One year ago this week, and in response to the financial crisis, the president signed the 849-page Dodd-Frank Wall Street Reform and Consumer Protection Act.  While legislative changes were certainly necessary in response to the financial crisis, Dodd-Frank generally hasn’t lived up to its promises of strengthening the financial sector, promoting economic recovery and job growth, protecting consumers, and permanently ending taxpayer bailouts of private institutions.

Dodd-Frank’s sheer size, scope, and implementation speed have created paralyzing uncertainty and imposed large costs on taxpayers, consumers, employees, and employers.  Along with the 849 pages of legislative text, Dodd-Frank requires government regulators to undertake 60 different studies and to write over 400 sets of new rules, which will almost certainly exceed 5,000 pages when completed.  Taxpayers are paying billions of dollars for this massive Dodd-Frank implementation process – not to mention the ongoing costs over time, which will eventually include at minimum 3,000 new federal employees.

Meanwhile, in a very difficult economic environment, private-sector businesses must redeploy scarce capital away from expansion and job growth to instead evaluate, comment on, implement, and follow these thousands of pages of new regulations.  In many respects, this mountain of new regulation overlaps inconsistently with many other federal and state agency regulations.  These financial and operational costs and burdens are particularly acute for small financial institutions, who certainly can’t afford entire compliance departments and armies of lawyers to keep up.  

On top of these incalculable ramp-up costs, Dodd-Frank authorizes potentially unlimited “assessments” on “financial companies” to partially fund the new agencies and rules implementation and monitoring.  Current estimates anticipate that these “assessments” will extract nearly $30 billion from the private sector, and those costs will be passed along to consumers or deprive the private-sector of scarce capital for expansion and job growth.  

Dodd-Frank’s derivatives-margin rules are likely to remove $2 trillion from productive private-sector expansion, job growth, and investment by requiring additional collateral for derivatives trading.  These heightened collateral requirements threaten end-users and entire industries that had nothing to do with the financial crisis and that have successfully used hedging transactions for many decades to mitigate risk.  Consumers, employees, employers, and taxpayers will ultimately pay this price if regulatory burdens unnecessarily remove scarce private-sector capital from productive uses.    

While everyone agrees that we need reasonable and effective consumer protection, Dodd-Frank’s newly-established Consumer Financial Protection Bureau (CFPB) – with its broad but vague mandate to protect consumers by regulating and preventing, among other things, “unfair or abusive practices” – creates paralyzing uncertainty and costs for employers, risks limiting consumer choice in the name of consumer protection, risks bank safety and soundness, and isn’t sufficiently transparent, accountable, or predictable.

The House has already passed legislation to structurally improve the CFPB by precisely duplicating the structure that the House Democrats themselves passed last year.  Incomprehensibly, those same House Democrats are now claiming that their own CFPB structure would decimate the CFPB.  

The CFPB has a large budget – at least several hundred million dollars per year from the Federal Reserve that would have otherwise been returned to the Treasury.  Because those taxpayer dollars aren’t under the congressional appropriations process, the CFPB isn’t accountable to taxpayers or their elected representatives.  

Contrary to its promises, Dodd-Frank doesn’t end taxpayer bailouts of private “too-big-to-fail companies.”  Instead, federal regulators can still lend money to troubled institutions, acquire troubled assets, and pay off a troubled institution’s creditors – all at the sole risk and expense of the American taxpayer.  We must ensure that financial institution creditors – and not taxpayers – are solely responsible for private credit decisions and for the costs of their own bad lending decisions.

Dodd-Frank requires lenders to permanently retain some risk in every mortgage, unless the mortgage qualifies as a “qualified residential mortgage” or “QRM.”  Consequently, only QRMs are likely to get funded.  But, under current rules, a QRM can’t exist without a 20% down payment, regardless of other traditional sound underwriting standards, which will lead to fewer mortgages and fewer home sales in an already depressed real estate market.  

Finally, Dodd-Frank completely ignored Fannie Mae and Freddie Mac – the two government-sponsored entities that played a central role in the financial crisis and that have already cost taxpayers hundreds of billions of dollars and counting.  

After reevaluating the intended and unintended costs, benefits, and consequences, Congress must improve the Dodd-Frank to ensure that direct and indirect costs and burdens aren’t unnecessarily inflicted on taxpayers, consumers, job creators, and our economy, and negatively impacting our global competitiveness.


Robert J. Dold (IL-10)        Randall M. Hultgren (IL-14)
Member of Congress            Member of Congress