The Dodd-Frank financial reform law was enacted in 2010 to, supposedly, keep the mistakes of large financial institutions from producing a recession. Five-plus years later, “too big to fail” institutions are doing fine, but smaller banks and consumers are not.

That’s not a new observation, but it was again reinforced by new research released by the American Action Forum, a center-right policy institute. AAF concluded that Dodd-Frank has led to a 14.5 percent drop in consumer revolving credit (such as credit cards) since 2010.

“Dodd-Frank’s $30 billion in final regulatory costs and 72 million hours of paperwork must be borne by someone and will likely have effects throughout the economy,” the AAF report states. “Based on the latest research, it appears consumer credit access is taking a substantial hit.”

That negative impact occurred even after researchers accounted for other factors that can impact revolving consumer credit, such as home prices and consumer sentiment.

That the Dodd-Frank law has such significant,

negative impact was “not particularly surprising; Dodd-Frank has been met with numerous criticisms for its burdens on American banks.”

AAF researchers noted Federal Deposit Insurance Corporation data showing that since Dodd-Frank became law, there has been a 20.5 percent drop in banks with less than $1 billion in assets. That’s a sizable increase from the 13.1 percent drop that occurred in the same time period leading up to Dodd-Frank.

In other words, market changes might have caused the loss of some small banks anyway, but Dodd-Frank’s passage appears to have dramatically accelerated the process in some cases and instigated it in others.

“Dodd-Frank’s regulatory burden must be borne by someone: financial institutions and their employees, shareholders, or consumers in the form of higher prices or less access to credit,” the AAF report states. “It appears the law has affected all three entities.”

In addition to reducing the number of small banks serving customers — despite the fact that those banks played virtually no role in the financial meltdown of 2008 — AAF has found Dodd-Frank rules increase the costs of mortgages by roughly $350.

In public, those who initially touted the Dodd-Frank law proclaimed it would generate nothing but good. But AAF says the actual text of the Consumer Financial Protection Bureau rules that implement Dodd-Frank tells another story.

Among other things, those rules warn that “creditors might consider adjusting the terms and conditions of loans to pass some or all of the price increase through to consumers.”

“The final rule could increase the cost of credit or curtail access to credit for a small share of … consumers and purchase-money consumers.” The final rule “could impose costs on a small number of consumers by raising the cost of credit or curtailing access to credit if creditors choose not to make loans that meet the revised thresholds.” And “this additional expense could increase the cost of credit or restrict access to credit for self-

employed consumers.”

That’s bureaucratese for “consumers are going to take it on the chin.”

Due to Dodd-Frank, citizens have fewer financial institutions to choose from, less overall access to credit, and higher costs when they do access credit.

Dodd-Frank’s real-world impacts have consistently been the opposite of what its backers predicted. The case for repealing this bad law grows stronger by the day, while justifications for preserving it become ever more laughable.


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