Financial Reform Act Signed into Law

Pres. Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act into law on July 21, 2010.  The Act is the most sweeping overhaul of the financial system since the Great Depression.  At over 2,300 pages, many of the provisions won't be understood for years, as various commissioned studies and regulations are completed.  We can be sure that the "law of unintended consequences" will apply to something so vast and unrefined.  For example, the limits to be imposed upon debit card swipe fees charged by banks and other fee limitations could lead to the loss to consumers of no-fee checking accounts and the reduction of benefits associated with the use of credit cards, such as cash back and travel point programs.

The Act is proclaimed to be able to prevent future financial meltdowns for which the American taxpayer will be on the hook, and to protect consumers with the creation of a Bureau of Consumer Financial Protection to be housed in the Federal Reserve.  Nevertheless, regulation of the Fannie Mae and Freddie Mac mortgage companies, which represent the largest exposure for taxpayer bailouts, was left out of this bill, as was the regulation of financing departments of auto dealers which touch the lives of most consumers.

The Act instructs the SEC to conduct a 6-month study of whether to apply a fiduciary standard of care to registered broker-dealers when providing investment advice to consumers.  Presently the fiduciary standard applies to investment advisors but not to broker-dealers.  Broker-dealers only have to recommend investments that are considered "suitable" for their customers.  If the fiduciary standard is extended to brokers, then they will be required to recommend investments that are "in the best interest" of their customers.

The Act also permanently raises the FDIC deposit insurance limit to $250,000 retroactively to January 1, 2008.  Previously the insurance limit was scheduled to drop to $100,000 after 2013.