A Regulatory Overhaul for Wall Street and Banks
The stated purpose of the Dodd-Frank Wall Street Reform and Consumer Protection Act is "to restore responsibility and accountability in our financial system to give Americans confidence that there is a system in place that works for and protects them." The 2,319-page act has a plethora of provisions addressing everything from mortgage reform to the liquidation of large financial institutions. The three main areas covered by the act are consumer protection, banking regulation, and Wall Street reform.
The following is a discussion of the salient sections of the Dodd-Frank Act that CPAs and financial professionals will be most interested in.
The Consumer Financial Protection Bureau
The act creates an independent financial watchdog housed within the Federal Reserve - the Consumer Financial Protection Bureau (CFPB). The CFPB has the authority to ensure that consumers get the clear and accurate information they need to make sound credit decisions. It is directed to protect consumers from hidden fees, abusive terms, and deceptive practices.
According to the act, the director of the CFPB will be appointed by the President and confirmed by the Senate. The bureau will autonomously write rules for consumer protection governing all financial institutions - bank and nonbank - that offer consumer financial products and services. The CFPB will have the authority to examine and enforce regulations for banks and credit unions with assets over SlO billion, as well as all mortgage-related businesses, payday lenders, and student lenders. Large nonbank financial institutions, such as debt collectors and credit reporting agencies, will also be regulated and examined by the CFPB. Banks with assets under $10 billion will be examined for consumer complaints by the appropriate bank regulator.
The CFPB consolidates and strengthens consumer protection responsibilities currently handled by the Office of the Comptroller of the Currency, the Office of Thrift Supervision, the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve, the National Credit Union Administration, the Department of Housing and Urban Development (HUD), and the Federal Trade Commission. Congress wanted to make one office responsible for consumer financial protection. The prior structure, consisting of several agencies with overlapping responsibilities, made it difficult to assign accountability. As a result, emerging problems were often not addressed in a timely manner.
The CFPB will oversee federal laws intended to ensure the fair, equitable, and nondiscriminatory access to credit for individuals and communities. The bureau will monitor consumer financial products and services so that consumers will not have to wait for congressional action in order to be protected from bad business practices. The CFPB will be required to work with other regulators when examining banks to prevent excessive regulation. It must also consult with other regulators before issuing proposals. Regulators will be able to repeal regulations they believe jeopardize banking stability and put the financial system at risk.
The act creates a new office of financial literacy and a national consumer complaint hotline. There will be a single toll-free hotline for reporting problems with financial products and services.
The act establishes a simple federal standard for home loans; institutions must ensure that borrowers can repay the loans they are sold. Providing financial incentives for steering customers to more expensive loans is prohibited. Yield spread premiums - bonuses paid to brokers who inflate the price of loans - are specifically prohibited. Prepayment penalties are also prohibited.
Lenders and mortgage brokers who do not follow the new rules will be penalized. The penalties for violations are up to three years' interest payments plus damages and attorney fees. …