Passed Hastily, Dodd-Frank Is a Counterproductive Mess

About David John:

David C. John is a senior research fellow in Retirement Security and Financial Institutions in the Roe Institute for Economic Policy Studies at The Heritage Foundation.

Last year's Dodd-Frank Act is essentially a trash-compactor collection of unrelated provisions thrown together in the mad rush to pass a bill, any bill. Rather than creating a comprehensive, well considered law that responded to the actual causes of the crisis, Congress included such disparate--and counterproductive--elements as price controls on debit-card fees (the real reason that banks are starting to charge monthly fees on these cards) and new rules micromanaging how corporations run their shareholders meetings. Neither provision had anything to do with the financial crisis.

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The list of problems in the Dodd-Frank Act doesn't stop there. It includes a housing finance provision that is supposed to force lenders to keep part of mortgages they originate, but will really make it harder for most Americans to qualify for the best mortgage rates.

Dodd-Frank also created a new Consumer Financial Protection Bureau, which was supposed to protect consumers from predatory lending practices. In reality, though, it will limit the kind of financial products that are available and make them more expensive. It also gives government agencies almost unrestrained power to seize corporations that they believe pose a risk to the financial system, with only the narrowest of review by courts.

Other parts of the bill are so poorly worded that the regulators are having a very hard time figuring out what they are supposed to do. Just this week, regulators released a 298-page draft enforcing the "Volcker rule," which is supposed to prevent banks from certain supposedly risky investments. The regulators found that the line between what is necessary to do business and what is supposed to be banned is so vague that the draft includes 383 questions the regulators hope will guide them in preparing the final regulation.

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At the same time, the new Financial Stability Oversight Council issued guidelines about which companies other than big banks should be considered to pose a risk to the financial system. A close reading shows that the council really has no clear idea which nonbanks fit that definition.

The old saying is "act in haste, repent in leisure." In the case of Dodd-Frank, it should be "act in haste, repeal most of it and start over."

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