The Dodd-Frank Wall Street Reforms and Consumer Protection Act is the United States federal law that was enacted in July 2010 as a result of the financial crisis of 2008 and the government bailout administered by the federal reserves. The law places regulations of the financial industry on the hands of the government. According to Dancer (2019), the act initiated a range of reforms affecting almost every financial system aspect and established protection for consumers. Moreover, the act spearjeaded the development of financial regulatory systems to limit risk by enforcing transparency and accountability. The reforms were the Federal Reserve, banking, financial, and the consumer protection reform. It is irrefutable that the act has protected the consumer because of the notable progress in the consumer finance protection bureau, which is the body that is mandated to ensure consumer protection in the United States. It has protected consumers through the following.
Provision of financial education to consumers and assurance that people are able to get the information they need to make sound financial decisions. The markets’ transparency, efficiency, and fairness depends on the ability of the consumer to compare the costs, benefits, and risk of different products effectively. According to Howells and Weatheril (2017), consumers must be able to access relevant information to be able to compare financial products in the market. Even when consumers have a lot of information they may experince difficulty in interpreting and understanding the information. Therefore, the manner in which this information is presented has much influence on the type of decision the consumer is making. Typically, difficult terms may impair the consumer’s ability to compare products; hence, making the process of decision making a complicated endeavor (Weldon, 2018).As a result, the bureau has provided the guidelines on how to present information to prospective customers in a clear manner. Ultimately, the intervention protectes the consumer from making the wrong decision on the financial product he or she needs.
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Also, the consumer finance protection bureau protects consumers by enforcing consumer protection laws. It is responsible for rulemaking, supervision, and enforcement of the aforementioned legislations and restriction of unfair practices against consumers. The provider of financial services are not allowed to build any business model around a set of practices that target consumers unfairly. The act also through law enforcement has been able to protect consumers from being granted loans larger than they can manage. This is very important because the risk for consumers is high when it comes to consumption of loans because they are designed in a manner that that can cause a conflict of interest (Boush, Friestad & Wright, 2015). The irresponsible lending can result in staid negative consequences for consumers in case of nonpayment or indebtedness. Thus, for example, the bureau has deterred mortgage brokers from earning a higher commission for closing loans with higher interest rates. Principally, the act has enabled consumers to receive strong protection regardless of the institution they are dealing with, be it a bank or non-bank financial institution.
Furthermore, the consumers have been protected by the research conducted by the consumer financial protection bureau. It takes consumer complaints, research on the consumer behavior, and financial market to determine newand emergent risks for the consumers. According to Pasiouras, Gaganis, Galariotis & Staikouras (2018), by monitoring financial institution, analyzing people response, and interaction, the bureau will be able to get more information about the exposures and vulnerabilities that consumers face in the financial market and provide a comprehensive view of the health of the entire system. Before the enactment of the Wall Street act, there was no single agency or tools to establish the standards for overseeing the whole market, and consumer financial protection was not a priority. The absence of such legislations, standards, and best practices was the reason for the 2008 financial crisis and the calamitous aftermath that followed the event.
Finally, the bureau has introduced the “Know Before You Owe” campaigns. These campaigns are focused on the redesigning the materials people use to make the decision on mortgages, students loans, and credit cards. The intervention endevors to ensure that consumers have adequate information to facilitate appropriate decision making. For example in the mortgages, the bureau launched the new approach of dissipating information, which was easier to use and understand. In the student's loan aspect, the organization launched the sample financial aid shopping sheet to show how schools might improve the information they present to the prospective students and parents to enhance better understanding of the available financial aid options and repayment costs. The approach enable students to understand the costs, risks, and benefits of the loans they take for their education (Andruska, Horgart, and Fletcher, 2014). In the credits segment of financial services, the bureau developed a prototype shorter, simpler credit card agreement that clearly states the terms for the consumer. The strategy was tailored to enhance the understanding of the American users of credit cards about agreements.
In conclusion, it is clear that the Dodd-frank Wall Street reform and the consumer protection act has feasibly protected the consumers. Since its enactment, the consumer finance protection bureaus activities have been directed towards ensuring consumers safety in the financial market. The bureau conducted education to enhance understanding of information by the consumers, carried out research and enforced consumer protection law, and developed The Know Before You Owe campaign geared towards consumer protection.
References
Dancer, W. T. (2019). The Demise of Dodd-Frank. Journal of Accounting and Finance , 19 (2)
Howells, G., & Weatherill, S. (2017). Consumer protection law . Routledge.
Boush, D. M., Friestad, M., & Wright, P. (2015). Deception in the marketplace: The psychology of deceptive persuasion and consumer self-protection . Routledge.
Pasiouras, F., Gaganis, C., Galariotis, E. C., & Staikouras, C. (2018). Bank Profit Efficiency and Financial Consumer Protection Policies. Available at SSRN 3116258 .
Weldon, M. N. (2018). Corporate Governance, Compliance, Social Responsibility, and Enterprise Risk Management in the Trump/Pence Era. Transactions: The Tennessee Journal of Business Law , 19 (1), 14.
Andruska, E. A., Hogarth, J. M., Fletcher, C. N., Forbes, G. R., & Wohlgemuth, D. R. (2014). Do you know what you owe? Students' understanding of their student loans. Journal of Student Financial Aid , 44 (2), 3.
