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Dodd-Frank, Another Fine Mess

By: Bill Poquette

Retired Sen. Christopher Dodd, D-Conn., and retiring Rep. Barney Frank, D-Mass., leave behind a mixed and unfinished legacy in their Dodd-Frank Wall Street Reform and Consumer Protection Act.

The law is so complex that after passing its second birthday last month, a total of 221 rulemaking requirement deadlines had passed, according to a Dodd-Frank Progress Report from Davis Polk & Wardwell LLP. Of the 221 passed deadlines, 136 (61.5 percent) have been missed and 85 (38.5 percent) have been met with finalized rules, the international law firm’s research showed.

The legality of the act’s centerpiece, the Consumer Financial Protection Bureau, is being challenged in a U.S. District Court by a Texas bank, State National of Big Spring, leader of a coalition including the 60 Plus Association Inc. and the Competitive Enterprise Institute. But the CFPB has been up and running for a year, and on July 18 announced its first public enforcement action with an order requiring Capital One Bank to refund approximately $140 million to two million customers and pay an additional $25 million penalty for alleged deceptive marketing tactics used by call-center vendors when consumers called to activate their credit cards.

The House Financial Service Committee, now in the hands of Republicans and chaired by Barney Frank’s successor, Rep. Spencer Bachus of Alabama, is seeking public support for modifying Dodd-Frank by launching an online survey “to help Americans understand how Dodd-Frank’s red tape affects them as they conduct their daily activities.” Among the questions: Are you in need of a small business loan? Do you use a small community bank? Are you trying to buy a home?

Maybe he should have just waited for a recent voter opinion poll showing strong voter support for the CFPB and strong oversight of Wall Street. The poll by Lake Research Partners on the occasion of the law’s second anniversary was commissioned by AARP, the Center for Responsible Lending, Americans for Financial Reform and the National Council of La Raza. Key survey findings include the following:

Voters favor the Dodd Frank financial reform law by a 53-point margin (73–20). The support crosses party lines, with Republicans in favor by a 20-point margin, Independents by a 50-point margin and Democrats by an 83 point margin.

Voters support the CFPB by a 40-point margin. Two-thirds (66 percent) of voters overall and 69 percent of Independents agree that the CFPB is needed.

The law is not totally without merit. The FDIC coverage and assessment features benefit community banks. The Volcker Rule, still a work in progress, should prohibit some of the riskiest practices of too-big-to-fail banks. We won’t know whether the resolution process prescribed in Dodd-Frank will be effective until one of these institutions gets in trouble again.

The missed deadlines, attempts to modify and claims of unconstitutionality would be almost laughable if the stakes were not so high for the banking industry and the broader economy. “Another Fine Mess,” a 1930 comedy film starring Stan Laurel and Oliver Hardy, and an oft-quoted line used by Ollie on the radio in the 1940s, is an apt description for the agonizingly slow rollout of the new rules and regulations. Needless uncertainty has ensued, and Dodd-Frank might be a good name for another comedy duo except that act wouldn’t get very good reviews from either community banks or Wall Street banks.

Bill Poquette is editor-in-chief of BankNews.

Copyright (c) August 2012 by BankNews Media