What Is the Dodd-Frank Act?

What Is the Dodd-Frank Act?

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2012-12-16

You may have heard the term “Dodd-Frank” in reference to the U.S. banking and financial system, but you’re not sure exactly what it refers to. “Dodd-Frank” is short for the Dodd-Frank Wall Street Reform and Consumer Protection Act. Named for two of the primary legislators who drafted it—House of Representatives Financial Services Committee Chairman, Barney Frank and Senate Banking Committee Chairman, Chris Dodd—the Act was signed into law on July 21, 2010.

The Dodd-Frank Wall Street Reform and Consumer Protection Act has been referred to by some as the most comprehensive overhaul of the financial services industry since the Great Depression. According to a summary of the legislation published by the U.S. Senate, the objective of the legislation is to “create a sound economic foundation to grow jobs, protect consumers, rein in Wall Street and big bonuses, end bailouts and too big to fail, and prevent another financial crisis.”

Dodd-Frank is a very comprehensive and detailed piece of legislation. Most people don’t need to familiarize themselves with all of the details, but here are a few of the features many consumers might want to be aware of:

• Additional consumer financial protections— The Act created the Consumer Financial Protection Bureau (CFPB), a new independent federal agency charged with protecting the financial interests of U.S. consumers. The CFPB has the power to regulate a wide range of financial products and services, including mortgages, credit cards, and other bank products.

The Act gives the CFPB wide discretion in deciding what constitutes these kinds of practices. A new Office of Financial Literacy and a national consumer complaint hotline were also established as part of the CFPB.

• Increased deposit account insurance — The Act provides for unlimited insurance coverage of noninterest-bearing transaction accounts until December 31, 2012. Through this date, these accounts are fully insured at all FDIC-insured institutions, regardless of their balance. This unlimited insurance coverage—which is available to both consumer and business depositors—is in addition to the coverage provided to other interest-bearing deposit accounts held at an institution.

In addition, the Act permanently raises the current standard maximum deposit insurance amount (SMDIA) at FDIC-insured institutions to $250,000. This coverage limit applies per depositor, per insured depository institution, for each account ownership category.

• A potential end to “too big to fail” bank bailouts— The Act proposes to create a safe way to liquidate failed financial firms and thus eliminate the need for more costly bank bailouts. It updated the Federal Reserve’s authority to allow bank system-wide support without propping up individual banks, and established rigorous new standards and supervision designed to protect the U.S. economy from the systemic risks posed by the potential failure of large, complex financial services firms.

• Stricter enforcement of existing financial regulations— The Act empowers regulators to aggressively pursue financial fraud and conflicts of interest.

Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates,Inc. (DLA). This material does not constitute an offer or recommendation to buy or sell securities and should not be considering in connection with the purchase or sale of securities. Member FINRA & SIPC.

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516.829.8374 X 232
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