President Obama signs Dodd-Frank Act

The Dodd-Frank Wall Street Reform and Consumer Protection Act has been signed by President Obama and represents a major overhaul of U.S. financial regulations aimed at preventing future crises as well as imposing new restrictions on certain financial products like payday lending. Although banks and businesses are the focus of the regulations, consumers will likely be affected directly and indirectly by several key provisions.  Probably the most significant consumer protection provision is the creation of the new Consumer Financial Protection (CFP) Bureau within the Federal Reserve. The CFP Bureau will police consumer financial products such as mortgages, credit cards and payday loans. The new bureau is charged with enforcement of existing laws and has been given the power to set specific rules on certain financial products, including setting caps on the interest rates payday lenders charge. Auto dealers were successful in avoiding regulation by the new CFP Bureau and will continue to be regulated by the Federal Trade Commission.  According to the Center for Responsible Lending, this is good news for consumers because their belief is that the CFP Bureau will be better able to keep up with evolving business practices than legislators. Other commentators see the powers granted to the CFP Bureau threatening critical access to important financial services for low to moderate income individuals.  Only time will tell on how businesses like payday lenders and check cashers will adjust to the inevitable restrictions on their businesses from new CFP Bureau regulations.

The rest of the new law focuses on regulating the larger financial markets. Under the new legislation, instead of being forced to prop up failing nonbank financial institutions, regulators will have the authority to take over financial institutions and close them in an orderly fashion similar to how the FDIC deals with failing banks now.