The third goal of Dodd-Frank was to protect consumers. For example, rather than letting the market set the prices, Dodd-Frank has mandated that debit card fees can't exceed $.21/ swipe (originally proposed as $.12/swipe). Prior to the regulation, the average was near $.45/swipe. While this appears to be consumer oriented, it ultimately interferes with the free market system and stifles innovation and technological advancement.
Of course, the poster child for consumer abuse is mortgages. The bureaucrats created by Dodd-Frank will undoubtedly write rules and regulations that will only increase the already ridiculous level of paperwork required in the mortgage process. But, it won't really help because abusive practices aren't recognized until they are rampant or something goes wrong. The new rules will only address the past abuses, not new abuses that arise. Once abuses are recognized, then, the legal system descends like the plague.
The abusive practices of some of the largest mortgage purveyors (like Countrywide, now owned by
Bank of America
(BAC - Get Report)
) are currently the subject of many significant lawsuits. BAC's recent second-quarter earnings were significantly impacted by legal settlements due to Countrywide's former practices, and I suspect that there will be more such settlements for BAC.
(WFC - Get Report)
just announced an $85 million settlement with the Fed over subprime lending. And
(JPM - Get Report)
chief Jamie Dimon announced last week that because of such litigation, JPM is exiting the business.
Perhaps the other large private mortgage lenders will follow suit. After all, Dimon has always been an industry leader. The unintended consequence of mortgage abuse litigation, no doubt encouraged by the rhetoric surrounding this part of Dodd-Frank, should be a concern to the folks in Washington, D.C. But it isn't yet recognized. With a rapidly shrinking private mortgage lending industry, and with
bleeding cash and likely, in the current political climate, to be severely restricted once they are dealt with after the 2012 elections, the financing for the overhang in America's housing industry is likely to all but disappear. Then what?
Despite the best of intentions, Dodd-Frank was, from the beginning, doomed to be just another device of regulatory strangulation and the fostering of federal government growth. The real issues, like TBTF were inadequately addressed in the legislation. The attempt to address abuse could only be backward looking, and has encouraged an unintended consequence of the shrinking of the private sector mortgage market, the consequences of which are not yet widely recognized.