OP-ED: Not perfect, but Dodd-Frank a boon for consumers


The financial system that pushed the U.S. economy to the edge of collapse in 2008 was a doubly rigged game.

It was set up to inflate the profits of banks and insiders twice over — first through products designed to bilk consumers and investors, and secondly through massive speculation, with taxpayers ultimately paying for the bets that went bad.

It was a dishonest system and a dangerous one, and while Dodd-Frank was not a complete fix for either problem, it has made progress on both.

Let's talk about the dishonesty first. In the years before the financial crisis, lenders flooded the market with mortgages that were engineered to self-destruct when payments shot up after the first two or three years.

Today's mortgages are simpler and easier to understand, and new rules call for verification of a borrower's ability to repay before a loan can be issued, a practice largely abandoned in the pre-Dodd-Frank era.

Those new rules were laid down by the Consumer Financial Protection Bureau, which was created by Dodd-Frank and is itself one of the law's great achievements.

Before Dodd-Frank, making the financial industry play fair with consumers was a responsibility scattered across seven agencies, none with much enthusiasm for the task. Now it's the full-time business of the Consumer Bureau.

Since it opened its doors in 2011, this new agency has told a group of the nation's biggest banks to stop charging credit cardholders for useless and unwanted add-on products; protected military families against illegal foreclosures and deceptive student and payday-style, debt-trap loans; and set up a public complaint system that has so far been used by more than 600,000 people — among many other good things. Through its enforcement actions, the bureau has delivered about $10.1 billion in restitution to some 17 million defrauded consumers.

On the danger front, the law requires tougher regulation of the biggest banks; because of stricter borrowing limits, they now have to do a better job of protecting themselves against losses — so the rest of us don't have to.

Dodd-Frank has dialed down the risk of the derivatives market, a formerly unregulated zone of speculation that was at the heart of the financial crisis. And it has brought globe-straddling nonbank giants like AIG into the universe of regulated financial entities.

There is work still to be done. Key Dodd-Frank mandates — for example, to crack down on executive compensation practices that encourage reckless short-term betting — remain to be carried out, and big banks and abusive lenders continue to wage a relentless effort to weaken rules and roll back the many elements of the law they don't like, including the very idea of a regulatory agency that is seriously standing up for consumers.

Across the political spectrum, however, Americans reject Wall Street's tired claim that tough financial regulation is bad for the economy.

In a recent national survey conducted by Lake Research, voters expressed support, by a margin of nearly 3 to 1, for more, not less, regulation of financial companies.

Public opinion has got this one right. Dodd-Frank was a compromise, which did not directly tackle the problem of banks that were far too large, complex and powerful; indeed, between the crisis and the bailouts, the biggest banks are bigger than ever.

While some of their excesses have been checked, more change is needed. One very good idea is a proposal cosponsored by Sens. Elizabeth Warren, D-Mass., John McCain, R-Ariz., Maria Cantwell, D-Wash., and Angus King, I-Maine: the 21st Century Glass-Steagall Act, which would once again separate old-fashioned banks and insured deposits from the casino world of hedge funds and investment banks.

Dodd-Frank was a step forward. We need to stay the course and accelerate the pace of efforts to build a financial system that is safer and fairer and designed to serve the economy and the country as a whole.

— Jim Lardner is the communications director of Americans for Financial Reform, a coalition of more than 200 civil rights, consumer, labor, business, investor, faith-based, and civic and community groups. Readers may write him at AFR, 1629 K Street NW, 10th floor, Washington, DC 20006.