President Donald Trump and Congressional Republicans are on the hunt. After playing the role of the obstructionist for the past eight years, Republicans in the House and the Senate are finally back in power. And with Trump in the Oval Office, they have a President who’s willing and able to sign off on almost any piece of legislation they push through. That includes snuffing out Obama-era laws they’ve long opposed. Obamacare was one. And the Dodd-Frank Act is another.
The push to repeal Obamacare appears to have lost its steam for now. But clamoring to gut the Dodd-Frank Act is heating up. The question is this: What does the removal of consumer protections, like those laid out in the Dodd-Frank Act, mean for you?
The Dodd-Frank Act, you may recall, was passed following the financial crisis in 2010. The law spelled out a number of rules and regulations that banks and financial institutions must adhere to in an effort to curb future damages. Essentially, it was a way to lower the risks of another financial meltdown, and a way for the “too big to fail” banks to make some concessions.
It also has its downsides. The Act has been blamed for actually exacerbating the “too big to fail” problem by pushing smaller banks out of business. This has consolidated the financial industry even more. Republicans have said the law hurts consumers by increasing costs with suffocating regulations, and for that reason (and others), they want it repealed.
Trump has already made a bit of headway, signing an executive order to dismantle part of the law related to oil extraction. But if a full repeal were to take place, what would the effect be on the average American household? It’s important to note that a full repeal is unlikely. Large-scale amendments, on the other hand, are very likely.
Here are 10 ways things would change in the wake of a Dodd-Frank repeal.
1. Dismantling of the CFPB
The Consumer Financial Protection Bureau was created under the Dodd-Frank Act to serve as a watchdog for consumers. It has many functions, and the Bureau’s work has led to the uncovering of many unfair and deceptive practices by banks and lenders. Recently, the CFPB blew the lid off Wells Fargo’s scandal involving the opening of fraudulent accounts. That’s one example of behavior that may have continued unabated for years without the CFPB’s interference.
2. Return of predatory lending
Predatory lending is when lenders use deceptive tactics to sign up consumers for lines of credit. This is common in the payday lending industry. And it was used prior to the mortgage crisis when people were signing up for loans they couldn’t afford to pay back. Lenders raked in fees and commissions, and then they offloaded the toxic loans to investors (through collateralized debt obligations). Dodd-Frank has protections against this, which would be scrapped if a repeal were to happen.
3. Loss of homeowner protections
If you’re a homeowner, a full repeal of Dodd-Frank probably wouldn’t work out in your favor. Because the housing and mortgage crisis was a key element in the financial meltdown, a lot of protections were put into place for homeowners and borrowers during the Great Recession. Among the potential losses that could affect homeowners are protections related to obtaining mortgages, and those put in place for being behind on payments as a result of certain life events (deaths, job losses).
4. Repeal of the Volcker Rule
If Dodd-Frank is done away with, we’d also lose the Volcker Rule. It’s a complicated regulation, but essentially it puts limits on what types of investments financial institutions can make with their own accounts. The Volcker Rule’s main goal is to prevent banks from making risky and speculative investments that could potentially backfire. Like those that contributed to the financial meltdown in 2008 and 2009.
5. Consumer protections from predatory fees
Everybody hates fees. And with the creation of the CFPB came a slew of new regulations guarding consumers from a number of fees levied by lenders and banks. Fees related to credit and debit cards, as well as bank accounts (including overdraft fees) were instituted under the law, which all could go away if Trump repeals it. Banks make billions from these and other fees, and it’s in their interest to see these rules scrapped.
6. Scrapping of the Financial Stability Oversight Council
The future of the Financial Stability Oversight Council is in jeopardy with Republicans at the helm. The FSOC is a committee led by the Treasury Secretary that’s sole purpose is to basically keep an eye on the financial sector. If potential threats are identified (a mortgage crisis, for example), the FSOC is in a position to take measures to counter. If the FSOC is scrapped, it could lead to unforeseen problems and disasters down the road.
7. The return of risky bank behavior
An obvious result of many of the items on this list is that banks and financial institutions will revert to their past behavior. Getting rid of the CFPB and Volcker Rule, for example, would lead to banks or individuals taking needless risks with people’s investments. This was in no small part what led to the financial crisis, and if these protections are stripped, we could see a repeat of this.
8. Loss of protections from debt collectors
Another element of the Dodd-Frank Act are regulations related to debt collection. People who are in debt are often subject to calls or visits from debt collectors that can border on harassment. Rules have been put in place to protect people from abusive, deceptive, or unfair behaviors from debt collectors. And again, if the law is dismantled, these protections could go along with it.
9. Bank bailouts will become more likely
One thing that drove people absolutely crazy during the financial crisis was the fact that immensely rich banks were being bailed out with taxpayer dollars while everyday people lost their jobs and homes. There were reasons for that. But one of the main goals of Dodd-Frank was to make sure it didn’t happen again. Requiring higher capital reserves and banning specific types of investments (as the law dictates) is meant to ensure banks don’t get in over their heads again. With the law repealed, the likelihood of bailouts in the future increases.
10. FDIC coverage would change
Under Dodd-Frank, the Federal Deposit Insurance Corporation insures up to $250,000 of your money. If the law is repealed, that number would revert back to what it was before 2010: $100,000. What this means is that if your bank fails, the government has your back up to a limit of $250,000. But that number could go down with a repeal. Consumers would lose coverage of their money, while banks would (re)gain incentives to engage in riskier behavior.