Separately, it's worth noting that the Credit CARD Act of 2009 remains intact. That legislation made major improvements to consumer protections, including banning retroactive interest rate increases and restricting the fees that credit card issuers can charge. Disclosures also were vastly improved, including spelling out for cardholders how long they would remain in debt — and how much interest they would pay — if they only remit the minimum amount due each month.
Meanwhile, the Dodd-Frank rollback in S. 2155 appears to have mollified its critics at least for the time being. No new major changes have been proposed, and it's likely nothing is coming in the form of new legislation anytime soon, industry sources say.
For starters, the bill took several years to come together and passed because it managed to get some bipartisan support. Additionally, although the measure is now law, regulators still need to write the rules to reflect the required changes. At this point, financial firms are just waiting for the regulators to implement the bill's provisions.
The bill was also noteworthy for what it did not do.
What's going at the CFPB
Somehow, the CFPB escaped being eliminated or drastically altered in S. 2155.
Since Dodd-Frank's passage and the bureau's subsequent creation, some critics have taken aim at the agency's mere existence, while others accused it of overreaching its regulatory authority under its former director, Obama-appointed Richard Cordray. He resigned last November and was replaced by acting Director Mick Mulvaney, Trump's director of the Office of Management and Budget.
"People who liked Cordray would say he did a great job protecting consumers," Kaplinsky said. "He went after many companies and collected $12 billion in restitution. But if you talk to people like me and others in the industry, he went too far."
Between 2011 and 2017 while Cordray was at the CFPB, the agency received more than 1.2 million consumer complaints about their dealings with financial firms. It returned nearly $12 billion to 29 million people wronged by financial institutions, including credit card companies and banks. Most of the complaints received by the agency related to debt collection and mortgages.
Under Mulvaney, things have changed. Enforcement has slowed and existing policies are being reviewed. He also delayed implementation of a rule reining in payday lenders and backed off various lawsuits against companies accused of wrongdoing against consumers.
"The amount of enforcement activity has declined, but the bureau is focusing on the things that are pretty clear-cut," Kaplinsky said. "If some company or bank commits fraud or deceives consumers, Mulvaney won't tolerate it. But he won't to try to overreach or cover things in a gray area."
Additionally, after the bureau issued a regulation in July, 2017, that banned mandatory arbitration clauses from consumer agreements, Republican lawmakers were able to overturn it. That means those clauses — which preclude customers from suing in court — are still permitted.
Mulvaney also has suggested that the CFPB's structure should be altered. In his semiannual report to Congress in April, he recommended several changes, including allowing Congress to decide the bureau's funding. Currently, its budget is handled by the Federal Reserve with no legislative approval required.
The amount of enforcement activity has declined, but the bureau is focusing on the things that are pretty clear-cut.Alan Kaplinskypartner at Ballard Spahr
Additionally, he recommended legislative approval of major rules issued by the bureau and that the director report to the president instead of serving independently as its current structure requires. He also wants an independent inspector general for the bureau.
"Acting Director Mulvaney is committed to faithfully executing the bureau's important statutory mission of protecting consumers, by using authorities granted by Congress," a CFPB spokesperson said in an email, pointing out that the bureau recently assessed a $1 billion fine against Wells Fargo for harmful practices related to its auto loans and mortgages.
"But he has also worked to put an end to regulatory overreach that unduly burdens the marketplace and imposes higher costs on consumers and companies alike," the spokesperson said.
Mulvaney's heir apparent, Kathy Kraninger — who works with Mulvaney at the budget office as an associate director — awaits a full Senate confirmation vote after recently getting the nod from the Senate Banking Committee. It's uncertain whether that will be anytime soon or how contentious a process it will be.
Regardless, as a Mulvaney protege, it's expected that if confirmed, she would continue what her boss has started.
"I anticipate she'd pretty much carry on the policies and agenda of Mulvaney," Kaplinsky said.
Next year, Kaplinsky said, the CFPB is likely to either make significant changes to the so-called payday loan rule or kill it altogether before its August effective date. That initiative, passed under Cordray, would impose limits on payday lenders on who they can lend to and how much.
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He also anticipates that the agency will propose a rule for third-party collection firms to better govern how they communicate with consumers.
The bottom line
For the industry, the shift in policy and priority at the CFPB has been a welcome relief.
"We appreciate the willingness of the bureau's leadership to seek input from all stakeholders as it reviews the CFPB's priorities to ensure that regulations benefit and protect consumers," said Ian McKendry, spokesman for the American Bankers Association, in a prepared statement.
Consumer advocates, however, view the changes differently.
"There are many people who are working there and believe in the bureau's mission," said Litt, of U.S. PIRG. "But we're certainly concerned about the slowdown in consumer protection that we're seeing under Mulvaney."
Marc Leaf, an attorney who worked at the Securities and Exchange Commission when Dodd-Frank mandates were being implemented, said that any regulatory approach should be balanced.
"Consumers aren't protected if the regulations are so onerous that companies can't lend or provide the financial services that consumers need," said Leaf, who is now regional partner at the New York office of national law firm Drinker Biddle.
"But you don't want consumers, who are the source of so much economic activity, bearing all the risk," he said. "So having someone look out for them is a good idea."
