Loading the player...

What is the 'Dodd-Frank Wall Street Reform and Consumer Protection Act '

A compendium of federal regulations, primarily affecting financial institutions and their customers, that the Obama administration passed in 2010 in an attempt to prevent the recurrence of events that caused the 2008 financial crisis. The Dodd-Frank Wall Street Reform and Consumer Protection Act, commonly referred to as simply "Dodd-Frank", is supposed to lower risk in various parts of the U.S. financial system. It is named after U.S. Senator Christopher J. Dodd and U.S. Representative Barney Frank because of their significant involvement in the act’s creation and passage.

BREAKING DOWN 'Dodd-Frank Wall Street Reform and Consumer Protection Act '

Dodd-Frank established new government agencies such as the Financial Stability Oversight Council and Orderly Liquidation Authority, which monitors the performance of companies deemed “too big to fail” in order to prevent a widespread economic collapse. The new Orderly Liquidation Fund provides money to assist with the liquidation of financial companies that have been placed in receivership because of their financial weakness. Additionally, the council can break up large banks that may pose a risk to the financial system because of their size. It can also quickly and neatly liquidate or restructure firms it deems too financially weak. Similarly, the new Federal Insurance Office identifies and monitors insurance companies that may pose a systemic risk.

The new Consumer Financial Protection Bureau (CFPB) is tasked with preventing predatory mortgage lending, improving the clarity of mortgage paperwork for consumers and reducing incentives for mortgage brokers to push home buyers into more expensive loans. The CFPB has also changed the way credit card companies and other consumer lenders disclose their terms to consumers. It requires loan terms to be presented in a new, easy-to-read-and-understand format.

The Volcker Rule, another key component of Dodd-Frank, restricts the ways banks can invest and regulates trading in derivatives.

The goal of the new SEC Office of Credit Ratings is to improve the accuracy of ratings provided by the agencies that evaluate the financial strength of businesses and governments.

RELATED TERMS
  1. Consumer Financial Protection Act

    An amendment to the National Bank Act designed to identify and ...
  2. Consumer Financial Protection Bureau ...

    A regulatory agency charged with overseeing financial products ...
  3. Investor Protection Act

    A component of the Wall Street Reform and Consumer Protection ...
  4. Systemic Risk

    Investopedia explains: A systemic risk is the possibility that ...
  5. Ability To Repay

    An individual's financial capacity to make good on a debt. Specifically, ...
  6. Systemically Important Financial ...

    Any firm as designated by the U.S. Federal Reserve, whose collapse ...
Related Articles
  1. Investing

    The Dodd-Frank Wall Street Reform Act

    The Dodd-Frank Wall Street Reform and Consumer Protection Act, commonly called Dodd-Frank, was passed in 2010. The goal of the act is to prevent another great recession like that of 2008, which ...
  2. Investing

    Dodd-Frank Creates a Liquidity Crunch for Bonds

    While each individual institution is undoubtedly safer due to capital constraints imposed by Dodd-Frank, this makes for a more illiquid market overall. The lack of liquidity will be especially ...
  3. Insights

    Financial Regulations: Glass-Steagall to Dodd-Frank

    Here are some of the most important financial regulations that have been established.
  4. Personal Finance

    How the Consumer Financial Protection Bureau Works

    By cracking down on unfair or deceptive financial service practices, CFPB aims to give consumers more control over their economic lives.
  5. Personal Finance

    Get To Know Your Consumer Financial Protection Bureau

    The CFPB is there to protect you and hear your voice. You can help with the economic recovery by getting to know the bureau.
  6. Investing

    5 Of 8 Big Banks 'Failed' By U.S. Regulators (MS, WFC)

    Banks must submit a living will, describing the company's strategy for orderly resolution under bankruptcy in the event of material financial distress
  7. Insights

    Consumer Financial Protection Bureau Under Attack

    A budget bill containing popular legislation designed to deal with "too big to fail" banks also contains tighter Congressional control over the CFPB.
  8. Managing Wealth

    Wealthy Execs Face Tougher Curbs on Bonuses

    The ways of amassing wealth on Wall Street are about to change, thanks to new federal regulations regarding executive bonus payouts.
  9. Personal Finance

    Can the Fed Really Eliminate Too Big to Fail? (C, JPM)

    Explore the efforts to curb "too big to fail" banks, why the Dodd-Frank Reform bill has failed and why the measures taken by the Federal Reserve won't work.
  10. Personal Finance

    Top 5 Banks That Are Too Big to Fail (JPM, BAC)

    Discover how the five largest banks have become so big that it would be detrimental to the financial health of the US economy if they fail.
RELATED FAQS
  1. What is the Dodd-Frank Act? How does it affect me?

    The Dodd-Frank Wall Street Reform and Consumer Protection Act is a massive piece of financial reform legislation passed by ... Read Answer >>
  2. Has the Dodd-Frank regulatory reform bill protected consumers?

    Find out why the Dodd-Frank Act is likely to harm consumers and small banks, despite being created in the name of consumer ... Read Answer >>
  3. What are the major laws (acts) regulating financial institutions that were created ...

    Read about the major federal responses to the financial crisis of 2008, such as the Dodd-Frank Wall Street Reform Act and ... Read Answer >>
  4. What are key government regulations that affect investing in the banking sector?

    Discover how the global financial crisis of 2008 changed the face of banking in the United States and around the world by ... Read Answer >>
  5. Who regulates mortgage lenders?

    The Federal Truth in Lending Act and the Real Estate Settlement Procedures Act (RESPA) dictate most of the regulations mortgage ... Read Answer >>
  6. What is the difference between the Sarbanes-Oxley Act and the Dodd-Frank Act?

    Learn about the differences between the Sarbanes-Oxley Act and the Dodd-Frank Act, and understand the reasons why each bill ... Read Answer >>
Trading Center