Insights

Over the last few months, all eyes have been on Washington as legislators have debated legislation to reign in perceived abuses of consumers. The result of that effort—the Dodd-Frank Wall Street Reform and Consumer Protection Act (also known as the Act or, simply, Dodd-Frank, after its two main progenitors)—is the single most important piece of legislation impacting consumers and those who provide financial products to consumers. Dodd-Frank, which we expect President Obama to sign as Basis Points goes to press, contains not only consumer credit regulatory changes, but sweeping reforms that impact the credit and securitization markets. Dodd-Frank includes the following key components:

• Creation of the Consumer Financial Protection Bureau, a new, independent watchdog housed at the Federal Reserve Board with authority over a vast array of consumer financial services and products;
• Elimination of “Too Big to Fail” bailouts by creating a means of liquidating failed financial firms while mitigating the effect on the economy; imposing new capital and leverage requirements to deter corporate growth; updating the Fed’s authority to allow system-wide support, but eliminating its ability to prop up individual firms; and establishing vigorous standards and supervision to protect the economy;
• Creation of an advance warning system through a new council tasked with identifying and addressing systemic risks posed by large, complex companies, products, and activities;
• Mitigation of the potential for risky and abusive practices to go on unnoticed and unregulated;
• Providing shareholders with a say on pay and corporate affairs with a non-binding vote on executive compensation and golden parachutes;
• New rules for transparency and accountability for credit rating agencies;
• Stricter requirements on securitizers offering asset-back securities to retain some of the risk associated with those securities;New mortgage reforms and anti-predatory lending standards; and
• Enhanced oversight by and empowerment of regulators to pursue financial fraud, conflicts of interest and manipulation of the system.

In this issue of Basis Points, we discuss several important provisions in Dodd-Frank, including the credit risk retention rules for securitizers, the enhanced requirements for mortgage servicers, the new preemption standards for national banks and federal thrifts, the significant changes to the mortgage origination landscape and the crown jewel for consumers in the Act – the Consumer Financial Protection Bureau, a new one-stop regulator where consumers will have the ability to file complaints against any number of lenders, with the Bureau having the authority to promulgate and enforce rules with teeth to address those complaints. We will discuss other aspects of Dodd-Frank in upcoming editions of Basis Points. And, no doubt, we will discuss the aspects of the Act covered in this issue again and again over the years as courts, consumer advocates, and the federal regulators come together to fight over what this all means.