How Dodd-Frank Harms Main Street

Ill-Considered Financial Reform Law Thwarts Americans’ Access to Financial System


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The financial crisis of 2007-2008 was a drastic shock to the American economy. The regulatory response of 2009-2010 was just as powerful a shock to the financial system. Enshrined in the Wall Street Reform and Consumer Protection Act, popularly known as Dodd-Frank after its main Senate and House sponsors—then-Sen. Christopher Dodd (D-Conn.) and then-Rep. Barney Frank (D-Mass.)—the reforms were intended to protect Main Street and consumers from financial predation by Wall Street. Instead, it has meant reduced access to credit for small businesses and fewer choices for consumers, while doing little to punish the main culprits in the financial crisis.

The Dodd-Frank Act was sold to the American people as promoting financial soundness and stability by reining in Wall Street and the big banks, rather than to prevent fraud. When its supporters mentioned fraud, it was in passing. Then-House Speaker Nancy Pelosi said: “No longer again will recklessness on Wall Street cause joblessness on Main Street. No longer will the risky behavior of the few threaten the financial stability of our families, our businesses, and our economy as a whole.”

Other items from the wish list of the left were added to the bill as it made its way through Congress. Sen. Richard Durbin (D-Ill.) added an amendment that imposed a cap on the “interchange fees” banks and debit card networks charge to merchants whose customers use the cards. The House-Senate conference added the “Volcker Rule,” named after former Federal Reserve chairman Paul Volcker, to prohibit banks from trading financial instruments with their own money, despite the proposal not even being voted on during the bill’s passage. The final law even included a provision requiring companies to disclose their use of “conflict minerals” that might have originated from the war zone in the Democratic Republic of Congo, in an effort to cut off funding to warlords there.

The bill passed at every stage largely along party line votes, at a time when Democrats controlled both chambers of Congress (the two Republican Senators from Maine voted for the bill). Sen. Dodd even suggested that the lack of bipartisan involvement was a good thing, arguing that to compromise would be a “huge mistake” given the urgency of the problems the bill sought to address. The final act, signed into law in July 2010, weighed in at 848 pages and over 360,000 words. It is unlikely that many of those who voted for (or against) the bill actually read it.