By Lisa Donner and Ericka Taylor
The Dodd-Frank Wall Street Reform and Consumer Protection Act marks its 15th anniversary this week. This milestone is an opportunity to reflect on the critical role of effective financial regulation in creating a fairer economy that allows people and communities to flourish. We need it to protect people from day to day abuses that make it harder for families to make ends meet, live in affordable housing, or save for retirement. And we need it to prevent systemic misalignments that give Wall Street free rein to increase profits by extracting wealth at our expense—while increasing the likelihood of devastating financial crises.
Dodd-Frank stopped a decades-long roll of deregulation, set critically important new standards, and was the most significant set of new rules for finance since the Great Depression. Households have more money in their pockets, and the financial system has been more resilient as a result. But the law needed to be both rigorously implemented and regularly updated to address emerging problems and areas where its approach fell far short. Instead, policymakers—and conservative courts—have too often gone along with industry-led efforts to chip away at the law and to block further progress. Now, this Administration is doing finance’s bidding at an entirely new scale, waging a wholesale assault on fair rules of the road, and swiftly rolling back guardrails and protections. The results are likely to be devastating.
The creation of the Consumer Financial Protection Bureau, or CFPB, was a central success of Dodd-Frank. The agency is a public interest watchdog set up to stop predatory corporate actors from profiting from consumer pain. From junk fees to abusive credit reporting and debt collection to tricks and traps in mortgages and auto loans, bad financial actors steal tens of billions of dollars every year from all of us, and target some of the nation’s most vulnerable consumers. After decades of profiting off of people with low wealth by punishing them with higher fees and interest rates, firms that engage in unfair and abusive practices began meeting their match with the CFPB.
The agency has been wildly successful in protecting consumers, and its work is extremely popular. As of last year, it has made bad actors return $21 billion in consumer restitution and prevented tens of billions of dollars more in rip offs. It is the only federal entity responsible for going after financial companies that take advantage of everyday consumers, while creating rules that contribute to fair competition and increased stability.
But this agency’s indispensable work standing up to powerful corporate interests has been under constant attack by the current administration. They are stopping enforcement actions (and even telling lawbreaking companies to stop paying people back!), abandoning consumer protection rules, and stopping basic consumer protection work. Recent analysis has found that these rollbacks have already cost consumers a minimum of $18 billion dollars this year.
Other crucial elements of Dodd-Frank—and post-Dodd-Frank—financial regulation are also being rolled back. Just to take a few examples among many: the administration has already made it harder for the government to monitor the threats to stability posed by giant non-bank financial companies, like private equity firms; the Federal Reserve is proposing to reduce how much capital the biggest banks need to keep on hand to guard against catastrophe in the face of losses; and the administration wants to delay gathering and publishing data, as required by Congress, to understand the credit needs of small businesses and farms, and women-owned and minority-owned small businesses and farms in particular.
Meanwhile, massive lobbying and political spending by the crypto industry and by private funds—not to mention the enthusiastic embrace of crypto-king Trump—are flinging open the floodgates to frightening new sources of danger. This creates tremendous risks not only for consumers and investors but also for financial stability, basic market transparency, and the rules of the road.
Fintech and banking lobbyists are hoping we forget why Dodd-Frank—and Depression-era financial regulations—were put in place to begin with. Dodd-Frank was enacted to try to prevent the recurrence of an event like the Great Recession. This calamity, the worst economic downturn since the Great Depression, was a direct result of decades of deregulation that allowed financial institutions to engage in unchecked recklessness, speculation, and abusive practices. Its impacts were devastating, including trillions of dollars of lost wealth. Median household wealth fell by more than 40% for Black and Latine families between 2007 and 2013, and by 26% for white families during that timeframe. The crisis led to more than 16 million people losing their homes, with homeownership rates falling 11% for Black households, 9.8% for Latine households, and 4% for white households between 2008 and 2015. More than 27 million jobs were lost. Yet, the financial institutions that caused the crisis recovered far more rapidly than the millions who lost their homes, jobs, and life savings.
This kind of outcome is indicative of what happens when politicians and policymakers let self-interested financial companies—and the money they spend on lobbying, political campaigns, and related activities—dictate policies that may seem obscure, but in fact have a tremendous impact on people’s day to day lives. Laws and regulations in this space that serve the public interest are critical to creating a financial system that supports a sustainable economy for everyone—not just immediate gains for powerful financial firms.
Unsurprisingly, the financial companies committed to extracting wealth from all of us, but especially the most marginalized, fight to prevent them. Crypto and other fintech companies are pushing to be unbound from regulations in the name of innovation, eerily mirroring the arguments made in the leadup to the financial crisis. Then, risk-taking firms blocked the regulation of high-cost loans, just as they prevented needed oversight of derivatives and successfully eliminated barriers between banking and commerce. Cynical arguments about broadening “access” (when unscrupulous firms actually want to profit from pushing dangerous products on economically vulnerable people) similarly echo the claims made about predatory subprime loans. Just as was the case then, millions of people’s economic security, pensions, homes, and jobs are at stake. However, if we fight for effective financial regulation, they don’t have to be.
Powerful corporations and their allies in government are arrayed against financial rules in the public interest, but this anniversary should serve as a reminder of how important it is to fight back—and what is at stake.