Dodd Frank, CFPB Act Under Attack

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Dodd Frank Act News

Source: web

Eight more states have now decided to join a lawsuit that already includes several states on board with the goal of challenging the constitutionality of the Dodd-Frank Act. This news comes as the GAO announces it’s completed a study that says it’s unable to quantify the costs and benefits of the financial law. It says it’s reviewed both empirical and other studies that focus on the impacts of the financial crises and the reforms that Dodd-Frank put into place. The study includes reviews of different congressional testimony, letters and public statements from those in the know.

States Sue

Along with Michigan, Oklahoma and South Carolina, the other eight states that are now part of the lawsuit include Alabama, Georgia, Kansas, Montana, Nebraska, Ohio, Texas and West Virginia. The original suit was filed in June in U.S. District Court for the District of Columbia by State National Bank of Big Spring, Texas; the Competitive Enterprise Institute and several other other groups.

Too Powerful?

You may recall that the lawsuit was initially filed because of concerns that the Consumer Financial Protection Bureau “aggregates the power of all three branches of government in one unelected, unsupervised and unaccountable bureaucrat”. Unfortunately, what many consumers are unaware of, even as their states are filing these suits, is that CFPB is the one government agency that has actually benefited consumers in recent years. With three huge fines against the nation’s biggest credit card companies being handed down for unethical and illegal practices, there’s not been any other government agency (or any agency at all, for that matter), that’s even come close to serving in the role as a true consumer watchdog.

Orderly Liquidation Authority

The focus is on Title II of the Dodd-Frank Act, which gives the secretary of the Treasury so-called “Orderly Liquidation Authority”. This authority is described as a “third way” that gives the Treasury secretary the authority to order FDIC to take over and order nonbanks to liquidate if it feels they are in default or potentially nearing default. If there are concerns a collapse is imminent or would have “serious adverse effects on the financial stability of the United States” it can make across the board decisions with little, if any, further input from any other agency.

The attorneys general are crying foul and insisting “un elected Washington bureaucrats” are determining the law. Frankly, that couldn’t be farther from the truth. Some consumers are already stating that it’s the elected officials that have caused so many problems anyway, so why not allow an “un elected” consumer watchdog at least play a role. West Virginia Attorney General Patrick Morrisey said that this

negatively impacts…taxpayers…and allows un-elected Washington bureaucrats to pick winners and losers among affected creditors, entirely abandoning the rule of law.

Not to be outdone, Texas AG Greg Abbott quickly added,

Under this law…unelected federal bureaucrats can…(deny) basic due process rights and taxpayers’ dollars could recklessly be put at risk.

The keyword being “bureaucrats”, noted one spectator who feels the lawsuits are wrong.

Late last year, the federal government filed its own motion to dismiss the suit, arguing

Their theory that the orderly liquidation authority – which has never been invoked – may be applied to a financial company of which their pension funds are allegedly creditors is pure conjecture,

states the motion. More than two dozen government lawyers signed off on the suit.

GAO Independent Study

Months later, the GAO has its own results from an independent study just as the new states are announced. The new states involved in the suit are saying they’re simply exerting efforts to “protect their pension funds, taxpayers and financial stability”. The GAO says it’s difficult to predict the benefits of both Dodd Frank and CFPB, so therefore, it perhaps should be scrapped. Remember, too, that the Republicans fought during election season to have the law and the agency repealed and had Mitt Romney been elected, that’s exactly what would have happened. Dodd Frank was designed to lessen the odds of another “too big to fail” banking system. While agreeing that Dodd-Frank Wall Street Reform “could enhance the stability of the U.S. financial system and provide other benefits, the extent to which such benefits materialize will depend on many factors whose effects are difficult to predict”, the report said that compliance and other costs on banks and financial institutions, such as credit card companies, could restrict their business activities. It also stated that regulators have collected data in the past, but that there exists no “comprehensive data” that would reveal the true costs.

Increased Costs

That means that those same banks, credit card companies and other financial entities could – and likely do – pass increased costs on to their customers. Examples given included banks that could charge more for their loans or other services. Worries are that these costs could stunt economic growth. Even if the administrative costs can be quantified, it’s the other costs, including the total economic impact, can’t. Studies, in the past, have estimated the economic impact of certain of the Act’s different reforms, there are many variables that affect the bottom line. The “wide variations” depend on a number of unpredictable key assumptions.

What You Might Not Know

The worries for those who can see the benefits of these new laws, and specifically CFPB, is that consumers will no longer have an effective agency to turn to with legitimate financial concerns. Remember, this is the same agency that hit Capital One for more than $140 million that was refunded to credit card customers, Discover for more than $200 million that was returned, as well as $85 million that was ordered back to American Express consumers. These weren’t drawn out lawsuits, they weren’t backroom deals and the consumers had to do nothing except report to CFPB what they believed were unfair business practices. The agency investigated the the complaints filed in its database and took action.

In a country where multi-million dollar lawsuits can take decades, this group has been founded for two years. The three fines? The complaints were filed, investigated and fines ordered in a matter of months. Not only that, but the investigations occured simultaneously. This isn’t a government agency with thousands of folks on the payroll – it’s a relatively small group that takes its responsibilities seriously and wastes no time in doing so. And this is what is not being reported by these attorneys general; it’s not included in the lawsuits and unless a consumer knows the group’s track record, there’s a good chance they will go forward with less than the whole story.

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About Author

David is a CPA and has spent the past decade as a financial adviser helping clients meet their fiscal objectives. With an appreciation for journalism, he has spent the past few years overseeing several financial columns as well as writing two previous finance blogs. He resides on the East Coast with his wife and two sons and has guided many through the recent recession while providing a no-nonsense approach to spending and saving.


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