Dodd-Frank Wall Street Reform and Consumer Protection Act

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Ada Dalton
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1 Dodd-Frank Wall Street Reform and Consumer Protection Act Introduced by Barney Frank 12/2/2009 Passed House 6/30/2010 Passed Senate 7/15/2010 Signed into law 7/21/2010

2 Facts about the Bill/Law: Introduced by Barney Frank in the House in 2009 Introduced by Chris Dodd in the Senate in pages 22 page Table of Contents 530 sections 14 New government Agencies formed 1 Agency merged into another 1 elimination of the national thrift charter

3 Why did we need this Bill/Law? --The financial crisis that started in end Too big to fail --it was reported March 1, that 25% of the homes sold in the last month were forclosured homes

4 Made changes to 10 Acts/Laws: --Commodity exchange act --Consumer credit protection act --Federal Deposit Insurance Act --Federal Deposit insurance corporation improvement act --Federal Reserve Act --Financial institutions reform, recovery, and enforcement act of International banking act of Protecting tenants at foreclosure act --Securities exchange act of Truth n Lending Act

5 5 New Agencies Created: 1--Bureau of Consumer Financial Protection 2--Federal Insurance Office--under the Treasury Dept 3--Financial Stability Oversight Council--under the Treasury Dept 4--Office of Financial Research--under the Treasury Dept--this agency has subpoena power--does not have to follow the federal pay scale guidelines 5--Office of minority and Women Inclusion age 21

6 8 Existing Agencies Effected: 1-FDIC 2-Federal Reserve 3-National Union Share Insurance Fund 4-Office of the Comptroller of the Currency 5-SEC 6-SIPC Securities Investor Protection Corporation 7-Treasury Dept 8-United States Bankruptcy Court 1 Agency Eliminated: Office of Thrift Comptroller, but merged

7 This bill in it s official form is over 2400 pages Among the new agencies created are the Financial Stability Oversight Council, Office of Financial Research and the Bureau of Consumer Financial Protection to name a few. Many existing agencies have to make significant changes. Those agencies include FDIC, SEC, Federal Reserve (Fed) and SIPC

8 Title I - Financial Stability Outlines two new agencies to monitor the economy Creates The Financial Stability Oversight Council and the Office of Financial Research These two organizations collect data needed to: enhance the integrity, efficiency, competitiveness and stability of the financial markets. The Council has very broad powers to monitor and assess any risks to the financial system.

9 The Council may require any bank or non-bank with assests over $50 billion to submit certified reports as to the company s Financial condition Systems in place to monitor and control risks Transactions with regulated banks The extent that any activities could have a negative impact on the financial stability of the country

10 The financing of the research activities will be the responsibility of the FED, however after two years these agencies should be self funded. (? How) The rest of Title I deals with hiring, training, benefits (flexible work schedules, job sharing, domestic partner benefits, workplace flexibilities and recruiting.

11 In summary, Titile I creates a huge bureaucracy. The establishment of new agencies and changing the duties of existing agencies will result in enormous expansion of the government of the U.S. These expenses will come from the taxpayer

12 Title II - Orderly Liquidation Authority This defines the process for orderly liquidation of large insurance companies and non bank financial companies not covered by FDIC/SIPC. Deals with appointing a receiver If the entity that is in financial trouble is covered by the FDIC, this bill defines the procedure for liquidation.

13 Title III - Transfer of Powers to the Comptoller, the FDIC/Fed Abolishes the Office of Thrift Supervision Transfers power to the Board of Governors of the Federal Reserve Transfers state savings to associations to the FDIC Transfers other thrifts to the Office of the Comptroller of the Currency. Raises the deposit insurance from 100k to 250k. Establishes an Office of Minority and Women in each agency.

14 Title IV - Regulation of Advisers to Hedge Funds and Others Introduces significant regulation of hedge funds and other similar intermediaries. Increases the reporting requirements of investment advisors. There is an exemption for Venture Capital Fund Advisors with less than $150 million under management, and small family offices.

15 Title V - Insurance Monitoring all aspects of the insurance industry (except health ins., some longterm care ins., crop insurance) Monitoring the extent that underserved communities and consumers, minorities and low-moderate income persons have access to affordable insurance.

16 Title VI - Improvements to Regulation Imposes the Volcker Rule With regard to amount of speculative investments on a large firms balance sheet, it limits the banking entities to owning no more than 3% of total ownership in hedge funds or private equity. This is an attempt to help keep large fluctuations in the hedge fund market from having a devastating effect on the financial markets.

17 Title VII - Wall Street Transparency and Accountability The title provides that, Except as provided otherwise, no Federal assistance may be provided to any swaps entity with respect to any swap, security-based swap, or other activity of the swaps entity.

18 Title VIII - Payment, Clearing and Settlement Supervision Aims to mitigate systemic risk within and promote stability in the financial system. Federal Reserve to create uniform standards for the management of risks. Federal Reserve Board of Governors establish standards to mange risk with payment, clearing and settlement activities by financial institutions.

19 Title IX - Investor Protections and Improvements to the Regulation of Securities Subtitle A Creates the Office of the Investor Advocate (12-22 members/4year terms) SEC to issue point-of-sale disclosure rules. Must advise investor of costs, risks, and conflicts of interest. Oral disclosures for telephone sales.

20 Subtitle B Provides a Whistleblower bounty Informant providing information leading to SEC enforcement to receive 10-30% of money recovered in excess of 1 million dollars This action exempts the SEC from the US Freedom of Information Act.

21 Subtitle C Expands regulation of credit rating agencies. Defines credit rating agencies as the Gatekeepers of the debt market. Mandates the creation of an Office of Credit Ratings (more tax dollars at work)

22 Subtitle D Asset backed securities are security collateralized by any type of selfliquidating financial asset (mortgages) Goals are to ensure quality underwriting, encourage risk management of loan originators, improve access of consumers to credit on reasonable terms or otherwise be in the public interest of the investors

23 Subtitle E Once every 3 years a public corp. is required to submit to shareholders a vote for approval of executive compensation. Once every 6 years must vote on if every 3 years is appropriate. Shareholders must be informed of the relationship between exec compenstation and the value of stock and the median salary of all employees, the annual total compensation of the CEO and the ratio of all employees/ceo compensation. Shareholders must be advised of options that are part of executive comp.

24 Subtitle F Defines management changes to the SEC including but not limited to reports to the Comptroller General on personnel management.

25 Subtitle G Provides that a shareholder may use the proxy solicitation materials for the purpose of nominating individuals for membership to the BOD. Corp. must explain if a CEO is the Chairman of the Board and why.

26 Subtitle H This provision creates a guarantee of trust with a municipal advisor who provides advise to a state and local government regarding investments with any municipal body that provides services. (does not say how this will be accomplished).

27 Subtitle I Establishes an agency to oversee certified public accounting firms (Public Company Accounting Oversight Board.

28 Subtitle J Titled as Securities and Exchange Commission Match Funding I could not find this explained anywhere in the document. There was a note that said This section requires expansion, whatever that means.

29 Title X - Bureau of Consumer Financial Protection Establishes BCFP 6 divisions Regulates consumer financial products and services in compliance with federal law. Aided by Consumer Advisory Board -

30 Title XI - Federal Reserve System Provisions Establishes a new position called Vice Chairman for Supervision. Serves in the absense of the Chairman Conducts several audits Establish standards, plans & reports, and offbalance-sheet activities. Scope of the Federal Reserve is expanded into every phase of financial markets

31 Title XII - Improving Access to Mainstream Financial Institutions Provides incentives that encourage low and middle income people to participate in the financial system. Organizations that are eligible to provide these incentives are tax exempt organizations, federally insured depository institutions, community development financial institutions, state, local or tribal governments. The purpose is to enable low and moderate income individuals to establish one or more accounts in a federal insured bank. Make micro loans, under $ Provide financial education/counseling.

32 Title XIII - Pay It Back Act Reducing the TARP funds available by $225 billion and further mandating that unused funds can not be used for any new programs. The same conditions apply for any funds not used by the state under the American Recovery and Reinvestment Act. All of this is only if the President doesn t waive this requirement because he feels it is in the best interest of the nation to do so.

33 Title XIV - Mortgage Reform and Anti-Predatory Lending Act This section focuses on standardizing data collection for underwriting and imposes obligations on mortgage originators to only lend to borrowers who are likely to repay their loans. DAH!

34 Subtitle A Establishes rules for the Mortgage Originator. Defined as one who takes a loan application and does not provide financing. MO cannot receive compensation that varies based on the term of the loan other than the principal amount. MO must verify the consumers ability to repay the loan. A violation of the ability to pay standard or a mortgage with excessive fees may be used as a defense in a forclosure proceedure. The Act prohibits payment of yield spread premiums or other compensation based on interest rate.

35 Subtitle B Establishes national underwriting standards. More ability to repay jargon. Income verification is mandated. DAH Repayment penalties and mandatory arbitration are prohibited on some residential loans. This act (if all of the t s are crossed and i s dotted) is seen as Safe Harbor relating to foreclosure.

36 Subtitle C Deals with high cost mortgages. Any time a borrower applies for a high cost mortgage (meeting any of many criteria) must obtain pre-loan counseling from a certified counselor. Also bans existing practices including Balloon Payments, prepayment penalties and encouraging default on existing loans when refinancing.

37 Subtitle D Creates a new Office of Housing and Urban Development. This department will coordinate media efforts to educate the general public in home ownership and home finance topics. Track foreclosures in 1 through 4 unit residential properties.

38 Subtitle E Defines the timeframe of providing the consumer with all disclosures regarding the funding. Three days prior to closing the consumer has to have all of the facts.

39 Subtitle F Mortgage Lender may not extend credit to a consumer without getting a written appraisal. DAH Must have physical property visit. Must get new appraisal if last one is 180 days old. Must be by a licensed appraiser.

40 Subtitle G Deals with multifamily dwellings. HUD is challenged with developing a program to ensure protection of current and future tenants should the property be sold or foreclosed.

41 Subtitle H Restructure Fannie May and Freddie Mack. (no mention of how) GOA to study the impact of defective drywall imported from China ( ) on forclosures. Added funding for Mortgage Relief (1 Billion) and Neighborhood Stabilization programs (1 Billion) HUD to establish legal assitance for foreclosure-related issues (35 Million).

42 Title XV - Miscellaneous Provisions Restrictions on U.S. Approval of Loans issued by International Monetary Fund. Disclosures on Conflict Materials in or Near the Democratic Republic of the Congo. Reporting on Mine Safety. Reporting on Payments by Oil, Gas and Minerals In Acquisition of Licenses. Study on Core Deposits and Brokered Deposits.

43 Title XVI - Section 1256 Contracts Refers to the Internal Revenue Code describing tax treatment for any regulated futures contract, foreign currency contract or non-equity option. These types of financial instruments had typically marketed on the last day of the year for tax puposes. The bill does not clearly define what they have in mind for these transactions. I would guess that they will try to remove them from the capital gains statute.

44 Conclusion and Remarks This huge piece of legislation is more than 2400 pages long. How many of our elected representatives do you think actually read this bill? If any read it, how many understood what they read? I poured over this for hours on end and still don t think I clearly understand more than 10% of what I read. Consider the way this bill went through each part of the Hill. It was almost completely partisan. In the House our 9 representative from TN voted R=NO D=YES. In the Senate both Senators from TN voted NO. The only Republican Senators to vote yes were the usual suspect. The RINO s, Collins and Snow of Maine and Scott Brown of Mass.

45 This bill will gives enourmous power to the White House and will cost the taxpayers Billions Finnancial Institutions will spend millions to comply with the new legislation but remember the cost will be passed on to you via fees and added charges for services. Corporations will spend millions to comply and will raise the cost of their goods/services, meaning once again you will pay for it. This bill gives it s supporters (most Dems) an opportunity to tell the naive public that this bill will be good for the masses. They will tell people that they have their best interest in mind. Unfortunately, the people will believe them.

46 This bill expands government and creates more bureaucracy. More high priced positions and lots of people to serve the big shots. Some of the candidates that are currently on the GOP primary slate have said that they would work to overturn Dodd-Frank. We need to make sure that the candidate that we support is one that would work to repeal this bill. We need to elect the right person and then hold his feet to the coals. Some of this bill is noble, but, the entire bill needs to be rewritten without all of the pork and trivia. A good bill would be less than 6 Titles and less than 50 pages and it would reduce the size of government not increase it.

47 Summary: --Too big to fail corporations will continue to get larger --made additional investment bankers, hedge funs, and private equity firms subject to new regulations --Often, more than one government agency regulates the same thing. --Small to medium community banks have more compliance officers than loan officers --Significant changes to financial regulation in the USA since the Great Depression of the thirty s --Unduly restrict the ability of financial institutions to make loans --Control the gambling by the large financial institutions

48 ----The volcker rule see page Need glass-steagall act which was appealed --starts new and major control/regulation of the insurance industry --requires banking among low-medium income residents --regulatory agencies intuberties the new law and write the rules and implement them

American Bar Association Business Law Section Business Bankruptcy Committee Michael St. Patrick Baxter, Chair. August 9, 2010

American Bar Association Business Law Section Business Bankruptcy Committee Michael St. Patrick Baxter, Chair August 9, 2010 LEGISLATIVE UPDATE: DODD-FRANK ACT Judith Greenstone Miller Jaffe, Raitt, Heuer