With the fifth anniversary of the passage of the Dodd-Frank Consumer Protection and Wall Street Reform Act coming up on July 21, many lawmakers and industry stakeholders are analyzing its effects on the financial industry and on American consumers.
One such analysis, titled Dodd-Frank at 5: Higher Costs, Uncertain Benefits and conducted by analysts Ben Gitis, Andy Winkler, and Sam Batkins of the Washington, D.C.-based non-profit think tank American Action Forum (AAF), was released this week. The authors estimate that Dodd-Frank has imposed more than $24 billion in final rule costs and 61 million hours in paperwork in the last five years.
"From a housing market still experiencing mediocre growth, to an uneven labor picture, it’s clear the law has fundamentally altered capital markets and added layers of complexity for consumers and financial institutions," the authors wrote.
Those costs are likely to increase, since only about 60 percent of the law has been finalized. The largest rules of Dodd-Frank still in proposed form are estimated to cost another $7.8 billion and 1.7 million paperwork hours, according to the authors.
"As time passes, the law becomes more expensive as regulatory agencies like CFPB and FHFA grow with the mission to implement burdensome rules," the authors wrote. "Meanwhile, small financial services firms continue to struggle as the law restricts the availability of financial products. With about 21 percent of the law still left to implement, one can only expect the costs to continue to rise."
The Home Mortgage Disclosure Rule is one of the rules that is still pending; AAF estimates it will impose another $2.1 billion in final rule costs to go with 90,000 paperwork hours. The rule was originally scheduled to go into effect on August 1, but the Consumer Financial Protection Bureau (CFPB) announced this date would be pushed back due to an "administrative error"; the new proposed effective date is October 3.
The authors' research found that smaller firms have absorbed most of the costs imposed by Dodd-Frank. While the number of financial firms grew only 2 percent from 2010 (the year Dodd-Frank was passed) to 2014, the number of firms with between 10 and 19 employees declined by 0.3 percent and the number of firms with between 20 and 49 employees shrank by 1 percent during that same period. The authors found that even regional financial firms struggled, since the number of firms with between 500 and 999 employees declined by 0.5 percent since 2010. Large companies (those with more than 1,000 employees) increased by 11.9 percent during that period.
Employment in the financial industry has increased by only 3.7 percent since 2010 while jobs at federal financial regulatory agencies jumped by 19.2 percent during that same time frame. The number of employees at the Federal Housing Finance Agency skyrocketed by 37.1 percent while the number of employees in the Federal Reserve System (all Fed banks and the Board of governors) skyrocketed by 32.2 percent, according to the authors.