Dodd-Frank and The Future of Access to Business Loans

Regardless of what shape the economy is in, banks have been mistrusted by people for many years. In fact, 28 million people in the U.S. still stuff money underneath their mattress.

While banks do everything they can to get these people to open bank accounts, it’s not always feasible. Some live paycheck to paycheck and need immediate access to their money for everyday expenses. 

There are also people who bring in a significant amount of income and still choose a cash-only lifestyle, thanks to the financial crisis that occurred from 2007-2010. It was this crisis that prompted the creation of the Dodd-Frank Act.

Why the Dodd-Frank Act was Created

Congress believed the financial crisis was caused by insufficient regulation of the private financial sector. So the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law on July 21, 2010 by Barack Obama and heralded some of the most significant changes in financial regulation since the Great Depression. 

This act was intended to stabilize the economy, and prevent further collapse of major financial institutions like that of Lehmann Brothers -- a firm that survived the railroad bankruptcies of the 1800s, the Great Depression in the 1930s, and both world wars, only to fall into bankruptcy by getting involved in the subprime mortgage market just prior to the collapse of the U.S. housing market.

But there are people who say this act is not providing the stabilization it claims. Like the House Financial Services Committee Chairman Jeb Hensarling, who says the act has done anything but stabilize the economy or prevent financial collapse and may have even led us into financial collapse.

And the president of the NAFCU, Dan Berger, says that since this act has been in place, his industry lost over 1,250 federally insured credit unions, adversely affecting consumers.

How this Act Affects Consumers and Lenders

For consumers, the Dodd-Frank Act protects borrowers from abusive lending and mortgage practices often seen from banks.  And, for lenders, it places heavy restrictions for mitigating their potential risks, forcing them to cut back on administering loans.

Dodd-Frank also subjects banks to some heavy regulations that require them to be broken up if they ever become too big to fail. This means they would get regulated by the Federal Reserve, and may have to increase their required on-hand reserve and develop a plan to quickly shut themselves down if they run out of money.

There’s More to Dodd-Frank than Meets the Eye

At first glance, this act appears to be straightforward, serving as a protection for both consumers and lenders. However, while the Dodd-Frank act puts some heavy financial regulations in place that many top financial experts agree with, President Trump sees a harmful side-effect that others don’t see. And he wants to relax these financial regulations because the provisions of the act are too restrictive. Trump recognizes that these restrictions are preventing successful business people from being able to borrow money, which is only going to hurt the economy.

Laura MacCleery, vice president of consumer policy and mobilization for Consumer Reports, told the Los Angeles Times, “Dodd-Frank was put into place to raise standards for financial firms and ensure consumers are treated more fairly and honestly. If we roll back these critical standards, we will once again be putting consumers and the economy at an intolerable risk.”

But there are people who see it a different way. They see the economy at risk because of Dodd-Frank.

According to, Trump wants to dismantle the Dodd-Frank Act and replace it with new policies to create growth in the economy. But he’s having a difficult time getting others to recognize the economical damage that will occur when businesses can’t get loans.

Dodd-Frank puts Loans out of Reach

While some people may not agree with completely obliterating Dodd-Frank, many support a hefty revision. Subprime lending has become extremely expensive for consumers (Americans paid $141B in fees and interest last year according to this report), and analysts claim this is due to a funding gap inadvertently created by Dodd-Frank. 

Apparently, the compliance regulations imposed on banks by this act have made it more expensive for them to operate -- and they’re passing that cost onto the consumer. Because of associated costs, some lenders are unwilling to process loans under $100k, making it difficult for small businesses. And if small businesses can’t get loans, they can’t create jobs. If the economy is going to grow, we need more jobs.

An Improved Economy means Restored Trust in Financial Institutions

It’s a sign of intense times when people are willing to risk their life savings being obliterated by fire, flood, or sticky fingered friends. And that’s exactly what Trump is trying to change. 

But it’s a gradual process. So if you’re waiting for the economy to boom before you put your trust in a financial institution, you better start sizing up to get a bigger mattress so your friends don’t see that green paper sticking out. While Trump is doing everything he can to turn the economy around, it’s not going to happen overnight.

President Trump has the unique opportunity to make the changes necessary to create an economic boom, and if he can make it happen, he just might cause some of the mattress-money-stuffers to start trusting financial institutions again.