Dodd-Frank Still a Work in Progress

Davis Polk Chart

NEW YORK ( MainStreet) -- The Dodd-Frank Wall Street Reform and Consumer Protection Act was supposed to force U.S. businesses in the financial sector to operate more responsibly and in a more consumer-friendly manner, but one year after President Barack Obama signed the bill into law, the vast majority of proposals have yet to be implemented.
With the way Washington operates, a year after the Dodd-Frank financial reform law was passed, the vast majority of it proposals have yet to be implemented.

Of the more than 400 rules mandated in the package to regulate everything from bank bailouts to credit reports, just 49 have been finalized, according to a preliminary analysis of the legislation's progress in its first year by the law firm Davis Polk. In fact, the deadline will have passed for finalizing 131 of these proposals by Thursday, and nearly 200 have deadlines approaching this year.

To those who have kept a close eye on the legislation's progress, this delay was very much expected.

"Congress put these deadlines in to put people's feet to the fire, knowing that they might be missed," says Annette L. Nazareth, a partner at Davis Polk who previously served on the Securities and Exchange Commission under President George W. Bush. "The rules around the infrastructure of this multitrillion-dollar market are being decided now. They are being written and adopted and it's sufficiently complicated that it takes a lot of time and thought to get it right."

To make matters more difficult, Nazareth notes that the political climate inside the beltway has shifted noticeably against implementing the rules in the package.

"Part of what's going on in the political arena is that budgets have not been approved at the level that was expected," Nazareth says, referring to the money required to properly staff governmental agencies and implement the regulatory program. "But arguably even with additional staff, it would not have been possible to propose and adopt the number and complexity of rules that were required by the statute in this timeframe."

Dozens of rules have been implemented already, though, or are expected to be in the not-too-distant future, which could affect businesses and consumers in big (and small) ways.

Capping interchange fees
It proved to be one of the more contentious proposals in the Dodd-Frank package, but earlier this month, the Federal Reserve finalized rules capping debit card interchange fees that merchants pay banks at 21 cents per transaction, or about half the previous fee. In effect, this means small businesses are required to fork over less money for each purchase customers make with their debit cards, while banks in turn collect less in revenue. Many small businesses had been hoping the fee would be capped at about 12 cents per transaction.

Recover executive compensation if business fails
The Dodd-Frank Act was born of the ashes of the financial crisis, and one of its primary goals was to put in place measures that would limit the likelihood of another crisis. Though several of these proposals have yet to be finalized, the Federal Deposit Insurance Corp. did approve one measure earlier this month that gives it the authority to take back two years' worth of executive compensation in the event that these executives played a role in the company's demise. In this way, the Dodd-Frank Act finds a way to hold even the most powerful members of Wall Street culpable when business takes a turn for the worse.

Free credit report
Beginning Thursday, any bank that rejects a consumer for a loan or credit card will be required to supply that individual with the relevant data from their credit report that informed the company's decision. In this way, the consumer will be able to use the information to better understand their credit situation and to contest the lender's decision if there are mistakes on their report.

The birth of the Consumer Financial Protection Bureau
After months of preparation, the Consumer Financial Protection Bureau is set to launch this week. The mission statement of the agency, which is effectively the crown jewel of the Dodd-Frank Act, is to act as a "cop on the beat to protect the consumer financial services markets," forcing businesses to cut down on the fine print and be more transparent. While the agency has so far been focused on just getting off the ground, the goal is to eventually centralize all the activities of the various government agencies that act on behalf of the consumer and institute rules to help make everything from credit cards to student loans more consumer-friendly.

Regulating derivatives
Following the financial crisis, many consumers learned to hate a word that until then, most had likely never heard: derivatives, the name for the more sophisticated but less regulated investments that are based on the performance of other financial products such as stocks and bonds. The Dodd-Frank package would not ban the practice of betting on derivatives, but it would put in place strict regulations that, in part, would require banks to divulge the risks of derivatives. By the most recent accounts though, the rule won't likely take effect until at least the end of the year.

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