The Dodd–Frank Act (Dodd–Frank Wall Street Reform and Consumer Protection Act).
The Dodd–Frank Act was signed by President Barack Obama on July 21, 2010. At the signing ceremony, the President laid out the historical perspective as well as the perspective focused on our common future:
"Passing this bill was no easy task. To get there, we had to overcome the furious lobbying of an array of powerful interest groups and a partisan minority determined to block change. So the members who are here today, both on the stage and in the audience, they have done a great service in devoting so much time and expertise to this effort, to looking out for the public interests and not the special interests. And I also want to thank the three Republican senators who put partisanship aside judged this bill on the merits, and voted for reform. We’re grateful to them. And the Republican House members."
"Now, let’s put this in perspective. The fact is, the financial industry is central to our nation’s ability to grow, to prosper, to compete and to innovate. There are a lot of banks that understand and fulfill this vital role, and there are a whole lot of bankers who want to do right -- and do right -- by their customers. This reform will help foster innovation, not hamper it. It is designed to make sure that everybody follows the same set of rules, so that firms compete on price and quality, not on tricks and not on traps.
It demands accountability and responsibility from everyone. It provides certainty to everybody, from bankers to farmers to business owners to consumers. And unless your business model depends on cutting corners or bilking your customers, you’ve got nothing to fear from reform.
Now, for all those Americans who are wondering what Wall Street reform means for you, here’s what you can expect. If you’ve ever applied for a credit card, a student loan, or a mortgage, you know the feeling of signing your name to pages of barely understandable fine print. What often happens as a result is that many Americans are caught by hidden fees and penalties, or saddled with loans they can’t afford.
That’s what happened to Robin Fox, hit with a massive rate increase on her credit card balance even though she paid her bills on time. That’s what happened to Andrew Giordano, who discovered hundreds of dollars in overdraft fees on his bank statement –- fees he had no idea he might face. Both are here today. Well, with this law, unfair rate hikes, like the one that hit Robin, will end for good. And we’ll ensure that people like Andrew aren’t unwittingly caught by overdraft fees when they sign up for a checking account.
With this law, we’ll crack down on abusive practices in the mortgage industry. We’ll make sure that contracts are simpler -– putting an end to many hidden penalties and fees in complex mortgages -– so folks know what they’re signing.
With this law, students who take out college loans will be provided clear and concise information about their obligations.
And with this law, ordinary investors -– like seniors and folks saving for retirement –- will be able to receive more information about the costs and risks of mutual funds and other investment products, so that they can make better financial decisions as to what will work for them.
So, all told, these reforms represent the strongest consumer financial protections in history. In history. And these protections will be enforced by a new consumer watchdog with just one job: looking out for people -– not big banks, not lenders, not investment houses -– looking out for people as they interact with the financial system."
The Dodd–Frank Act passed as a response to the financial crisis of 2007–2008. It brought the most significant changes to financial regulation in the United States since the regulatory reform that followed the Great Depression. It made changes in the American financial regulatory environment that affected all federal financial regulatory agencies and almost every part of the financial services industry.
The Act's objectives are to promote the financial stability of the United States by improving accountability and transparency in the financial system, to end too big to fail, to protect the taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes.
The Dodd-Frank Act addresses critical issues that triggered the worst financial crisis since the Great Depression. Thousands of Americans had lost their jobs, watched their savings dwindle, and were forced out of their homes.
The SEC and other regulators have been working hard to strengthen the financial systems by implementing the rules mandated by the Act, and by enacting other critical reforms to protect investors and markets. The SEC has taken action to address virtually all of the mandatory rulemaking provisions of the Dodd-Frank Act, and at the same time they have focused on additional measures to bolster the financial infrastructure.
Within a year of the legislation taking effect, the Commission began bringing greater transparency and oversight to hedge fund and other private fund advisers with an extensive series of reforms. The Commission also established stronger standards for the clearinghouses that stand at the center of the global financial system and built an enhanced program for their supervision.
The regulators finalized the Volcker Rule’s restrictions on proprietary trading and investments by banks. To combat the inflated credit ratings that contributed to the crisis, the SEC adopted a comprehensive package of reforms to the governance and management of the credit rating agencies and put in place the foundational rules for a new regulatory framework for security-based swaps.
The SEC set up new safeguards to protect municipalities and investors in the municipal securities markets from conflicted advice and unregulated advisors. They adopted wide-ranging rules for the asset-backed securities market that increase the accountability of securitizers and better protect investors.
The overarching objective of these rulemakings is to promote the long-term sustainability of the U.S. financial system. That is also the objective of the other powerful tools that the Dodd-Frank Act gave the SEC, such as the whistleblower award program and other enhancements to the SEC’s enforcement authority. The whistleblower program has increased the efficiency of the SEC's program by expanding whistleblower protections and remedies for retaliation while creating powerful incentives for whistleblowers to come forward with evidence of financial wrongdoing.
Section 922 of the Act provides that the SEC shall pay awards to eligible whistleblowers, who voluntarily provide original information that lead to a successful enforcement action yielding monetary sanctions of over $1 million. The award amount is required to be between 10 percent and 30 percent of the total monetary sanctions collected in the Commission’s action, or any related action such as in a criminal case.
The Act expressly prohibits retaliation by employers against whistleblowers, and provides them with a private cause of action in the event that they are discharged or discriminated against by their employers in violation of the Act.
Assistance and information from a whistleblower who knows of possible securities law violations can be among the most powerful weapons in the law enforcement arsenal of the Securities and Exchange Commission. Through their knowledge of the circumstances and individuals involved, whistleblowers can help the Commission identify possible fraud and other violations much earlier than might otherwise have been possible. That allows the Commission to minimize the harm to investors, better preserve the integrity of the United States' capital markets, and more swiftly hold accountable those responsible for unlawful conduct.
The Office of the Whistleblower was established to administer the SEC's whistleblower program. You can reach the Office at (202) 551-4790.
While the worst of the financial crisis is behind us, the Commission continues its critical work beyond the Dodd-Frank Act to fulfill its obligation to protect investors, enhance market stability, and promote capital formation. Doing so today requires a dynamic, persistent assessment of the risks to investors and markets, as well as to the financial system as a whole. They adopted, for example, transformative rules that will fundamentally change the way money market funds operate, and they also now require additional safeguards from the broker-dealers who manage customers’ securities and cash.
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