Dodd-Frank Is Like Obamacare

"If you like your life, home, and auto insurance, you can keep them.”

President Obama didn’t make this promise when he signed into law the Dodd-Frank financial overhaul on July 21, 2010, a few months after signing the health-insurance law — Obamacare — about which he had made the equivalent pledge. But as syndicated columnist Jay Ambrose points out, “if the Dodd-Frank regulatory law does what is now plotted,” Obama may get off the hook with respect to the charge that he deceived us, but “he will still share responsibility for the insurance provision that, along with others, could bloody lots of noses.”

As Dodd-Frank approaches its fourth anniversary, Obama is singing its praises. He told NPR on July 2 that Dodd-Frank is “an unfinished piece of business, but that doesn’t detract from the important stabilization functions” it has provided.
Yet even to lawmakers from Obama’s own party, this “financial reform” legislation is looking more and more like a destabilizing force — much like the so-called reform of health insurance. Even at the outset, there were many similarities. Both Obamacare and Dodd-Frank contained about 2,500 pages that were rammed through a Democratic-controlled House and Senate at breakneck speed. Because of the length of the law and the rapidity of its passage, many did not understand the bills. Many hadn’t even read them.

Also as with Obamacare, unintended consequences of Dodd-Frank almost immediately began to surface. First, there was a sharp reduction in free checking due to the Durbin amendment’s price controls on debit-card transactions. Then, community banks and credit unions — including some with close to zero foreclosures — found the “qualified mortgage” rules so costly and complex that they slowed down or stopped altogether the issuance of new mortgages. Then, with regard to a provision that has no plausible connection to sound banking and finance, domestic manufacturers found themselves having to trace back numerous materials they use, to determine if they had originated as “conflict minerals” from the Congo.

The latest unintended consequence may be the one that bears the most striking similarity to Obamacare. Life-insurance rates alone could soar by $5 billion to $8 billion a year, according to the respected economic consulting firm, Oliver Wyman. Just as health-insurance premiums and deductibles skyrocketed owing to Obamacare’s many mandates, so too may the premiums for life, home, and car insurance thanks to provisions of Dodd-Frank. And as with Obamacare, choices of policies will be more limited and some policies may even be canceled.

The good news is that, amazingly, the Democratic-controlled Senate – perhaps chastened by the experience of Obamacare — passed a bipartisan bill last month to attempt to provide relief from these Dodd-Frank provisions. The House should pass identical legislation, dare Obama to veto it, and then push for more.

It has been said that, under Obamacare, health insurance companies are no longer insurance companies but public utilities. With Dodd-Frank, many insurance companies face regulation as if they were banks. Under the Federal Reserve’s interpretation of the Collins amendment, sponsored by liberal Republican senator Susan Collins (Maine), insurance companies with a small thrift operation — or even those without any banking component but deemed “systemically important” by Dodd-Frank’s Financial Stability Oversight Council — will face the same capital standards that banks do.

This is so despite widespread bipartisan consensus that it is insane. While both banks and insurers face risks, they use very different business models. Typically, banks make short-term payouts on deposits for millions of customers. Insurers, by contrast, either pay claims for just a fraction of policyholders or, in the case of life insurance, pay out after years or even decades.