DEMOCRATS’ REPORT FROM HOUSE FINANCIAL SERVICES COMMITTEE ISSUED ON DODD-FRANK FOURTH ANNIVERSARY
On July 21, 2014, the fourth anniversary of the Dodd-Frank Act, Democrats and Republicans on the House Financial Services Committee published separate reports regarding the law. The 30-page report prepared by Democratic members of the Committee remarked that regulators had made “tremendous progress” in implementing the Dodd-Frank Act. The Democratic report, however, claimed the Republican Majority stymied this progress through its concerted efforts to underfund regulators’ operations, pressure regulators relentlessly to weaken regulations, and otherwise erect roadblocks to implementation.
The Democrats’ report complimented the rules put in place by regulators, including the Securities and Exchange Commission (“SEC”) and Commodity Futures Trading Commission (“CFTC”). The report applauded the Dodd-Frank Act for providing shareholders a non-binding vote to approve or disapprove executive compensation and golden parachutes. It also claimed the SEC has recovered more than $9.3 billion in civil fines and penalties since 2011, due to the increased authority the Dodd-Frank Act provided the SEC.
With respect to whistleblower enhancements in the Dodd-Frank Act, the report noted that the SEC has already received more than 6,573 tips from 68 countries. Additionally, in order to implement the Dodd-Frank Act, “the CFTC has completed 65 final rules, orders, and guidance documents resulting in the registration and enhanced oversight of 102 Swap Dealers, two Major Swap Participants, 22 Swap Execution Facilities, and four Swap Data Repositories.”
Moreover, the Dodd-Frank Act created the Consumer Financial Protection Bureau (CFPB) to ensure American consumers “get the clear, accurate information they need to shop for mortgages, credit cards, and other financial products, and protects them from hidden fees, abusive terms, and deceptive practices through strong enforcement of consumer protection laws.” The report credited the CFPB with returning $4.6 billion to 15 million consumers subjected to unfair and deceptive practices. The report praised the CFPB for creating a qualified mortgage rule that established a federal standard for all home loans to ensure borrowers can repay their loans.
Additionally, the qualified mortgage rule prohibited lenders from receiving financial rewards for subprime loans that encouraged lenders to steer borrowers into more expensive loans. This included prohibitions on “yield, spread premiums” that lenders provided brokers to encourage the origination of riskier loans to borrowers, especially minorities, who otherwise qualified for superior loans. The Democrats’ report also praised the implementation of the Volcker Rule that limits financial institutions receiving government assistance, proprietary trading and investment in and sponsorship of hedge funds and private equity funds. Because of the Volcker Rule, “banks have shifted away from speculative trading to investments in the real economy.”
Despite this progress, the Democratic report accused the Republican Majority of engaging in a campaign to repeal, weaken, or otherwise pressure regulators to significantly modify provisions in almost all of the titles of the Dodd-Frank Act. The report also alleged the Republican Majority underfunded regulators like the SEC and CFTC and subjected their rulemakings to constant implementation hurdles. For example, the report stated the Republican Majority passed bill H.R. 2308 in the 112th Congress and H.R. 1062 in the 113th Congress that would subject SEC rulemakings to stricter cost-benefit standards. Moreover, the report criticized the bills for not providing further funding to the SEC, even though the bills would require significantly more resources for economic analysis before the SEC could issue rulemakings. In addition, the report stated the Republican Majority refused to adequately increase the funding of the SEC and CFTC despite the fact their responsibilities increased under the Dodd-Frank Act. The report cautioned, “[i]f enacted, the cumulative effect of these efforts would render the Dodd-Frank Wall Street Reform and Consumer Protection Act essentially toothless, inviting a return to the opacity, risk, and deregulation that caused the 2008 crisis.”
The Democratic report concluded that since the Dodd-Frank Act’s passage, increased stability in the market has led to economic growth. The report indicated that the private sector created almost 9.7 million payroll jobs since February 2010. In addition, unemployment is now at 6.1 percent, its lowest level since September 2008. Moreover, real GDP growth now stands 5.5 percent higher than its pre-recession high in late 2007. Nevertheless, the Democrats’ report called the Republican Majority a roadblock in regulators’ Dodd-Frank Act implementation progress.
The primary materials for this case may be found on the DU Corporate Governance website.