There is no doubt that the world of finance needed an across the board overhaul from the small business to the entrepreneur all the way up to the largest of financial institutions. The Dodd-Frank Wall Street Reform Act was a broad piece of legislation which was created to help form and maintain financial stability. The intent was to create new organizations and rules on the federal level which will offer stricter oversight for most financial companies as well as the products that are sold by them. There are several key factors that are thought to be beneficial for the state of the financial world.
The Wall Street Reform Act created the Consumer Financial Protection Bureau (CFPB) which is responsible for educating consumers by creating documents and financial curriculum and making them available to the general public. The CFPB operates under the Federal Reserve and is able to create and enforce applicable rules for various types of financial transactions that consumers may engage in. This includes things like credit cards, home or car loans, payday loans and bank accounts. The intent is to protect the public from various types of scams while assuring the consumer that they will still receive quality financial services which are available and priced in a fair manner in every community. The CFPB provides constant oversight of various organizations such as mortgage companies, debt collectors and credit unions.
The new educational documents help clear up definitions for consumers. The goal is to clearly define financial topics such as penalties, fees, risks and credit scores. This offers an extra layer of protection for consumers since it is less likely that one who is informed will fall victim to frauds and scams. Consumers will also likely experience some changes to their existing accounts. Many banks have stopped charging overdraft fees and not honor payments made which will overdraw the account. Guidelines for qualifying for loans are more stringent, but when you do qualify for a loan you will be able to afford it. This may put pressure on different types of financial institutions to be more creative in order to make a profit. This will mean some new services for their customers, for an additional fee of course.
Insurance, Securitized Investments and Derivatives
Some of the complex financial products are regulated more uniformly for various risks. Financial and safety organizations are held responsible for risks. This means there is additional reviews conducted by the government to ensure product safety but this should make insurance more available in communities which have been underserved. Since the passing of the Dodd Frank Act, derivatives are treated closer to securities which require full disclosure of any involved risks as well as exchange trading which is centralized. Mortgage-backed securities and other creators of various securitized investments are required to maintain what is termed an equity stake.
New Indicators for the Economy
The government guarantees no bailout and those acquisition industries and traditional mergers must have a growth strategy and are now required to have an exit strategy. This restricts the size as well as the complexity of financial institutions. There are several new evaluation measures in place which prevent financial upheaval in larger companies which of course, has a wide range of economic repercussions.
This is simply a brief overview of the economic benefits that have been realized from the passing of the Dodd Frank Act. In one way it makes consumers be more hands-on with their own finances and for some this means that they now must hire a financial expert. The goal of this legislation was to provide protection for consumers by requiring higher standards of financial institutions. It puts much more information into the hands of consumers and makes financial institutions more accountable for their products and services.