The Dodd-Frank Act 5 Years Later: Are We More Stable?

This commentary is excerpted from testimony before the U.S. House Committee on Financial Services.

By Todd Zywicki

An animating premise of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) was the belief that a primary source of financial instability was an inadequate consumer financial protection regime at the federal level. 

Dodd-Frank sought to address those perceived deficiencies by creating the Bureau of Consumer Financial Protection (CFPB) and vesting that new super-bureaucracy wielding an unprecedented combination of vast, vaguely defined substantive powers with no democratic accountability. 

At the outset, allow me to stress that I personally agreed with the proposal to combine the administration of federal consumer financial protection laws under one agency’s roof. The preexisting system was too complicated, too fragmented, and too incoherent. 

That Dodd-Frank squandered this historic opportunity to modernize and reform consumer protection laws for the benefit of consumers was, therefore, particularly disappointing. In the five years since the law came into effect it has resulted in higher prices and reduced choice for consumers and has done little to increase consumer financial protection. 

Yet while this sorry result for American consumers is tragic, it is hardly surprising. The failure of Dodd-Frank’s regulatory agenda to promote the interests of consumers was built in from the beginning. 

The CFPB, for instance, is vested with extraordinarily broad charge to prevent “unfair, deceptive, and abusive” terms and practices. At the same time, this vast power is vested in an agency with an unprecedented lack of democratic accountability. Under the statute, the president can nominate the director, but once confirmed the director can be removed only “for cause.” 

Furthermore, the CFPB is outside Congress’s appropriations power, and is authorized to spend hundreds of millions of taxpayer dollars every year with no accountability to the American people. 

Given this extreme lack of democratic accountability, the CFPB has done what all bureaucracies tend to do: it has constantly expanded its power, promoted its own bureaucratic interests at the expense of the public, and trampled underfoot other public policies, such as consumer choice and financial innovation. 

The impact on American families and the economy from the actions of this unaccountable super-regulator has been disastrous: 

  • By imposing a regulatory regime that substitutes the judgment of bureaucrats for consumer decisions, Dodd-Frank has raised prices and cut off access to mortgages, credit cards and bank accounts, harming millions of American families that use credit to improve their lives and depressing economic growth.
  • By stripping consumers of mainstream financial products such as mortgages, credit cards, and bank accounts, Dodd-Frank has driven the most vulnerable Americans into the arms of check cashers, pawn shops and payday lenders, increasing their reliance on those products for which sharp practices are most feared.
  • The crushing regulatory compliance cost burden and destruction of community banks’ traditional relationship lending model has accelerated consolidation of the retail banking system, making big banks even bigger and further eliminating competition and choices for consumers.
  • The CFPB has launched a massive data-mining program that collects data on hundreds of millions of consumer credit cards, mortgages, bank accounts and other products, an appetite for consumer information that far exceeds any reasonable regulatory purpose. Not only do these data-mining operations impose costs on banks and their customers, the operations’ scale creates unprecedented threats to privacy and risks to personal information security.
  • Because many small, independent, kitchen-table businesses use products such as personal credit cards, home equity loans and auto title loans in financing their businesses, the CFPB’s powers reach into all of these small businesses as well. Little wonder then for the first time in American history more businesses are being destroyed than new businesses being started 

After five years, has Dodd-Frank made American families better off? No. Instead, the overall impact of Dodd-Frank has been to slow our economic recovery, raise prices, reduce choice and eliminate access to the financial mainstream for American families. And low-income Americans have been hit the hardest.

Todd Zywicki is a George Mason University Foundation Professor of Law and Executive Director of the Law and Economics Center, and a Senior Scholar at the Mercatus Center. Access his complete testimony at

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